Hiked MSP for Kharif Crops.

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