The growing irrelevance of a MSP

 The Business Standard

The Central government’s MSP has proven to be unrealistic and ultimately disastrous for India’s farmers.

Imagine that the first of the month rolls around triggering a ritual that never fails to give you a distinct, intangible sense of well-being —logging on to your online bank account and seeing your account balance pumped up thanks to a well-deserved paycheck that’s just been deposited. Imagine the feeling in the pit of your stomach when you realise that your paycheck is a third, or maybe even half what it should be because of the vagaries of some complex pricing mechanism controlled by Human Resources. Would you come back to work? This is sort of what farmers across the length and breadth of India have been wrestling with—where the costs of cultivating their land is seldom met by the sale of foodgrain to the government (In India, the government, not private companies, are responsible for procurement) because the price—called the minimum support price (MSP)—is far below what would allow the farmer to earn a living. So grave is the situation that 40,000 farmers in East Godavari district of Andhra Pradesh recently decided to let their fields go fallow this year.

Year after year, the central government declares an MSP which neither reflects the cost of production, nor provides support to farmers. Here’s how it is calculated: First, the department of statistics within the Ministry of Agriculture collects data from about 8000 farmers across the country on a daily basis for a month in a scheme called ‘Cost of Cultivation’. This includes a arange of agricultural inputs such as labour costs, land rent charges, and seed and fertiliser costs. These are then forwarded to the Committee of Agricultural Costs and Prices (CACP), within the same ministry which evaluates the data and then makes a recommendation of an MSP for 24 different commodities to be accepted or rejected by the Cabinet.

Yet, the MSPs very rarely reflect the on-ground reality of farmers in states as a farmer in Punjab, with an average cost of male labour at Rs 250 a day, for example, will face a very different economic equation than a farmer in Maharashtra where labour is Rs 80 a day. Input costs differ dramatically across states and regions. In fact, states go through a similar exercise every year to establish a realistic MSP for their states and send it to the Centre which apparently ignores it and churns its own numbers.

To give you a sense of how far-off the Centre’s finger is, on the pulse of agricultural reality in the country, here is the cost to grow moong based on the calculations done by the Maharashtra government this year versus the Centre’s numbers.

The main inputs (per quintal) with their rupee costs in brackets range from hired human labour, male (Rs 87) and bullock labour (Rs 3459) to seed (Rs 943) and manure (Rs 475), to insurance (Rs 167) and interest on capital (Rs 297) amongst other things. Now, these along with rent and family labour, give a cost per quintal of Rs 3,482. With a 15 per cent profit it becomes Rs 4,062.

The MSP for moong dal declared by the CACP is Rs 3300 this year.

The CACP never releases the inputs it uses to derive the magical numbers each year. “The labour costs, or the land costs are never revealed,’’ says Vijay Jawandhia, of Shetkari Sanghatna of Vidarbha, an organisation for farmer rights.

Last week, the latest MSPs were announced with channa going up to Rs 2,800 while the going market rate is Rs 3,500, in addition to the commodity’s import allowed duty-free. Soya has been selling in the market at Rs 2,000 a quintal for the last four years, but priced this year by the CACP at Rs 1,600.

Another big oversight is that the CACP doesn’t factor the steep rise in certain input costs. For instance, Di ammonium phosphate (DAP), a key fertiliser used by farmers at the rate of two to three bags in an acre of wheat, has seen its price increase from Rs 450 two years ago to Rs 900 today. A bag of 50 kilos sells for Rs 1200 in the black market.

Several objections have already been raised against the MSP methodology. The Parliamentary Standing Committee on Agriculture in 2008 questioned the method of averaging the cost of production and wages in different regions, saying it was unfair. It even suggested that if costs for all 24 inputs be calculated on neutral ground at a government university campus, it would offer a better solution. The MSP, said the committee, was being created by people sitting in offices and without even going to the field.

Yet, Ashok Gulati the new chairman of CACP feels that a higher MSP can never be a solution. “Not only will it add to inflation and hurt consumers, it serves no purpose if there is no procurement,'' he says citing the example of Bihar where farmers sold paddy at 15 per cent below the MSP. “The solution lies in cash compensation to farmers where they get prices below the MSP, or where there is no procurement.'' says Gulati.

Could that be a realistic panacea ? Take for instance this year’s bonus of Rs 500 that the Government had declared to farmers who sold pulses directly to NAFED (the central procurement agency for pulses) within two months of harvest. Jawandhia says that NAFED never even showed up in Vidharbha and no one got paid.

A. Haque the former CACP chairman dismisses Gulati’s solution of a cash compensation. “It is not practical to do it. Where are the banks, and where are the accounts in the remote villages?” he asks. Haque, to his credit, implemented a steep hike in MSP in his last year as chairman. “There is no substitute to a good MSP and procurement and storage. All other talk is just hot air,’’ he says.

Haque also dismisses Gulati’s fears that higher MSP would hurt consumers. If the Government is giving rice and wheat at Rs 2 and Rs 3 a kilo does that not negate the higher MSP the farmers are paid? You don’t need an economist to understand this. Of course there is a limit to increasing MSP. But at least it should reflect the cost incurred,’’ says Haque.

Haque’s solution: Take the highest price so no one loses. He also suggests a choice between minimum wages or market wages to calculate MSP. These would automatically boost the profit margin too, he says. Another welcome move: make the CACP a statutory body as recommended by the Y K Alagh committee set up to study reforms in CACP. This was repeated by the MS Swaminathan Committee. The Government ignored both. Farmers think that this is a key solution for their communities. “The CACP should be independent and it should speak for farmers and not for consumers,” says Ajay Jakhar a farm sector activist and son of former Speaker Balram Jakhar. He can only hope that someone in government is listening.