FM reveals formula for fixing MSP 50% over production cost

Finance Minister Arun Jaitley today said the government will take into account the actual input cost plus unpaid value of family labour while fixing the support price of crops at 50 per cent higher than the cost of production.
He had announced in the Budget earlier this month that the government will fix the minimum support price (MSP) of Kharif 2019 crops at least 1.5 times than the cost of production.
The Opposition and farm experts demanded the government spell out that formula to be adopted to determine cost of production.
Replying to a debate on Union Budget 2018-19 in the Rajya Sabha, Jaitley said the government will take the A2+FL formula (covering actual paid out cost plus imputed value of family labour) to determine the cost of production of agri-crops and fix accordingly the MSP.

Currently, the government fixes MSP of 23 commodities although it procures only wheat and paddy to supply subsidised foodgrain through ration shops under the Food Law.
Admitting that farmers do not get MSP despite the government fixing it, Jaitley said: "Therefore, the proposal given in the Budget aims at providing MSP to farmers. MSP is fixed by taking into consideration the input cost, labour cost. A2+FL and (the farmer) gets 50 per cent more."

The formula is "A2+FL, that is the understanding I have from the agriculture ministry", he said, while clarifying to Congress leader Jairam Ramesh who sought to know the formula to be used by the government while fixing MSP 1.5 times higher than the cost of production of agri-crops.

Presently, the government decides the MSP based on the recommendation of an expert body the Commission for Agricultural Costs & Prices (CACP).
The CACP has three formulae to arrive at the cost of production: A2, A2+FL and C2.
A2 costs cover all paid-out expenses, both in cash and kind, incurred by farmers on seeds, fertilisers, chemicals, hired labour, fuel and irrigation, among others.
A2+FL covers actual paid-out costs plus an imputed value of unpaid family labour.
C2 costs are more comprehensive, accounting for the rentals and interest forgone on owned land and fixed capital assets respectively, on top of A2+FL.

After the Budget announcement on the MSP, Niti Aayog member Ramesh Chand had said: "Based on the principle announced by the FM, the overall increase in the support price could be between 8 per cent and 47 per cent depending on crops and their cost of production this year."
In October 2006, the National Commission for Farmers under eminent farm scientist M S Swaminathan in its report had recommended the MSP for crops to be fixed at least 50 per cent higher than the weighted average cost of production.
BJP in its 2014 general elections had promised to fix MSP at 50 per cent more than the cost of production.

Participating in a debate on Budget, SAD leader Naresh Gujral urged the government to fulfil its promise on MSP and not let down the farmers.
"I will not get into to the formula, I hope farmers will get a good deal," he added.