Revitalizing Agriculture

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)