More robust MSP system in the works, options may be presented to agitating farmers today

January 04, 2021 7:15 AM

As per an FE analysis, the total value of marketable surplus of 20 main crops at MSP was Rs 7.52 lakh crore during 2019-20 crop year (July-June).

A legal MSP, if implemented, could jack up the government’s subsidy budget to astronomical levels.A legal MSP, if implemented, could jack up the government’s subsidy budget to astronomical levels.

By Prabhudatta Mishra

The agriculture ministry is considering various options to strengthen the minimum support price (MSP) mechanism, and these may be presented to the agitating farmers in the next round of talks with them on January 4, official sources said.

Legally guaranteed MSP is one of the two key demands of the over 40 farmer unions who have been protesting at the national capital borders for over five weeks, along with repeal of the three new laws governing agriculture production and marketing.

“We are aware of many farmers not getting the benefit of MSP even when mandi prices are lower than the benchmark rates. Several efforts were made in the past few years including increasing the procurement levels to address this issue.

“We are working out a plan with a view to ensuring that the maximum number of farmers get MSP for their crops,” said a government source involved in the drafting of the proposals.

He added that budgetary implications of the options were being weighed.

Of several options under consideration, one could be the extension of the Price Deficiency Payment Scheme (PDPS) for oilseeds under the PM-Aasha scheme to all the 20 kharif and rabi crops for which MSP are announced, said the source. A legally guaranteed MSP might distort the entire agriculture market ecosystem, he said and added that traders, processors and exporters who are the actual buyers of crops, might not agree to pay MSP if there is no demand. “In such situation, the burden of purchasing the crops will be on the government and there could be a situation where there are no takers of the produce when sold by the government,” the source said.

“The government can commit to creating a fund of Rs 25,000 crore under the Price Stabilisation Scheme, which can be used to support market prices of specified commodities that take a dip of more than 10% below MSP. This is akin to Nafed’s operations to support market prices of pulses and oilseeds, or the Cotton Corporation of India (CCI) for cotton prices, and can be extended to maize, sorghum, pearl millet, etc,” noted economist Ashok Gulati wrote in FE recently.

Farmers’ unions have asked the government to discuss procedure of providing legal guarantee to MSP at C2 costs (including imputed rent of own land and imputed interest on own capital) as recommended by the Swaminathan Commission. The Centre in 2018 decided to fix MSPs at 150% of costs (A2+FL), deviating from earlier practice of considering demand, supply and international prices along with cost of production.

A legal MSP, if implemented, could jack up the government’s subsidy budget to astronomical levels. As per an FE analysis, the total value of marketable surplus of 20 main crops at MSP was Rs 7.52 lakh crore during 2019-20 crop year (July-June). The actual procurement costs at MSP of paddy, wheat, five pulses and two oilseeds was Rs 2.19 lakh crore during 2019-20; of course, the economic cost of procurement also includes storage cost, market fees, commissions to arhatiyas and other incidentals.

It has been seen in last two years that average mandi prices of most of the coarse cereals, oilseeds and pulses are 20-30% lower than MSPs during first three months of harvesting season when maximum volume of the crops are sold. Barring a few states, the rates of wheat and paddy (non-basmati) are either marginally lower or almost at par with their respective MSP due to government’s procurement — as high as 40% of the production during 2019-20.

An FE analysis of 10 major crops (out of 14 kharif crops for which MSPs are announced) revealed that the all-India average mandi prices of eight of them were up to 35% lower than their benchmark rates during the first three months of the harvesting season through December 31. Only in the case of two crops, the market prices were marginally above MSPs.

The gap between MSP and mandi price is even higher in many of the major producer states. For instance, the all-India average maize price was about 28% lower than its MSP whereas the crop was sold at Madhya Pradesh mandis at 35% below MSP during October-December on an average.

PM-Aasha, the reinforced price support scheme for pulses and oilseeds launched in 2018 hasn’t made much headway. The overall procurement was around 10% of the country’s production in 2019-20 crop year (July-June) while the policy allows procurement of up to 25% of output. Madhya Pradesh, which launched its own price deficiency payment scheme (Bhavantar) with Central assistance, could not sustain it due to budget constraints.

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