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Does Modi govt's hike in MSP really help farmers?

While the farmers were expecting the government to be more generous, the announced hike is just enough to meet an increase in input costs from last year.

twitter-logo BusinessToday.In   New Delhi     Last Updated: July 6, 2018  | 18:43 IST
Does Modi govt's hike in MSP really help farmers?

The government's recent announcement of a steep hike in the Minimum Support Price (MSP) for kharif crops was supposed to go a long way in alleviating farmer distress, but the brickbats seem to be coming in faster than the bouquets.

In fact, the move has failed to impress the farmers themselves, let alone the opposition parties. While acknowledging that the MSP hike was a "small victory" for farmers, Yogendra Yadav, Swaraj India president and founder of Jai Kisan Andolan, was quick to point out that the support price fixed is not the rate the prime minister had promised in 2014 elections. A key electoral promise by the Modi government was to accept the formula outlined in the Swaminathan Commission report.  

So according to Yadav, the MSP hike is an immediate relief to farmers, not a permanent and stable solution. "It is merely a promise, the fulfilment of which depends on government procurement and intensive support, something that has been lacking till now," he explained, adding that without MSP being a legal right with a legal framework for enforcement, the support price remains discretionary and farmers are left at the mercy of the whims of the next government.

Moreover, according to India Today, while the farmers were expecting the government to be more generous, the announced hike is just enough to meet an increase in input costs from last year. The following Commission for Agricultural Costs and Prices (CACP) calculation of 14 major kharif crops for marketing year 2018-19 is telling:

In the table A2 + FL refers to the sum of actual paid-out costs and an imputed value of unpaid Family Labour while C2 is the sum of the above plus interest on the value of owned capital assets and also accounts for rentals and interest foregone on owned land. The Modi government had announced 50 per cent over A2 +FL as a new benchmark for calculating MSP, but even after the recent hikes, there's a huge gap between farmer expectations and reality.

Take paddy for instance. The new MSP for the crop is Rs 1,750 per quintal, which is a record hike of Rs 200 per quintal. But as per the Swaminathan formula the rate ought to have been Rs 2,340 per quintal. So farmers are set to lose Rs 590 per quintal under the new MSP regime. The loss is much higher in the case of pulses.

"The right policy instrument would have been income policy. The price policy has a limit if it goes beyond international prices. This will lead to accumulation of stock and hurt farmers even more," said agriculture expert Ashok Gulati.

The fear is that the recent MSP hike will turn out to be too little, too late for the farmers given the sharp spike in the input costs for paddy. Diesel price is up by Rs 8 per litre from last year, while the GST regime has hiked the taxation rate on the sector. For example, fertilizers are now taxed at 5 per cent and pesticides at 18 per cent while farmers in states like Punjab, Haryana paid no tax for chemical fertilizers and no value-added-tax on pesticides under the earlier tax regime. Agriculture machinery is taxed at 18 per cent, which further adds to the burden.

"While the announced hike in MSPs is in accordance with the GoI's efforts towards improving farmer incomes, whether they actually translate into higher realisations for farmers remains to be seen. For instance, despite a healthy expansion in MSP for pulses in FY2018 and some procurement by the government agencies, the actual price realisation in the market was muted, with the wholesale prices falling below the MSP in some months," pointed out a new report by rating agency Icra. It also claimed that the year-on-year growth in MSP in FY2019 is lower than the same in FY2013 for some kharif crops like common paddy (12.9% vs 15.7%), arhar (4.1% vs 20.3%), and more.

Even stalwarts from the BJP have flagged off the need to do more. "In addition to providing MSP at 50 percent or more over the cost of production, there is a need to streamline the procurement process and the PDS network so that the farmer derives the maximum benefit," said Vice President of India M. Venkaiah Naidu at a recent event. And, of course, the Congress has gone to town taking potshots at the Modi government. "The Maha-Jumla of MSP is 'Too Little,Too Late' Modi ji promised 'Input Cost +50% as MSP' but has now only betrayed the Farmers! Staring at an imminent defeat, Modi Govt, has once again given an 'Electoral Lollypop' of this 'MSP' to the Farmers of India!" tweeted Congress party spokesperson Randeep Singh Surjewala.

The allegation of vote bank politics rings true. After all, the kharif crops will be harvested in October-November, which is when three agrarian states, Chhattisgarh, Madhya Pradesh and Rajasthan, go to polls this year. In any case, what the Modi government has done is just a repeat of a stunt pulled by the former UPA government in 2013 ahead of election year. The Manmohan Singh government had similarly announced a Rs 170 per quintal hike in MSP for paddy.

So the jury is still out on whether the government's politically astute move will actually help farmers.

With PTI inputs

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