The NDA government’s proposed plan to give minimum support price (MSP) at 1.5 times of cost of production in kharif 2018 may lead to a relatively healthy increase in support prices of some crops such as paddy, cotton, jowar and maize.

But in pulses such as tur and urad, the formula is unlikely to have any impact for farmers, as their support prices are already higher than 1.5 times, said a report from ratings agency ICRA.

In recent years, the hike in MSP has remained modest. While the growth in MSP remained healthy between 2012 and 2014, with double digit increases in many cases, the increase in MSP remained modest between 2015 and 2017, with the Central government targeting to keep the food inflation under check, said ICRA Vice-President for corporate ratings Anupama Arora, who authored the report along with others.

The MSP mechanism

Explaining the mechanism to guide MSP revision for each crop season, the ICRA report outlined two different estimates of cost of production for crops are prepared by the Commission for Agricultural Costs and Prices for recommendations: a) actual paid out cost and imputed value of family labour, which could be referred as gross margin and b) comprehensive cost including imputed rent and interest on owned land and capital, which can be referred to as net margin. The indications are that the government is considering the gross margin estimate, it said.

Procurement pattern

As of now, procurement at MSP is largely limited to paddy (kharif season) and wheat (rabi season), with procurement operations for other crops remaining limited. The procurement of both paddy and wheat at MSP has remained range-bound at 30-35 per cent of the production levels in the past six years.

There too, exists large difference in procurement pattern across States, with procurement operations in certain states remaining weak.

In the case of paddy, Punjab had the highest share of around 25.7 per cent of pan-India procurement in FY2017, whereas in West Bengal and Tamil Nadu, which constitute around 12 per cent and 7 per cent of the total marketable surplus, it is rather limited.

As far as wheat is concerned, approximately 88 per cent wheat was procured from three States — Punjab, Haryana and Madhya Pradesh — in 2016-17.

In the case of cotton, a higher MSP will help as a base for market prices.

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