'Better productivity, not high MSP, can resolve farmer issues'

The steep hike in the minimum support prices (MSP) announced for winter crops is not the answer to the farmers' problems and will not boost their incomes but increasing farm productivity can, a report said.

Facing nationwide farmers protest, who were at the lag leg marching to the Capital, government Wednesday announced a massive increase in the MSP for rabi (winter) crops to the tune of 6-21 per cent.

Increasing the wheat support price to Rs 1,840 per quintal or 6 per cent and up to 21 per cent increase in other rabi crops, government claimed that this would leave Rs 62,635 crore additional income to farmers.

The decision came a day after a huge protest by farmers in the Delhi NCR seeking higher support prices and loan waiver.

In June also, the government had announced higher MSP for kharif (summer) crops, to fulfil its promise of giving farmers 50 per cent more price than their cost of production.

In a note, India Ratings director and principal economist Sunil Sinha Thursday said the rabi MSP hike will only partially benefit the farmers as the 1.5x higher price realisation formula may fail to work in case of rabi as the MSP of these crops except safflower was already higher than 1.5x in FY18.

Stating that MSP hike is not a solution to farmer's woes, he said the way forward is to keep the farming lucrative by incentivising farmers as there is no choice but to raise MSP in line with the rise in the cost of production of agricultural commodities.

"However, this alone cannot address the woes of the farmers as at the core of the rising MSP is the stagnation in agricultural productivity. There is an inverse relationship between the real cost of production and productivity.

"Therefore, a prudent response to the ever-increasing cost of production lies in the enhancement of agricultural productivity, else the pressure to increase the MSP in accordance with the cost of production will continue," said Sinha.

On the MSP hikes and their impact on inflation, he said the latest announcement is unlikely to have any significant impact on inflation.

While the June hikes would lead to a 70 bps increase in retail and a 38 bps increase in wholesale inflation, the latest one will have a much lower impact as most for rabi crops except safflower, the latest MSP increase announced is fairly moderate and in line with the past trend.

The impact of the latest hikes on wholesale/retail inflation will be minimal. The 20.6 per cent increase in MSP of safflower may, however, translate into a 5-6 bps increase in the wholesale and retail inflation, he said.