The much-awaited announcement on minimum support prices (MSPs) for kharif crops has increased the MSP for paddy by ₹200 from ₹1,550 to ₹1,750, a 13% increase. The MSP increase for other crops varies between 3.7% for moong to 45% for nigerseed. But it is paddy where it will matter the most. For most other crops, MSP announcements have little value unless the government also proactively enters the market and procures the produce. This has not been the case so far, with procurement limited to paddy and wheat. Procurement of pulses increased after the collapse of pulse prices in the domestic market last year and the ensuing farmers’ protest in several states. But it has proven insufficient to stop the collapse of pulse prices. The result has been the sharpest decline in pulse acreage despite record procurement.
The decision to hike the MSP for kharif crops is welcome relief for the farming community reeling under severe distress due to the collapse of agricultural commodity prices and a general collapse of demand in the economy, much more in the rural economy. This is now confirmed from several sources, including a decline in real wages in agriculture (a sustained decline for the last four years), the decline in commodity prices and a general sense of joblessness among the youth. Some of this is also captured in the GDP deflator, which shows a sharp fall from more than 5% in 2016-17 to only around 1% for 2017-18.
The demand of farmers, based on the Swaminathan committee recommendations, was MSP at 1.5 times of the C2 cost (total cost including imputed cost). But what has been announced is 1.5 times the A2+FL cost (paid out cost plus family labour cost). The MSP announced barely covers 1.5 times the A2+FL cost and will give a return of only 12% over C2 as against the demand of 50% over C2 cost. But the announced MSP is also significantly lower than the average wholesale price of paddy at ₹1,950 per quintal in April 2018, which is lower than ₹1,980 per quintal in April of last year.
Despite these concerns, the announcement of MSP increase is not just timely but also a much-needed respite at the time of rural distress. If properly followed through by adequate procurement, it can certainly raise agricultural commodity prices and also inject much-needed demand if this also materializes in higher income for a large majority of farmers. But it would also require the government to loosen its purse strings beyond what was promised in the budget this year.
While the government may have been disingenuous in interpreting the demand and its promise, the real question is whether it will pull the rural areas and agriculture out of the deep distress that they have fallen in for the last four years. More importantly, will it raise the general level of demand in the rural economy which eventually raise wages of casual workers?
Since the announced MSPs are still 20-25% lower than prevailing wholesale prices for many crops, their impact on farmers’ income is uncertain. With rise in input costs such as diesel and electricity, it may not contribute to any real increase in returns in the short run. While it will take time for these to translate into real gains for farmers and rural workers, these will definitely contribute to some upward pressure on inflation and wages even though their extent is not clear. But it is unlikely to be the remedy of all the ills that plague the rural sector or the agricultural sector. It certainly does not substitute for the decline in real investment at more than 3% per annum in agriculture during this government’s tenure. Nor does it compensate for the decline in credit availability for farmers beset with rising farm loans. It does not compensate for the cartelization and corruption in the local markets which contribute to price fluctuations. It also does not compensate for the export-import policy ad hocism which has contributed to price uncertainty.
The problems of the agrarian sector are not just a result of weather fluctuations and international price movements—a large part of it has been government’s own failure to acknowledge the distress and its flawed approach to resolving some of these. The solution most often has been to deal with the symptoms and that too when pressed against the wall.
The flurry of loan waivers is one such example. So is the case of MSP. Neither of them will resolve the long-standing issues of neglect and apathy towards the agricultural sector by successive governments. And it is likely that both MSP and loan waivers, other than bringing temporary relief to the farming community, will continue to be relevant instruments every year before the election.
