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Business News/ Industry / Will higher MSPs address the farm crisis in India?

To pacify farmers protesting over a steep fall in crop prices, the government is likely to announce higher minimum support prices (MSPs) for kharif crops this week. Mint takes a look at what difference the move will make.

Why would the government hike MSPs?

After successive years of record harvest in 2016-17 and 2017-18, crop prices, especially of pulses and oilseeds, fell sharply, fuelling protests by farmers. They have been demanding remunerative prices and loan waivers to tide over their losses, some of which were also due to severe droughts in 2014 and 2015. The government hopes higher crop support prices will pacify farmers ahead of crucial elections later this year in agrarian states such as Madhya Pradesh, and the general election next year.

By how much are MSPs likely to rise?

The centre has promised to ensure 50% returns to farmers over A2+FL costs which include all-paid-out expenses on fertilizers, seeds, machinery and hired labour plus an imputed value of family labour engaged in cultivation. Calculations by the Commission for Agricultural Costs and Prices show that in the last kharif season (2017-18), returns to farmers over A2+FL costs were lower than 50% for several crops. For instance, the returns were 39% for paddy, 37% for maize, 30% for moong and 23% for cotton.

What will be the costs of higher MSPs?

Higher MSPs will raise the govt’s procurement costs for crops such as paddy. Risks to the economy include higher food inflation and fiscal slippages.

Will higher MSPs quell farmer protests?

While higher crop support prices will raise incomes of farmers growing crops such as paddy, the case is more complicated in the case of pulses and oilseeds. Last year, the government bought₹29,000 crore of pulses and oilseeds from farmers but wholesale prices for these crops were significantly lower than the MSP. This implies that the majority of farmers whose crops were not procured had little choice but to sell at a loss.

So what is the plan for pulses and oilseeds?

Before the kharif harvesting begins in October, the centre is likely to launch a revamped MSP policy for these crops to ensure that announcements of higher MSPs actually benefit farmers. It is considering models of direct procurement, paying farmers the difference between MSP and market prices and incentive schemes for traders to procure at MSP. A part of these costs is likely to be borne by state governments.

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Updated: 03 Jul 2018, 02:45 PM IST
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