MSP hike: A pay cut for farmers?

Nominal hikes in crop support prices means that farmers are bearing the burden of government policy to keep food inflation in check

In the 3 years between 2014 and 2016, the NDA government increased the support prices of rice by a mere 3.9% (average) per year. Photo: Burhaan Kinu/HT
In the 3 years between 2014 and 2016, the NDA government increased the support prices of rice by a mere 3.9% (average) per year. Photo: Burhaan Kinu/HT

New Delhi: The Narendra Modi led government has set a target to double farm incomes by 2022, but in the past three years it announced only nominal hikes for support prices of rice and wheat. What’s more: the raises were lower than the prevailing retail inflation, meaning declining real income for farmers.

On Wednesday, the Centre raised the minimum support price (MSP) for rice by a nominal 4.3%, which is lower than retail inflation of 5.4% and food inflation of 6.2% recorded in April. Effectively, this means farmers were awarded a pay cut in a drought year. More importantly, farmers are bearing the burden of the centre’s goal to keep food inflation in check, even as their profitability and incomes are dipping.

To be sure, a few years back, when the government was generous with the MSP, it was cited as one of the main factors behind soaring food and consumer inflation, forcing the Reserve Bank of India to raise interest rates, in the process, crimping economic growth.

The larger issue is the distortion in the Indian food market, caused largely by the government’s overwhelming presence and interference. India’s farm sector and food markets are in dire need of radical reform to address this.

Meanwhile, here are the numbers pertaining to the current problem. In the 3 years between 2014 and 2016, the National Democratic Alliance (NDA) government increased the support prices of rice by a mere 3.9% (average) per year. In comparison, in the three years preceding the NDA coming to power, support prices went up by 9.5% per year. As pointed out, this fuelled inflation.

For wheat, the other crop that the centre procures at support prices to supply through the subsidised public distribution system, the story is no different. On an average, support prices went up by 4.1% per year during the NDA regime, compared to 7% in the preceding three years.

“The policy focus of the Modi government is elitist at a time when farmers are forced to migrate due to a drought,” said Ashok Gulati, agriculture chair professor at Indian Council for Research in International Economic Relations, Delhi.

“Before being elected Prime Minister, Narendra Modi promised farmers that his government will ensure 50% profitability over costs, but in reality it has actually come down. When costs of cultivation are rising it is unclear how the government will double farm incomes,” Gulati added.

The numbers are stark when support prices per quintal are compared to production costs. For instance, in 2009-10 support prices for paddy were Rs.950 per quintal as against an estimated cost of Rs.670 per quintal, according to data published by the Commission for Agricultural Costs and Prices. This translates to a profitability of nearly 42% for farmers. In 2015, support prices were Rs.1,410 per quintal against costs of Rs.1,324 per quintal, or a measly 6.5% profitability.

Going back on its electoral promise, the Modi government has repeatedly said it cannot declare support prices at 50% over costs, but it is trying to bring down costs itself by raising productivity via soil health cards and improved irrigation access. This is not something that will bear immediate results, and it isn’t.

The Economic Survey released in February said the average annual income of the median farmer from cultivation, net of production costs, is less than Rs.20,000 in 17 states. That translates to an income of less than Rs.2,000 per month per farmer.

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