In keeping with the assurance given in the Union Budget 2018-19, the government has hiked the Minimum Support Price (MSP) for various crops planted in the kharif season, including paddy, coarse grains, pulses, oilseeds and cotton.

The idea is to ensure farmers receive a price that is 50 per cent higher than the cost of production covering cost of various inputs like seeds, fertiliser and agro-chemicals (called A2 cost) and also imputed cost of family labour (FL cost).

Following this, on July 4, the Cabinet approved an increase in MSP for various crops. Paddy (common grade) gets a steep increase of ₹200 a quintal to ₹1,750 a quintal, same as Grade-A paddy.

Among pulses, MSP for tur/arhar (pigeon pea) and urad (black matpe) has been hiked by a modest amount, while moong (green gram) has been given a large hike of ₹1,400 a quintal to a record ₹6,975 a quintal.

Medium staple and long staple cotton varieties have also received a significant boost in prices.

The decision to grant a sharp rise in MSP for kharif crops comes more than four weeks after the south-west monsoon broke over Kerala. Planting of various crops is in progress and over 10 per cent of the aggregate area has already been planted, according to the Ministry of Agriculture data.

Associated issues

Now, information about the announcement of attractive MSP for various crops will have to reach growers across the country; and then they may have to take a call on what to grow. Historically, MSP has had very limited impact on growers’ planting decision.

While the intention of the policy-makers to deliver to growers prices more remunerative than hitherto is absolutely laudable, there are several associated issues that can potentially retard meaningful progress.

One is the capacity of the market to absorb higher support prices. MSP acts as a benchmark for the market. A higher benchmark price for essential food crops such as paddy, oilseeds and pulses has the potential to fan inflation especially in the present context when international crude oil prices are at elevated levels and the rupee stands substantially depreciated. Worse, we have seen in the case of pulses, farm-gate prices in 2016-17 and 2017-18 were far lower than the specified MSP.

Growers are indeed upset as a result. MSP is some kind of a sovereign guarantee. Farmers are justified in expecting they receive the minimum rate assured.

While the government did undertake price support operations and did procure to create a buffer stock, the efforts proved to be inadequate. Even now prices of almost all pulses rule at well below the specified MSP, even after choking off supplies from abroad through stiff tariffs and quantitative controls. So, how would the government ensure that growers obtain at least the MSP that has now been set higher for the 2018-19 season? There is no clarity.

Food subsidy

Another important aspect is that the food subsidy will get more burdensome. As for paddy, the price hike will mean the Food Corporation of India may end up procuring even larger quantities than hitherto. The same goes for several crops like pulses and oilseeds where the government agencies (Central or State or both) undertake procurement to prevent price collapse. Higher volumes of procurement are sure to further tighten storage facilities. The food subsidy bill is sure to escalate further, stressing the fiscal situation.

Worse, in agriculturally important States such as Punjab, Haryana and Uttar Pradesh, grain mono-cropping (rice-wheat-rice cycle that is seen promoting an ecological disaster) will get more entrenched and growers will refuse to practice crop rotation. This will be an unconscionably high cost the country will be forced to bear. Sustainability of agriculture will be compromised.

A hike in MSP to demonstrate that the government is keen to keep the promise it has made to agriculturists is surely a politically expedient move; but its economic ramifications need to be recognised too. We need a healthy public debate about the rationale of MSP, the outcomes sought to be achieved and economic cost. MSP in its present avatar is actually outliving its utility.

We need to go much beyond announcing MSP routinely because MSP (and an annual hike thereof) is not a panacea for the ills of the farm sector. Successive governments in this country over the last several decades have paid little attention to addressing the structural problems that stymie farm growth. So, tinkering with price policies or trade policies will not take us far.

We desperately need farm resurgence. That alone can lift large sections of farmers (about 130 million farming families) out of their present distress situation. For sustained resurgence, we need to address the structural problems.

Six mantras

Adopting the following six mantras should help transform the moribund agriculture sector: strengthen the input delivery system; rapidly expand irrigation facilities; infuse multiple technologies in agriculture; invest in rural infrastructure; exploit the country’s prowess in ICT; and build capacity among growers to withstand market volatility. Unfortunately, there is no one-step solution to solve the farm issues. We need to move in several different directions simultaneously.

Policy-makers have to demonstrate political will to ensure sustained and sustainable growth while balancing the interests of growers and consumers alike. The Centre needs to take all the States on board as agriculture is a ‘State’ subject under the Constitution.

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

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