Excessive MSP bad for agri: Govt

Says Parlt panel suggestion of MSP at 50% more than cost will distort market; also declines suggestions for region-wise floor prices

The government believes fixing a Minimum Support Price (MSP) for agricultural commodities which is 50 per cent more than the cost of production could distort the market and encourage inefficient production.

It would also go against the principle of comparative advantage in producing specific crops.

In its Action Taken Report on the recommendations of Parliament’s standing committee on agriculture, presented on Wednesday, the Centre said the National Commission on Farmers, headed by M S Swaminathan, had recommended an MSP which was 50 per cent more than the weighted cost of production. This it had not accepted, it said; the MSP recommended by the Commission for Agricultural Costs and Prices (CACP) was based on objective criteria and considered a variety of relevant factors.

“Fixing an MSP on a cost-plus basis would discourage efficiency in the sector and negate our efforts to bring down cost of cultivation,” said the ministry of agriculture. This is at variance with the manifesto of the ruling Bharatiya Janata Party, which had promised to ensure for farmers a minimum of 50 per cent profit over the cost of production.

In the past two sowing seasons, the Centre raised the MSP of paddy and wheat by less than five per cent. For the 2014-15 (July-June) crop season, CACP has recommended an increase of Rs 50 a quintal in the MSP of paddy. A decision is yet to be taken. The MSP is currently Rs 1,360 a qtl for common-grade paddy and Rs 1,400 a qtl for Grade-A.

The standing committee had said the Centre should take immediate steps to fix remunerative pricing, with a 50 per cent profit margin over the cost of production for all 24 crops it had considered.

The Centre also rejected the Committee’s suggestion for region-wise MSP for all crops. The government said this  could not be justified and the current methodology of having a single MSP for the entire country had been tested for five decades.

It also said transforming the CACP into a statutory body would be fraught with practical difficulties and would preclude the government from enhancing the MSP over and above what had been recommended by the body.

The committee had also urged the government to announce MSPs before a sowing season, to help farmers take informed decisions.