Revitalizing Agriculture
Focus on
Agriculture and Farmer’s welfare has been a priority area for the Government.
The Budget announcement of fixing MSP for Kharif crops at 50% above the cost of
production is seen as a major step towards achieving the goal of doubling
incomes of farmers by the year 2022. This announcement has the potential of
being the real game changer that will lead to welfare of farmers and increase
in real Agricultural GDP. However the question that comes to one’s mind is if
it is actually possible to fix MSP at 50% above cost of production without
causing major disruptions in food inflation, food subsidy bill as also crop
diversification. Some critics have claimed that this is just not possible and
this might be an exercise in statistical jugglery without any real benefits
accruing to the farmers.
Government of India fixes MSP – Minimum Support
Prices for around 26 crops and this is the price that is guaranteed to the
farmers. If market prices fall below MSP, Government does procurement at MSP
from farmers. MSP is fixed by the Commission for Agriculture Costs and Prices (CACP)
which recommends the prices for both Kharif and Rabi crops every year. The
fixation of MSP is based on factors like cost of production, changes in input
prices, input-output price parity, trends in market prices, demand and supply, inter-crop
price parity, effect on industrial cost structure, effect on cost of living, effect
on general price levels, International price situation, parity between prices
paid and prices received by the farmers and Effect on issue prices and
implications for food subsidy. The Commission follows a very complex and
detailed mechanism for fixation of MSP. The major items for procurement by
Government continue to be Paddy and Wheat as the same is required for distribution
through Public Distribution System as per the provisions of National Food
Security Act. For 2017-18, MSP for Paddy was fixed at Rs 1590 per Qtl and for
Wheat it has been fixed at Rs 1735 per Qtl for 2018-19. In 2017-18, the total
Paddy procurement so far is around 425 lakh MTs and the expected procurement is
580 lakh Mts. The total wheat procurement was around 308 Lakh MTs for 2017-18.
Given
the prevalent MSP and the levels of procurement we analyze the ramifications of
the policy announced in this year’s Budget. While CACP follows a complex
mechanism to fix MSP, the relevant costs for farmers are commonly referred to
as A2, C2 and FL. Broadly speaking A2 includes all expenses in cash and kind on
account of hired labour, bullocks, machines, seed, Insecticides, Pesticides,
Manure, Fertilizers, irrigation charges and miscellaneous expenses. FL refers
to the Imputed Value of Family Labour. C2 is the Comprehensive Cost and it
includes Imputed Rent and Interest on Owned Land and Capital Respectively along
with A2 and FL. To analyze the various costs and existing MSP for various crops
we look at the table below:
Crop
|
A2+FL
|
C2
|
MSP
|
50% above A2+FL
|
50% above C2
|
Wheat
|
817
|
1256
|
1735
|
1225.5
|
1884
|
Barley
|
845
|
1196
|
1410
|
1267.5
|
1794
|
Gram
|
2461
|
3526
|
4400
|
3691.5
|
5289
|
Lentil
|
2366
|
3727
|
4250
|
3549
|
5590.5
|
Arhar
|
3318
|
4612
|
5450
|
4977
|
6918
|
Urad
|
3265
|
4517
|
5400
|
4897.5
|
6775.5
|
Rapeseed & Mustard
|
2123
|
3086
|
4000
|
3184.5
|
4629
|
Bajra
|
949
|
1278
|
1425
|
1423.5
|
1917
|
Paddy (Grade A)
|
1117
|
1484
|
1590
|
1675.5
|
2226
|
Safflower
|
3125
|
3979
|
4000
|
4687.5
|
5968.5
|
Jowar (Hybrid)
|
1556
|
2089
|
1700
|
2334
|
3133.5
|
Maize
|
1044
|
1396
|
1425
|
1566
|
2094
|
Ragi
|
1861
|
2351
|
1900
|
2791.5
|
3526.5
|
Moong
|
4286
|
5700
|
5575
|
6429
|
8550
|
Groundnut
|
3159
|
4089
|
4450
|
4738.5
|
6133.5
|
Soyabean
|
2121
|
2921
|
3050
|
3181.5
|
4381.5
|
Sunflower
|
3481
|
4526
|
4100
|
5221.5
|
6789
|
Sesamum
|
4067
|
5706
|
5300
|
6100.5
|
8559
|
Nigerseed
|
3912
|
5108
|
4050
|
5868
|
7662
|
Cotton (Medium Staple)
|
3276
|
4376
|
4020
|
4914
|
6564
|
As per this table the existing MSP
for Wheat, Barley, Gram, Lentil, Arhar, Urad, Rapeseed & Mustard and Bajra
is already more than 50% over A2+FL. For Paddy, Safflower, Jowar, Maize, Ragi,
Moong, Groundnut, Soyabean, Sunflower, Sesamum, Nigerseed and Cotton, the MSP
is lower than 50% above A2+FL. However, if the intent of the Government is to
give a boost to income of farmers the relevant cost should be C2 as that would
only mean a significant policy shift. This would imply a significant jump in
MSP – around 8% for Wheat and 40% for Paddy. While it seems to be feasible for Wheat
as even for 2018-19, the MSP has been raised by 6.7% and hence if MSP is
further raised to Rs 1884 for 2018-19, it will ensure that farmers get 50% more
than their cost of production C2. This would require an additional expenditure
of around Rs 4590 crores at the current levels of procurement. However for
paddy, the jump will be around 40% and this would mean an additional
expenditure of about Rs 36888 crores at the current levels of procurement. Thus
if the issue prices remain the same, the food subsidy bill will go up by almost
Rs 41000 crores. This could be the reason for the increased outlay for Food
Subsidy in the Budget 2018-19 of Rs 169323 crores over the revised estimates of
Rs 140282 crores for 2017-18 – an increase of Rs 29041 crores. With improvement
in efficiency of Food Corporation of India or marginal increase in issue prices
which have remained at Rs 2 per kg for Wheat and Rs 3 per kg for Rice, the Food
Subsidy Bill can be limited to the Budgetary figure of Rs 169323 Crores. Thus the
announcement of the Government of offering farmers MSP of 50% above costs is
very much feasible and it seems farmers are in for a big boost. There will be
ramifications on food inflation but with a significant section of the
population covered under National Food Security Act, it seems both farmers and
consumers are set for some good times – Acchhe
Din.
Abhishek Singh
( Views are personal)
