Mumbai: Elections coming up in the next five months in Madhya Pradesh, Chhattisgarh and Rajasthan will be the first big political test of the Narendra Modi government’s decision to raise minimum support prices (MSP) of 14 major crops. These are also among states that have witnessed farm discontent in the recent past.

Agriculture experts and organizations spearheading the farm protests in these states, however, see little to modest political dividends for the ruling Bharatiya Janata Party (BJP) from the MSP decision. They cite two reasons. One, the MSP increase is not in keeping with farmers’ expectations, failing to take into account the inflationary costs on farmers as consumers. Two, they say farmers may not get to sell their produce even at this MSP due to systemic problems and the riders put in by the government. 

On 4 July, the Modi government raised the 2018-19 MSP for 14 kharif crops by 13-18% over the 2017-18 prices and by 50-97% over the cost of cultivation calculated by the Commission for Agricultural Costs and Prices (CACP). The decision is in keeping with the budgetary promise made earlier this year that the MSP for kharif crops will help farmers get a return of 1.5 times the cost of production. In fixing the MSP for 2018-19 kharif, the CACP has used the A2+FL formula which factors in all paid-out costs borne by the farmer on inputs such as seeds, fertilizers, pesticides, labour, land lease, fuel, irrigation, and the imputed value of unpaid family labour.

A farm sector expert and former Madhya Pradesh bureaucrat said “the MSP approach to solving the farmers’ problem was inherently flawed as it wrongly presumes that all farm produce for which the MSP is declared is actually purchased at the MSP."

“In no state does the government have a proper physical mechanism to be able to procure farm produce at MSP except wheat and rice which the government must buy for the public distribution system (PDS). There are serious challenges even in the purchase of wheat and rice also, as not all cultivators of these commodities are accommodated by the existing procurement system," the expert said, requesting anonymity. “The MSP is a noble idea which is sadly not backed up by on-ground infrastructure and execution."  

In its report submitted in 2015, the Shanta Kumar committee on restructuring of the Food Corporation of India (FCI) cited a survey done by the National Sample Survey Organization (NSSO) which said only 5.8% of the paddy and wheat cultivators in India were able to sell their produce to the state-run procurement centres at the MSP. Yet, the committee pointed out that though MSP was announced for 23 commodities, the price support operates primarily in wheat and rice and that too in selected states. “This creates highly skewed incentive structures in favour of wheat and rice," the committee said, recommending that the government revisit the MSP policy. 

Farm activists agree. “The biggest contradiction in the MSP policy is that not more than 6% of the farm produce is procured at MSP. How will the increased MSP benefit the farmers in this scenario? Also, BJP in its election manifesto in 2014 had promised that the C2 formula would be applied in calculating the cost of production," said Sunil Golya, founder-member of Aam Kisan Union in Madhya Pradesh. On top of A2+FL, the C2 formula also factors in the rentals and interests forgone on owned land and immovable capital assets.

The All India Kisan Sabha (AIKS), affiliated to the Communist Party of India (Marxist) has pointed out that the A2+FL formula was actually a loss-making proposition for the farmers.

“If C2 formula was applied and 50% were added to the cost of production, that would have ensured a return of 150% of the cost of production to the farmers. For instance, the MSP for paddy would have been 2,340 per quintal by the C2 formula plus 50% profit. But by the A2+FL formula, it is only 1,750. For arhar, moong and urad, this difference between the C2+50% and the actual MSP is much higher," said Ashok Dhawale, president of AIKS. 

In Rajasthan, the MSP hike, especially the increase of 525 per quintal in the bajra MSP which represents an increase of 97% over the cost of cultivation, is being sold by the ruling BJP as a historic measure. But Ashok Chaudhary, farm activist and founder of Abhinav Rajasthan Abhiyan, says the devil is in the details. “This MSP increase estimates a total burden of 15,000 crore on the exchequer this fiscal when the total worth of farm produce in the country is 1 trillion per annum. It is not going to benefit 90% of farmers," Chaudhary told Mint. He said the debate over the different CACP formulas to calculate costs of cultivation ignores the fact that farmers are also consumers. “Nearly 78% of the consumers in India are farmers or dependent on farming. In 1970, if a farmer sold 1 quintal of wheat, he could buy 10 grams of gold with that remuneration. Today the MSP for wheat is 1,700 per quintal but 10-gram gold costs 35,000. The farmer uses the same petrol and diesel that other consumers use. Where is the formula that factors this in?" Chaudhary asked.

Rajkumar Gupta, convener of the Chhattisgarh Pragatisheel Kisan Sanghathan (CPKS), says the MSP increase would have modest benefits for the BJP, but farmers were conscious of the electoral promises the BJP had made both nationally and in Chhattisgarh. Chhattisgarh is among states that have performed better at procuring paddy—its major crop—at the MSP. In 2017, the government, through nearly 2000 procurement centres, purchased 5.7 million tonnes of paddy at nearly 9,000 crore at the MSP. If the government purchases the same quantity in 2018 at the increased MSP, paddy farmers would get an additional 1,200 crore, a government spokesperson said, requesting anonymity. But Gupta pointed out that the BJP, in the 2013 state election, had promised a per-quintal bonus of 300 over and above the MSP. 

“The Modi government stopped this bonus in 2015 and also capped the maximum purchase of paddy to 37.5 quintals per hectare from 50 quintals the government was buying till then. The MSP increase of 200 per quintal will not be applicable to paddy in excess of 37.5 quintals per hectare," Gupta said. In 2015, the Modi government asked the states either to stop the bonuses above MSP or provide them at its own cost. The BJP governments in Madhya Pradesh and Chhattisgarh stopped the bonuses of 200 and 300 per quintal they were giving for wheat and paddy. 

But now, while the Shivraj Singh Chouhan government in Madhya Pradesh has revived the bonus of 265 per quintal as a “special incentive" for 2017-18 and retrospective bonus of 200 for the crop purchased in 2016-17, its Chhattisgarh counterpart has announced a 300 bonus for paddy growers and also granted it with retrospective effect from 2015-16. “This may provide some relief to the farmers and to the BJP also, but farmers are well-aware now that BJP has not kept its 2014 promise," Gupta said.