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  1. Budget 2018: Arun Jaitley must clear the air on the costs considered for calculating the MSP

Budget 2018: Arun Jaitley must clear the air on the costs considered for calculating the MSP

Budget 2018: Finance minister Arun Jaitley tried to redress the farmers’ woes by announcing that the minimum support price (MSP) will be now 50% above the cost of production. And, he also said that for Rabi crops, they have already done it, and it will be followed for Kharif crops.

By: | Published: February 2, 2018 6:53 AM
budget, budget 2018 india, budget 2018 date, budget india, budget 2017 18, budget line, budget highlights 2018, budget meaning Budget 2018: It is well known that farmers have been struggling since the Modi government came to power. First two years there were droughts, and next two years, despite bumper harvests, farmers suffered due to tumbling prices. (Image: IE)

Budget 2018: It is well known that farmers have been struggling since the Modi government came to power. First two years there were droughts, and next two years, despite bumper harvests, farmers suffered due to tumbling prices. So, finance minister Arun Jaitley tried to redress the farmers’ woes by announcing that the minimum support price (MSP) will be now 50% above the cost of production. And, he also said that for Rabi crops, they have already done it, and it will be followed for Kharif crops. This is being hailed as the biggest decision, with the National Democratic Alliance government fulfilling its election promise.  What the finance minister did not mention was the cost he will be considering. The real challenge was giving 50% margin over cost C2, the comprehensive cost that includes the paid out costs plus imputed values of family labour, imputed rental on owned land, and imputed interest on owned capital.

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Although farmers always claim that the cost estimation is not representative of their real costs, yet that was the presumed promise in the election manifesto of 2014. It was coming out of the recommendations of the Swaminathan Committee. If one goes by this, the minimum support price for paddy should have been 44% higher for 2017-18 crop than was announced; maize minimum support price should have been 47% higher, and long staple cotton minimum support price 52% higher than actually fixed by the government, and so on for most of the Kharif crops.  Thus, the question is: can the government raise the minimum support price by such magnitudes? I don’t think so, as it would cause much higher food inflation, blow up the food subsidy bill, and create all sorts of distortions.  In a way, it is good that the government had stayed away from such potential distortions. But if the government is saying that it has already done it for Rabi crops, what it is referring to, very quietly, is perhaps A2+FL cost (paid out costs plus imputed family labour costs).

Know how Arun Jaitley’s Budget 2018 will impact your tax liability with this Income Tax Calculator

If so, why boast about it as a game changer because the minimum support price has always been much higher than cost A2+FL for almost all Rabi crops during the last 10-15 years. Thus, there is nothing new this government is doing except creating an illusionary scenario. And, therefore, expecting that farmers’ woes will disappear with this pricing formula is keeping itself in denial mode, which is not in the interest of the country or even the Bhartiya Janata Party (BJP), as farmers are distressed and feeling disappointed. Many other measures, be it supporting agri-marketing infrastructure, fund for fisheries and animal husbandry, Operation Green for tomatoes, onions and potatoes, tax concessions to farmer produce organisations (FPOs), cluster approach for horticulture crops, organic farming and funds for medicinal crops, all are steps in the right direction, but it will take time before they deliver.

There is no immediate remedy for farmers’ woes, and it seems they will remain under stress for at least another year. Unfortunately, that only reflects the typical urban bias in India’s policymaking. And, therefore, expecting poverty and malnutrition to go away in the near future is dreaming too much. At least this Budget cannot make a substantial dent on it.

 

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