Stagnant farm wages a drag on minimum support prices

Farm wages have been stagnant, contracting by 1.5% in 2015-16 and growing 1.7% in 2016-17

A slow growth in farm labour wages and more than 50 per cent weight to wages in the cost calculation index have pulled down the projection of overall cost of cultivation for various crops. 

As minimum support prices (MSPs) are fixed at 50 per cent or more than the production cost (A2+FL), the impact of wages on the resultant MSP cannot be ruled out. Expenditure on other major inputs, namely seeds and machine labour—including tractors—is rising faster than before, while that on fertilisers is growing steadily in the last three years, the recent price policy report of the Commission for Agriculture Costs and Prices (CACP) for the 2018-19 kharif season has showed. 

Farm wages have been stagnant, contracting by 1.5 per cent in 2015-16 and growing 1.7 per cent in 2016-17, the report said. This got reflected in the cost of human labour, which is expected to grow only 4 per cent in 2018-19, compared to 5 per cent growth in 2016-17. Human labour costs carry a weight of 53 per cent in the composite input price index (CIPI), constructed by the CACP. 

“It is possible that low labour wage growth in rural India could have an impact on the cost of input index as it is a major component of the CIPI. This is because prices, in general, have shrunk in rural India. However, it also must be remembered that input cost calculations are done with a lag. So, sometimes the drop might not reflect the real scenario,” Mahendra Dev, Director of Indira Gandhi Institute of Development Research (IGIDR) and a former chairman of CACP, told Business Standard. According to the report, the growth in the overall index, too, is the lowest in the last three years. Experts say the stagnation in wages is starkly visible in the last few years, and a higher MSP can result in better rural consumption growth with good procurement. 

“Low demand of human labour has translated into lower growth in rural consumption. But a rise in MSP can fuel some consumption growth if it is accompanied by procurement. It also depends on the monsoon, which is deficient by 8 per cent as of now,” Himanshu, associate professor of economics at JNU, said.  

Senior officials from the agriculture ministry told Business Standard there has been rapid improvement in the usage of machines on farm, and the weight of human labour needs to be reduced. But it can only be done when the base year changes. The current base year is 2011-12. The question is if one major component of the cost of cultivation sees a slowdown in the last few years, how far will the new methodology based on the cost reflect a realistic picture, said experts.

The report showed in terms of other important products used as farm inputs, only diesel added to the incremental cost in 2017 compared to 2016 (October-December), while the indices for all other inputs remained stagnant. Considering that this 13 per cent jump in diesel index was mainly due to rise in global crude oil prices, the market for farm inputs – which is also a part of the broader rural economy – has stagnated. The Centre last week announced a MSP, which is at least 50 per cent more than the A2+FL cost of cultivation for all crops.

Among all the crops, bajra has seen the highest increase in MSP in 2018-19 as compared to the previous year. The increase was of around 97 per cent. 

While human labour has gone down in the CIPI, seed prices have been moving up the sharpest.