MSP hike 'historic' or normal as in last ten years

By Satish Misra. Dated: 7/11/2018 12:58:22 AM

Last week keeping an eye on the coming general elections, the BJP-led government of Prime Minister Narendra Modi hiked minimum support price (MSP) for Kharif crops and claimed the increase to be unprecedented. In a tweet, Prime Minister Narendra Modi termed the increase "historic" and claimed that his poll promise had been fulfilled.
Announcement has come at a time when sowing has already begun leaving hardly any choice to farmers to decide what to show to take the advantage of the declared MSP. Moreover, the Modi government seems to have taken the step unwillingly as it had opposed the higher MSP in the Supreme Court with an argument that such a step would "distort markets and "be counter-productive in some cases". In fact, the Modi government in its initial year in power had even written to chief ministers not to give bonus over the cost price.
Step is the result of the farmer distress and protests in many states and assembly election results in Gujarat. Maximum increase in MSP is for paddy while support price for all other Kharif crops too have been substantially stepped up. The new MSP is going to ensure that farmers get at least 150 percent of the cost of production for each crop estimated by the Commission for Agricultural Prices and Production (CACP).
The MSP for common grade paddy has been increased from Rs 1550 per quintal to Rs 1750 per quintal that works out to an increase of nearly 13 percent. The increase in the MSPs of 14 crops range from Rs 180 a quintal for Grade A paddy to Rs 1400 per quintal for Moong.
To announce the hike, no effort was spared to take the message to farmers so that electoral gains are ensured. Union Home Minister Rajnath Singh, who was flanked by three senior ministers at the media briefing- Minister for Agriculture and Famer Welfare Radha Mohan Singh, Minister for Food Processing Harsimrat Kaur Badal and Minister for Law & Justice and Electronics & Information Technology Ravi Shankar Prasad, said: No government has given such a substantive hike in the MSP in independent India's history".
The move was a follow up from the Union budget that had promised to keep MSP for the all unannounced crops of Kharif at least at one and half times of their production cost.Union Finance Minister Arun Jaitley, presenting the budget, had said that the move was a "historic" step towards the doubling of the income of farmers.
Notwithstanding the official claims of the hike being "historic", facts fly in face of the Modi government and his ministers. In four years (2014-18), the MSP of paddy has been increased 41 percent. In four years (2009-13) of the UPA II government, the MSP of paddy rose 69 percent. The Modi government has done nothing extraordinary what previous governments have not done in the past. In 2008-09-alos an election year-the UPA government had announced a 20.8 percent year-on-year hike in the MSP of paddy.
A closer look and a detailed analysis reveals that both the Finance Minister as well as the Prime Minister have misled country's farmers as the present hike has lot of fury that signifies nothing as this they have been getting for years now. The MSP for eligible crops is calculated by the CACP. The CACP has three different definitions of production costs-A2 (actual paid out costs), A2+FL (actual paid out cost plug imputed value of family labour) and C2 (comprehensive cost included imputed rent and interest on owned land and capital. The C2 is higher to both A2+FL and A2.
In 2014, the MSP for most crops exceeded A2+FL by more than 50 percent. But despite that, farmers were in financial trouble. M S Swaminathan Commission report had stated that farmer should get an MSP that is 50 percent higher than the comprehensive cost of production.
So what Modi promised to farmers during his campaigning and what was inscribed in BJP's manifesto was C2 and not A2+FL.What is being offered now is more or less the same what exited before the Modi government assumed power. Agricultural Economist Ashok Gulati said a lot of confusion is existing on the issue. The MSP has been 50 percent higher than A2+FL for the last 10 years and there is nothing new in in, Gulati observed,
On the other hand, the MSP hike is going to cost minimum of Rs 15000 crore to the national exchequer and is likely to push the inflation up making lives of citizens dearer. Experts are of the view that figure of Rs 15,000 crore refers only to the increased burden from paddy procurement and the resultant hike in the food subsidy bill. While paddy is the major Kharif crop and is directly procured from famers by the Food Corporation of India, there is no guaranteed mechanism for procurement of most of other crops.
Herein lies the problem. Calculations may go wrong. Except paddy, prices of cash crops such as pulses and cotton are more influenced by their demand-supply situation and by international prices. In real terms, the move is going to be useful for paddy farmers in states that have strong procurement machinery like in Punjab, Haryana and in few other states but farmers from Bihar, Assam, UP or northeast are not going to benefit much from it.
Farmers are sharply divided over the government announcement, Ordinary farmers are happy over the government's announcement but discerning lot among them is suspicious of the government. Majority of the informed agricultural experts are of the view that MSP hike is a betrayal and manipulation of figures and statistics.
The government and the party made the move to win over the farmers and address rising anger among them. In final count, this is going to backfire because of the actual implementation of the announced policy on ground. Only few well- connected farmers are going to benefit and the majority will continue to suffer. BJP election experts and strategists decided to hike the MSP knowing well that it is bad economics. They were confident of turning it into good politics to win the general elections.
It would have been far better if the government had taken long-term measures to improve the lot of the agriculture in the country ushering in structural reforms but the Modi government has again gambled hoping to reap rich political dividends.
Dr. Satish Misra is a Veteran Journalist & Research Associate with Observer Research Foundation.



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