Minimum solace price

Prevailing market prices mock MSP

While it may appear paradoxical that at a time when the government is fighting inflationary pressures, it has chosen to hike the minimum support price (MSP) for foodgrains, the reality is that prevailing market prices for almost all foodgrains, oilseeds and cereals are way above even these newly announced prices. Therefore, despite the substantial hike in MSP for kharif crops, especially for pulses, the impact on both market and farmers’ sentiment may not be significant. Prima facie, the increase in the support prices of pulses, ranging between Rs 380 and Rs 700 a quintal, is truly unprecedented. But this raise is on an absurdly low base, that is the last year’s MSPs, and, therefore, still keeps the official prices far below the ruling market rates. Even after the hike, the MSPs of the three main kharif pulses — arhar (tur), moong and urad — range between Rs 2,900 and Rs 3,170 a quintal, while none of these pulses is being traded at below Rs 6,000 a quintal in wholesale markets.

The new prices will provide only cold comfort to farmers for another reason as well. There is hardly any arrangement for providing market support for pulses. While government agencies do not procure pulses, cooperative agencies, which have been entrusted with this task, do not have the required infrastructure or the wherewithal for the purpose. While pulses production is expected to go up this season, that would be mainly in response to the prevailing high market prices and anticipated normal monsoon rainfall. The impact of the hiked MSPs would be marginal. Where paddy, the main kharif crop, is concerned, though the MSP has technically been stepped up by Rs 50 a quintal, the effective procurement price remains at last year’s level. All that has been done is to merge the bonus of Rs 50 a quintal, given in view of last year’s drought, with the MSP. This, in fact, is being viewed as a signal to the farmers not to grow more rice, given the overflowing official stock-holding. Indeed, if the government thinks that such a move will help contain the prices of this staple cereal, it seems mistaken. For, thanks to its policy of open-ended procurement and levy on rice mills in the major rice-surplus states, it is again likely to end up cornering a bulk of the marketed rice surplus, needlessly constraining supplies to the open market. This may keep market prices high.

The case of commercial kharif crops, chiefly oilseeds and pulses, is no different. While the prices of major kharif oilseeds have been jacked up by narrow margins, averaging 4 to 5 per cent, those of different varieties of cotton have been kept unchanged. The country’s deficit in edible oils (read import dependence) is as high, if not more, as in pulses. Though it may be argued that, unlike pulses, edible oils are easily available in the international market and their prices, too, are currently ruling steady. Any setback to palm oil output in Malaysia and Indonesia, the main suppliers of this cheaper edible oil to India, can change the scenario. The need for raising the indigenous production of oilseeds is, therefore, as pressing as that for pulses. A short-sighted policy on this front is good neither for producers nor for consumers.