On Thursday, the cabinet committee on economic affairs (CCEA) increased the minimum support price (MSP) for paddy by Rs 170—roughly 16%—for the current kharif—season. This is the sharpest rise in the past four years and given the mountain of grains the government has accumulated, there are no pressing economic grounds for the step. If anything, a higher MSP will only add to the government’s fiscal burden.
The unwarranted nature of the rise was confirmed by Ashok Gulati, the chairman of the Commission for Agricultural Costs and Prices (CACP), the body tasked with recommending MSPs for various crops to the government. A PTI report quoted Gulati as saying that CACP had estimated the cost of production of paddy at Rs 1,185 and had recommended only 5.5% return to farmers or roughly Rs 65. The government increased this by Rs 105 on its own.
This comes at a time when the quantity of rice in the central pool in early June—the stock of foodgrain under the control of the Union government—stood at roughly 32 million tonnes. This is way above what is required for maintaining buffer stocks. Buffer stocks are required to run the public distribution system, ensuring food security and also ensuring a sufficient quantity of foodgrain in case of government intervention in markets to maintain price stability.
Implementing the national food security law, too, is no excuse in this case. The law kicks in a bit later and for its first phase, there is sufficient quantity of grains and additional purchase—one plausible reason for raising MSP—is not required. In any case, proponents of the food security law have shown that existing production and procurement procedures are sufficient for that purpose.
The decision is populist in nature. If anything, one can expect further increases next year as well. The last time a MSP increase of a similar order occurred was in 2008-09, a year before the last parliamentary election in 2009 when MSP for paddy was hiked by Rs 205. Wheat and rice farmers form a substantial political constituency in India; they are virtually in a majority in Punjab, Haryana, Andhra Pradesh and western Uttar Pradesh. Thursday’s bonanza should be seen in this light.
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