Realism about prices

Higher minimum support prices will not fix rural distress

What will the government do about minimum support prices, or MSPs? A decision is expected soon, and there are two strands of thought. On the one hand, the voices within the political spectrum demanding relief for farmers, including within the ruling Bharatiya Janata Party (BJP), have been rising. They point out that the party itself promised, during the election campaign, to fix MSPs at 50 per cent higher than production costs. On the other hand, in welcome news, the agriculture ministry has reportedly told the parliamentary standing committee on farm policy that fixing MSPs on a cost-plus basis would discourage efficiency and negate efforts to bring down the cost of cultivation. This may well be the case. And, of course, a mechanical increase of 50 per cent on cost would distort the market as well as the cropping pattern. The government has, instead, shown greater trust in the support prices suggested by the Commission for Agricultural Costs and Prices (CACP). This experts' panel considers views of states and central ministries as well as the demand, supply, output cost and price trends of different commodities in the domestic and global markets while recommending support prices.

The proposal to set MSPs at 50 per cent above the weighted cost of crop output was first mooted by the National Commission on Farmers headed by M S Swaminathan in the mid-2000s. However, neither the previous government nor the present one accepted it. Similar counsel has now come from the parliamentary committee, which includes several BJP members. In rejecting it, the ministry is just being realistic. MSPs in any case work just for rice, wheat and to some extent for cotton - and that, too, only in parts of a handful of states. For other crops, these prices are of little consequence for want of actual market intervention through government procurement. According to the latest National Sample Survey, over 70 per cent of farmers are not even aware of the existence of MSPs! Hardly 13.5 per cent of the paddy sellers actually got the MSP in the last two seasons. This may be because MSPs are very localised in their effects. In the battleground state of Bihar, for example, farmers may not care about the size of an increase of a price that hardly affects their income.

Even those who have benefited from MSPs have expressed discontent over the prices, according to recent surveys. And the disquiet on this count is, predictably, more in the agriculturally advanced areas, such as the north-west, where production costs tend to be higher, thanks to greater use of cash inputs and higher labour wages. These also happen to be the areas that generate the highest marketable surplus for procurement at the MSP. With such being the ground realities, the government's motive for turning down the suggestions to adopt cost-plus as the norm for fixing agricultural prices seems logical and reasonable. To mitigate rural distress, there is a need to look instead to expanding irrigation to eastern and southern India and making farm insurance cheaper and easier.