Cold comfort

Higher MSP for kharif crops is not enough

The government’s announcement of the new minimum support prices (MSPs) for kharif crops is broadly in line with its promise of raising them to 50 per cent above the production cost. But it would provide only cold comfort to the farmers unless a foolproof system is put in place to ensure that every producer gets these rates. Unfortunately, today’s proclamation is silent on this critical issue. It talks only about continuing the present marketing support arrangements but these reach out only to a fraction of the farmers. The government reckons the additional financial burden of this unprecedented price push at around Rs 335 billion, or just 0.2 per cent of the gross domestic product (GDP). But given that this estimate is only for the kharif crops for which the new prices have now been approved, the actual annual burden is bound to swell substantially when the MSPs of next rabi crops are also raised likewise. The impact of this move on food inflation is unclear as yet, though it may not be much if these prices actually apply only to a few crops and in limited areas alone, as is the case at present. 

For the hike in MSPs to translate into an increase in farmers’ income, which seems to be the ultimate objective of the government in view of the unabated rural distress, these rates have to be ensured to the growers of all the crops and, more importantly, in all areas. The bulk of the farm produce, especially in areas where the procurement agencies do not operate, is usually sold in the post-harvesting peak marketing season at prices far below the MSP. Even distress sales are not uncommon. The last Budget had also promised it would devise an effective mechanism to ensure remunerative prices for farm produce. The decision on this issue should, in fact, have come along with the announcement of the new MSPs. 

The NITI Aayog has already mooted possible options for this purpose. The extension of the open-ended procurement system to all crops, though the best way to enforce the MSPs, is fraught with problems some of which can be difficult, if not impossible, to surmount. The kind of extensive infrastructure of purchase centres, transportation and storage of the mopped up stocks cannot be put in place overnight. Nor can the ways and means be found to dispose of the procured stocks of commodities other than those such as rice and wheat, which are pushed through the public distribution system, even if at heavily subsidised rates.

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Of the various alternatives suggested by the NITI Aayog to replace the open-ended procurement-based system of market support, the price deficiency reimbursement mechanism seems the most appropriate. This system obviates the need to actually intervene in the market through physical purchases. No doubt, the initial experience of its implementation in Madhya Pradesh, which led another couple of states to try it out, has not been too encouraging, but most of the glitches are practical in nature and it should not be difficult to sort them out. Whatever the final decision of the Centre on the method of implementing the MSPs, it should be taken without much delay. Otherwise, the purpose of raising the MSPs by such huge margins would be only partly served.