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Resource centre on India's rural distress
 
 

Moving beyond MSP
-The Business Standard
 
The new grain pricing policy for 2012-13 rabi marketing season seems a half-hearted attempt to make farmers grow more oilseeds and pulses, which are in short supply. This is apparent from a hefty hike of Rs 650 to Rs 700 a quintal, or around 35 per cent, in the minimum support prices (MSPs) of oilseeds and pulses and a relatively modest increase of Rs 115, or 10 per cent, in those of wheat, which is the main rabi crop. The timing of the announcement, coinciding with the onset of the rabi sowing season, is another indication of the government’s intention to send out a clear signal to the farmers to this effect. However, achieving such an objective may not be that easy. For, even after the handsome increase, the new support prices of oilseeds (rapeseed and mustard) and pulses (gram and lentil) remain below the current market rates and, therefore, offer little incentive to farmers to produce more. In any case, the MSPs are meaningless for these crops in the absence of an effective mechanism for market intervention. Distress sales are fairly common in these commodities, especially during the post-harvest marketing season. For wheat, too, the new MSP of Rs 1,285 a quintal is inadequate. Most growers, however, are likely to stick to this crop because of assured marketing provided through procurement and the absence of a suitable alternative.

It is, therefore, surprising that the government opted to disregard the sane counsel of the Commission on Agricultural Costs and Prices (CACP) to fix the MSP of wheat at a little higher level of Rs 1,350 a quintal and ask the states to reduce mandi taxes to prevent the effective economic cost of wheat from shooting up. These levies in some cases are as high as over 14 per cent (as in Punjab), which the CACP wants to be slashed to four to five per cent. Such an approach would have helped the Centre keep its subsidy burden in check (because the mandi levies are borne by the central procurement agencies) even while ensuring better returns to the growers without hurting the consumer interests.

There is, indeed, a fundamental problem with the present practice of fixing a uniform MSP for the country as a whole, taking average cost of crop production as a base. Though such a price is lucrative for the agriculturally backward tracts, where production costs are relatively low, it goes against the developed areas, where the farmers maintain high crop yields by investing in cash inputs and, consequently, incurring higher output costs. It was indeed this anomaly that forced the rice growers in the highly fertile east Godavari district of Andhra Pradesh to observe crop holiday by not planting paddy in the last kharif season. The Centre can ill-afford to allow this kind of agitation by farmers to spread since that would be ominous for the country’s food security. This apart, given that the system of MSP and grain procurement operates only in a handful of states and for just two crops, wheat and rice, and is of little benefit to the vast majority of farmers, revamping agricultural marketing is a must to help growers of non-cereals to get good returns. That, moreover, would help balance the interests of producers and consumers of all agri-commodities and not just wheat and rice.