BJP's MSP hike proposal might face inflationary hurdle

The new government will have to keep in mind factors like credit disbursal to farmers, urea and fertiliser subsidies

The Bharatiya Janata Party (BJP)'s big ticket agenda for farmers -- to guarantee them a 50% higher minimum support price (MSP) over the cost of production -- could be delayed due to persistently high food inflation, senior party functionaries and government officials said.

However, a final call on the same would be taken once the next government takes over and also after keeping in mind the political reasoning behind the same, as the next round of elections are in agriculturally important states of Haryana and Maharashtra.

Officials said though the party and also its government are committed to the promise, they also need to keep in mind factors like credit disbursal to farmers, urea and fertiliser subsidies, before taking a final call on the same.

For the coming kharif sowing season (2014-15), the Commission for Agriculture Costs and Prices (CACP) has already made its price recommendations, but a final decision on the same has been withheld as the model code of conduct kicked in. As sowing of kharif crops is expected to start in the next few weeks, officials said fixing the MSP could be one of first items on the Cabinet agenda of the new government.

The Commission has recommended a Rs 50 per quintal increase in the MSP of common grade paddy to Rs 1,360 per quintal, which is lower than the increase given last year. It has also recommended no change in the MSP of soybean, groundnut and maize for the 2014-15 crop season.

Sowing of kharif crops starts around June with the onset of monsoon, while the harvesting begins from October. "We are committed to the promise, but a final decision needs to taken by the government after factoring in different incidentals," party functionaries said.

Officials in the department of agriculture, too, are non-committal about the same. "We will send our reaction, comments once such a proposal is formally sent to us and only after we know what exactly are the broad contours of the proposal we could form any opinion," a senior official from the department said.

The idea, which was first mooted by the National Farmers' Commission (NFC), under the chairmanship of noted agriculture scientist M S Swaminathan during the first part of the UPA regime. But, it was only at the fag end of the UPA tenure that the government had constituted a group of experts to revisit the methodology of fixing MSP for all crops, after drawing criticism from some quarters.

"Guaranteeing an MSP that is equal to 50% over the cost of production is not a very feasible idea, as it will increase the subsidy burden," P K Joshi, South Asia Director of International Food Policy Research Institute (IFPRI) told Business Standard. He said instead of raising the MSP to ensure fair return to farmers, the new government should focus on increasing productivity and reducing cost of production as a high MSP will increase food prices for consumers.

"Productivity can be increased by impetus on research and development and cost can be brought down by efficient use of fertilisers like applying the same in small doses," Joshi said.

The consumer price index-based inflation rose to 9.66% in April from 9.1% in the previous month. In fact, the food inflation touched double digits at 10.45% in rural areas in April against 9.95% a month ago. Annual food prices rose to 8.24% in urban areas from 7.47% in this period.

However, some experts like CACP ex-chairman T Haque differs. He said, the proposal is absolutely feasible and, in fact, had been in place for some crops like wheat and rice a few years back.

"In some states such as Haryana and Bihar, cost of production of paddy is very high and the Centre-fixed MSP does not provide 50% profit over cost of production, while in some other states this is not the case," Haque said. He said the proposal could be tried in some crops on a pilot basis as MSPs are sure-shot way to revive the farm economy better than even providing cash transfers.