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Hiked MSP for Kharif Crops.

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July 05, 2018

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

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