Blunt tool? Bolstered MSP policy has little bearing on crop output

Published: June 3, 2020 2:00 AM

The policy of procuring most of the important crops at MSPs or providing price support to farmers by cash transfers, employed by the Centre and some states, are potentially very expensive.

The costs are remaining within certain limits because in actual practice, only paddy and wheat farmers get MSP benefits in a meaningful manner.The costs are remaining within certain limits because in actual practice, only paddy and wheat farmers get MSP benefits in a meaningful manner.

By Prabhudatta Mishra

The correlation between the government-set minimum support prices (MSPs) and the production of crops has continued to be tenuous if not absent, even after the NDA government adopted the policy of fixing MSPs at 150% of the full paid-up costs (A2+FL) in the run-up to the 2018 general elections. As the table shows, there is barely any discernible link between the two, and in many cases, even big drops in crop output followed steep MSP hikes.

Moreover, the buttressed MSP policy may potentially hit the country’s crop diversification programme. The policy of procuring most of the important crops at MSPs or providing price support to farmers by cash transfers, employed by the Centre and some states, are potentially very expensive. The costs are remaining within certain limits because in actual practice, only paddy and wheat farmers get MSP benefits in a meaningful manner.

If sharper increases in MSPs continue for longer periods and the procurement/price support measures are duly implemented, then these might start impacting farmers’ cultivation preferences over time, analysts said.

The government on Monday fixed the MSPs of 10 kharif 2020 crops at 50% over their costs of production while the support prices for another four crops were set at 53-83% over the costs.

An analysis by FE of 20 kharif and rabi crops for which MSPs are announced before the start of sowing season has revealed that, ragi production, for instance, dropped 38% in 2018-19 crop year (July-June) even though its MSP had seen the highest increase of 52% (y-o-y) among 14 kharif crops. Similarly, jowar production in 2018-19 dropped by 31% despite 43% hike effected for its MSP that year. However, the production jumped by nearly 70% in the following year even though there was only 5% increase in its MSP. Also, cotton output slumped by over 14% despite 28% rise in MSP two years back as a severe drought in largest producing state Gujarat ravaged the crop. Across the country, monsoon was below normal at 91% of the long period average in 2018.

Production of kharif crops mainly depends on distribution of rainfall and market prices, experts said. Though the concept of MSP has been designed to send a signal to the market about the impending prices of agriculture commodities, without a robust mechanism – either by physical procurement or through payment of differential prices against MSPs to farmers – it is a ‘futile exercise’, opposition Congress said Tuesday. In every kharif season, most of the oilseeds and pulses are sold 20-30% below their MSPs while the gaps are even higher in case of coarse cereals, particularly during harvesting season (October-December).

The food ministry has sought intervention of the high level committee, headed by the Cabinet secretary, to tweak the policy on procurement of coarse cereals, food minister Ram Vilas Paswan said last week as maize farmers in Bihar are selling their rabi-grown crop at 30-35% below its MSP. The Food Corporation of India (FCI) is the nodal agency to procure coarse cereals with a rider that the purchases should be to the extent it is consumed in that state through the public distribution system (PDS) where it intends to buy. States like Madhya Pradesh and Maharashtra had bought maize from their own funds in last two years, still could not ensure MSPs to all.

“It is true that the Centre has been promoting crop diversification to maize from water guzzling paddy in Punjab and Haryana for which states have also announced incentives. But only an assured procurement at MSP will make the programme a success,” a government official of Punjab said.

Mandi prices of three out of five major rabi crops (MSPs were increased 5-7% for 2019-20) were 5-15% below their respective MSPs during April-May, even as farmers needed maximum support during the lockdown. The average wheat price was 1% below MSP despite the fact that the government has bought over 33% of output this year for the Central Pool. Only masur price was about 5% above MSP. The gap was above 15% in case of chana, in which the government has so far purchased less than 7% of its production under the PM-Aasha scheme which was rolled out in 2018 to help farmers get MSPs when mandi rates fall below the benchmark rates.

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