A promise on paper

MSPs mean nothing without a procurement system

Even three weeks after the government announced a “historic” hike in the minimum support prices (MSPs) of kharif crops to pitch them at 50 per cent above the paid-out production costs, the new prices remain only on paper for want of any bid to enforce them. The market seems to have cold-shouldered the government’s avowedly pro-farmer move with hardly any noticeable movement in prices. The inflationary tendency that normally used to ensue from MSP spikes in the past has largely been missing this time. Reported data from key agricultural mandis indicates that 12 of the 14 commodities, whose prices have been jacked up, continue to be traded markedly below — by as much as 30 per cent — the official floor rates. In some commodities such as the three main kharif pulses — urad (black gram), tur (pigeon pea) and moong (green gram) — the prices are ruling at 34 to 42 per cent below their respective MSPs. Some of the crops priced above the new MSPs are cotton and sesamum. If this is any indication, the prices in the post-harvest flush season, when the fresh produce throngs the mandis, can be expected to plummet further to the detriment of the producers.  

To be effective, the announcement of the new MSPs should have been accompanied by plans to ensure their access to the growers. The government has, no doubt, been talking for long about evolving an efficient MSP delivery system, in collaboration with its policy think tank, the NITI Aayog. But there is still no indication as to when such a system will be put in place. The present procedure of open-ended procurement based market support, followed since the green revolution, has failed to reach out to the growers of most crops, other than rice, wheat, cotton and, to a limited extent, pulses, and that, too, only in parts of a handful of states where the procurement machinery operates. Its extension to all the crops for which the MSPs are routinely fixed and to all parts of the country seems almost unfeasible for want of necessary infrastructure and wherewithal even if the government is willing to bear the additional financial cost. The main problem with this mechanism is that it necessarily entails accumulation of stocks which later become difficult to liquidate. Moreover, the huge step-up in prices, as has been done by the government this time with an obvious eye on the forthcoming assembly polls in some key states and the general elections in early 2019, tends to foreclose the export outlet for disposing of the unwanted stocks.

Thus, any new system to ensure remunerative crop prices to boost farmers’ income has to be such that it will not require physical intervention in the market. Among the available models of such a system, the two that stand out are the price deficiency payment mechanism of the kind being tried out in Madhya Pradesh as well as a few other states and the direct cash support to farmers that was introduced in Telangana. Though none of these systems is flawless, the Madhya Pradesh model, if suitably refined, seems to fit the bill as a non-market distorting pro-farmer price support measure.