In a bid to address the farm sector distress, the government, on Wednesday, increased minimum support prices (MSP) by 1.5 times the A2+FL cost of production, which includes actual paid out input costs and imputed value of unpaid family labour.
In a bid to address the farm sector distress, the government, on Wednesday, increased minimum support prices (MSP) by 1.5 times the A2+FL cost of production, which includes actual paid out input costs and imputed value of unpaid family labour. This was in keeping with one of the promises it had made to the agri-sector. In fact, for crops like bajra, tur and urad, the rise was above 1.5 times.
The weighted average kharif MSP increase is 14.5% for 2018-19, the steepest ever hike in the Modi-government. However, years like 2007-08, 2008-09 and 2012-13 saw even sharper hikes, being pre-election years.
The sharp spike in MSP will push up food inflation, and the actual impact will depend on how much of the crop produce is eventually procured at the higher MSPs. RBI is likely to increase its 2HFY19 inflation forecast from 4.7% to over 5%.
Higher MSP only benefits medium and large farmers with marketable surplus. Subsistence farming, lack of access to market, higher transportation cost and non-availability of procurement centres near the village lead to less procurement from marginal and small farmers.
In fact, according to agriculture census 2010-11, 67.1% agricultural land holding belongs to small farmers (operational holding size below 1 hectare) and another 17.9% to small farmers (1-2 hectare). These farmers generally do not have much marketable surplus and higher MSP does not benefit them in any manner. The government should instead work towards bringing more investment in agriculture sector, which has remained stagnant over the years.