Don't include transport cost in crop MSP: EAC

Prime Minister Manmohan Singh’s Economic Advisory Council (EAC) has shot down the agriculture ministry’s proposal to consider the marketing and transport charges borne by farmers while deciding the minimum support price (MSP) of agricultural crops. However, the EAC has agreed to the inclusion of crop insurance premium paid by farmers in the MSP.

Responding to a draft Cabinet note prepared by the Department of Agriculture and Cooperation on “methodological issues in fixing the MSP”, the EAC said the transport costs, while eligible for reimbursement, could not be considered as part of the cost of production.

“Stretching the definition of production costs will only serve to raise MSP and consequently the level of prices in the wider economy,” the EAC noted.

The council was also critical of the department’s proposal to do away with the ceiling of fair rent that goes as an input while calculating the MSP for agricultural products.

While the practice is to adopt the rental value of the owned land as the rent actually paid for a similar kind of land in the neighbourhood (subject to the ceiling of fair rent), the department had proposed to do way with this ceiling and to accept the higher of the two calculations. The EAC felt the move could result in an increase in the MSP.

It should be noted that the EAC was not in favour of increasing the MSP earlier also. Instead of incorporating all expenses into the MSP, it wanted the inclusion of only the production costs. The council also favoured separate MSP and procurement prices for crops.

The Cabinet had recently sought the EAC’s opinion on the proposal of the Ministry of Agriculture to fix the MSP for kharif crops, including paddy. While the ministry’s suggestion was to fix the MSP for paddy at Rs 1,000 per quintal, the EAC preferred a rate of Rs 850 per quintal.