Commodities

If MSP is to work...

G Chandrashekhar | Updated on July 04, 2019 Published on July 04, 2019

...it needs to be supported by a robust procurement system, and an apt foreign trade/tariff policy

The announcement of a minimum support price (MSP) for Kharif 2019-20 crops as late as July 3 should be a matter of grave concern. Although the monsoon break over Kerala was delayed by several days, by the third week of June, large parts of the country had received rains enough to encourage crop planting.

Yet the government failed to announce MSPs well in time. General elections are no excuse. After all, the new government assumed office by the end of May. It was not impossible to announce the MSP by mid-June to enable farmers to take a call on what to grow. This was especially important given the uncertainties associated with the onset and progress of the south-west monsoon.

The unconscionable delay raises uncomfortable questions over the seriousness of the government in addressing the ongoing farm distress. This kind of lackadaisical approach will do nothing to redress the situation. Someone within the policymaking circles must assume responsibility and tender an explanation.

According to the government, as of June 28, the area sown was 146.6 lakh hectares, which is roughly 15 percent of the normal Kharif planted area. Farmers who planted early did so without the benefit of the government’s MSP announcement.

The purpose of MSP is to send out a price signal to the growers to help them make crop choices and the purpose stands unfulfilled. That in practice MSP does little to stimulate cropping pattern is another matter altogether.

Unfortunately, announcement of MSP for crops has become a mere ritual for successive governments. As a standalone policy, MSP is outliving its utility. Of course, political compulsion to continue with the annual ritual must be appreciated. But beyond announcing MSP, it is critical that we have specific strategies in place to defend the MSP.

In a sense MSP is a sovereign guarantee given to the growers and they have every right to expect to receive the minimum guaranteed price. However, in practice, it works only for fine cereals rice and wheat. In the case of other crops such as pulses, oilseeds and cotton, more often than not, the sovereign guarantee is on paper. There is a strong case for strengthening the procurement system.

It is also necessary that MSP takes into account and reflects market realities. Merely fixing a high MSP is no guarantee that growers are either going to produce more or are sure to receive the guaranteed high price.

Pulses are a classic example. Notwithstanding a sharp hike in MSP for various pulses, production in 2018-19 declined by as much as 22 lakh tonnes, rather than rise. In the ongoing Kharif season too, the production target of 105 lakh tonnes is unlikely to be achieved given the initial sowing trends.

Ironically, growers have been ready to sell pigeon pea (tur/arhar) at rates far lower than the declared MSP. Some oilseed crops such as soybean also fall in this category. Yet, MSP for oilseeds and pulses has been hiked yet again in the fond hope that growers will feel encouraged to plant more.

Our domestic market prices are impacted not only by our domestic demand-supply fundamentals and MSP, but also by our import policy and tariffs. So, for the MSP regime to work, a holistic approach that includes a robust procurement system and appropriate foreign trade and tariff policy is critical.

The author is a policy commentator and agribusiness specialist. Views are personal

Published on July 04, 2019

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