Why in news?
The Union Cabinet has approved a hike in minimum support prices (MSPs) for kharif crops.
What is the decision?
- The present hike is in line with offering MSP at 50% higher than the cost of production.
- MSPs were announced for 14 commodities.
- This includes a Rs.200 per quintal increase in the MSP for paddy.
- Major hikes are seen in cereals such as bajra, jowar and ragi, as well as cotton.
What are the benefits?
- Economy - The hike would boost farmers’ income and purchasing capacity.
- It would also have a positive impact on the wider economy.
- Government has ruled out fears of rising inflation due to higher food prices.
- Crops - The move helps increasing pulses output and reducing dependency on imports.
- The Centre has also sought to push millets cultivation.
- This would benefit dryland farmers as well as the nutrient intake of all consumers.
What are the concerns?
- Procurement - Paddy is the major kharif crop, directly procured by the Food Corporation of India.
- But, there are no guaranteed mechanisms for procurement of most other crops.
- Shanta Kumar Committee report highlights that only 6% of all farmers sell their produce to a procurement agency.
- The hike would be useful only for paddy farmers in states with a strong procurement machinery.
- Price - High MSPs may end up fuelling inflationary expectations.
- But without procurement, the excess production would only bring down the price.
- It is then usually sold in the post-harvest peak marketing season at prices far below the MSP.
- The MSP hike would then actually turn against farmers' interest.
- Cost - MSP hike for kharif crops is based on A2+FL costs.
- This includes family labour, but not land costs.
- Farmers however demand a more comprehensive C2 costs which includes land costs.
- E.g. If MSP had been announced on C2 basis, paddy price would have risen by at least Rs 700 per quintal.
- Financial - Paddy hike alone is likely to inflate the food subsidy bill by over Rs.15,000 crore.
- The additional financial burden of the price push is said to be at around Rs 335 billion.
- This estimate is only for the kharif crops for which new prices have been approved.
- The actual annual burden would rise when MSPs of next rabi crops are also raised likewise.
What could be done?
- These rates have to be ensured to the growers of all the crops and in all areas.
- The price deficiency payment mechanism suggested by NITI Aayog could be considered.
- Income - India’s subsistence farmers need support systems other than MSP to alleviate distress.
- Policymakers need to shift from price support to income support.
- With the systems in place for direct transfers, the time is ripe.
- Income support, unlike MSP, will not be contentious with the WTO rules.
- PDS - Support prices are largely being used to serve populist ends.
- Instead they must be supplemented by a drive to improve the PDS network.
- This would benefit the rural households from cheap retail grain as well.
- Infrastructure - There is a need for a robust procurement infrastructure.
- Purchase centres, transportation and storages have to be ensured.
- Markets - Rice and wheat stocks are generally pushed through the public distribution system.
- Hence, ways and means to dispose of the procured stocks of other commodities should be found.
- Markets must operate freely, with no curbs on exports.
- This will allow farmers to get rewarded for output and quality of produce.
Source: The Hindu, BusinessLine
