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Resource centre on India's rural distress
 
 

Confusion over MSP -CP Chandrasekhar
-Frontline.in

The government ought to have specified its definition of cost of crop production in the Budget to prevent any confusion in the minds of people on minimum support prices.

Speaking at the Krishi Unnati Mela 2018, Prime Minister Narendra Modi reportedly complained that confusion was being spread about the announcement on minimum support prices (MSPs) made in the Finance Minister’s 2018 Budget speech. The speech had assured farmers that they would, in future, be able to sell the output of notified crops to the official procurement agencies at prices to be set at a minimum of 1.5 times the cost of production.

According to the Prime Minister, the confusion being created relates to how costs of production would be calculated. In an attempt to clarify, he stated that beside the costs paid out by farmers (for seeds, water, fertilizer, pesticides, equipment, etc.), the computed cost of production would include the imputed cost of family labour and of the capital assets owned by them deployed in cultivation. This type of cost computation is not new but corresponds to what the Commission for Agricultural Costs and Prices identifies as the C2 cost of cultivation, as opposed to A2, which covers only actual paid-out expenses. Another formula is A2+FL, which also imputes the cost of family labour.

Cost definitions

Given these definitions of alternative costs, there would have been no confusion if the government had specified in its budgetary announcement which of the definitions it planned to adopt. There are also other sources of confusion. These relate to why, despite the existence of a system in which “cost plus” minimum support prices are routinely computed and declared, the viability of crop production in the country is in question, resulting in an inability to service debt, in farmer suicides, and in farmers’ agitations that erupt with increasing frequency.

Reports have not only made clear that hitherto MSPs have been way short of the 1.5 times C2 cost that would make them remunerative, but that most farmers do not even have access to the declared MSPs and often end up selling at market prices that rule below the MSP.

This raises three questions. First, why, despite routine calculation of C2 costs, has the government chosen not to offer farmers a price well above that cost, which gives them a decent return? Second, why has sale of production at the declared MSPs eluded many farmers? And third, why have market prices tended to rule below MSPs in certain years and for certain crops, inflicting much damage on farmers’ livelihoods?

Since C2 costs are being calculated for crops notified as eligible for MSP, it must be the case that the government has so far consciously chosen not to set MSPs at 1.5 times those costs or even higher. In fact, while this was true even under the previous United Progressive Alliance (UPA) governments, the evidence suggests that the MSPs set under the UPA were closer to the remunerative price recommended by the M.S. Swaminathan-chaired National Commission on Farmers than those set by this government. Also, annual increases in the various MSPs have shrunk recently.

According to CRISIL, an analytical company, “While the average annual growth [in MSP] between agriculture year 2009 and 2013 was 19.3 per cent, it was only 3.6 per cent between 2014 and 2017.” The reason for the reluctance to offer farmers a remunerative price is not difficult to fathom. The government has chosen to incentivise private investors with a lenient tax regime and remains obsessed with fiscal consolidation and deficit reduction because it is keen to showcase its commitment to neoliberal economic policies and establish that it is the “most reformist” government that India has seen. In the event, it does not have the money to finance a farmer-friendly procurement regime that offers remunerative prices.

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