india

Updated: Oct 24, 2019 01:09 IST

The Union government on Wednesday raised federally fixed minimum support prices (MSPs) for crops to be grown in the oncoming winter, or rabi, season. It followed the principle of setting MSPs 50% higher than cultivation costs, with higher increases in pulses and oilseeds.

MSPs are intended to act as a floor price for farm commodities and serve as a benchmark rate in wholesale markets, thereby helping to avoid distress sales. However, these declared MSPs are effective only in a handful of crops the government actually buys in large quantities, such as wheat.

According to decisions announced by the Cabinet, the highest MSP increases were for lentils (masoor) and gram, two largely consumed pulses the country often imports to meet domestic demand.

To boost the production of pulses, the MSP for lentils has been raised by 7.2% over last year’s MSP. In rupee terms, the rate for lentils was increased by Rs 325 to Rs 4,800 per quintal (100 kg) for 2020-21, from Rs 4475 per quintal last year.

The MSP for gram was hiked by Rs 255, up 4.1% from Rs 4,620 per quintal last year to Rs 4875 per quintal in 2020-21.

The MSP of wheat, the main winter staple that the country produces in abundance, the MSP was raised by a modest Rs 85 to Rs 1,925 a quintal in 2020-21 over Rs 1840 a quintal last year. That’s a hike of about 4.6%.

The government also raised the MSP for safflower, an oilseed, by 5.4%, from Rs 4,945 last year to Rs 5,215 a quintal this year. The rate for barley was increased by Rs 85 to Rs 1,525 per quintal for the current season from Rs 1,440 per quintal last year.

MSP, set for 24 crops, is one of the principal ways in which the government supports farmers, apart from providing subsidised insurance, power and fertiliser. The government mainly buys wheat and rice at the declared MSP, which is then redistributed to the poor at a fraction of the buying price.

The Modi government, in the Union budget for 2018-19, had announced that MSPs would be set at 1.5 times the cost of cultivation to ensure farmers got 50% returns. However, this had set off a debate on the measure of cultivation costs that should be adopted while calculating MSPs. The MS Swaminathan-led National Commission on Farmers in 2004 had first suggested that MSPs should offer at least 50% more returns than the weighted average cost of production.

The government uses an existing yardstick called “A2+FL” to calculate cultivation costs, which is a narrower measure. It includes all out-of-pocket cultivation expenses of farmers plus the value of family labour used. Farmers’ bodies have been demanding that the government use the “C2 formula”, which is a broader measure that includes the actual paid-out costs (on seeds, fertilisers, irrigation, etc) plus the notional value of family labour, rent as well as interest on owned land and capital.

In a 2018 interview to HT, Swaminathan had said that his recommendation was that the government ought to use the “C2 formula”.

Farm incomes are said to be critically dependent, at least in the case of rice and wheat, on the MSP-backed procurement programme. Yet, MSPs benefit very few farmers. Only 32.2% of paddy growers and 39.2% of wheat farmers were aware about MSP, according to the 70th round of National Sample Survey for 2012–13. Crucially, only 13.5% rice farmers and 16.2% wheat farmers were able to sell their produce at MSPs.

According to economist PK Joshi, MSPs are often ineffective because the cost of cultivation, to which MSPs are linked, varies widely across states. But MSPs are based on a weighted all-India average. This doesn’t guarantee equal profits to all.

“MSPs are also often ineffective because the cost of cultivation, to which MSPs are linked, varies widely across states. But MSPs are based on a weighted all-India average,” Joshi said.

Differing cultivation costs mean farmers aren’t guaranteed uniform profits across regions in an MSP regime that takes a standard average cost.

“No wholesale market gave MSP rates for kharif commodities other than rice. In rabi too, only wheat producers get MSP rates,” said Jaipal Singh Nain, a leader of the Bharatiya Kisan Union from Haryana.