The minimum support price (MSP), annually ‘fixed’ by the government for 24 kharif and rabi crops, is applied only to two commodities (wheat and paddy) for dedicated/open-ended procurement (and over-procurement too). In exceptionally distressed years, maize and cotton too are procured as a price support operation. However, in practice, the remaining 20 agro commodities do not derive any benefit at all; neither there is any commitment from the government for intervention.
Of about 900 million tonnes of agro commodities that are produced in the country per annum, only 70-75 million tonnes are procured by the government at MSP. The system initiated from 1965 onwards thus serves only 8% of farmers and excludes the balance 92%. A policy that ensures omission of more than 90% of farmers is a gross distortion and cannot be seen even as a shadow of a welfare policy. In other words, the MSP mechanism has 8% efficiency on the national scale and is therefore redundant for retention.
The discovery of commodity prices worldwide is daily made through diverse trading market practices. They can’t be extrapolated on an annualised basis by old, outdated data tabulated by the CACP. Globally, agro commodity values have declined by 25-30% from those of a year ago. Any downward revision under the MSP policy is inconceivable. Averaging out the cost of production in different agro-climatic conditions, varied yields and cost indices of 26 states is a questionable exercise for the determination of MSP.
Procurement and handling operations of wheat and paddy/rice by FCI and state government agencies (SGAs), including its extension to PDS, are already exposed to multiple controversies in terms of payment through arthiyas, local taxes, poor quality, shoddy storages, shortages, pilferages and illegal diversion to the market. About 90-95% of arrivals in the market are cornered by state agencies, crowding out private trade—thus generating domestic inflation. If the MSP regime is retained and more items are covered, such ills will plague the nation in an amplified mode.
Take the recent case of ‘announcing’ higher MSP of pulses by 6% and additional bonus R200 per quintal under kharif phase of FY16 without defining the average or basic quality of tur (arhar) and moong. Surely, the decision is prompted by shortfall of about 2 million tonnes in the output of pulses declared by the agriculture ministry. Government agencies have never procured local pulses in the past—which are in the raw form, require sound storage structures with fumigation facilities, have shorter shelf life, need processing, polishing and packing before distribution. Thus, dedicated procurement or price support operation for pulses is impractical. Higher MSP plus bonus will remain a paper price. Assuming that some official agencies are directed to undertake this operation with subsidy, it will be the distributors/retailers/dal millers who will be profiteering because they will buy from state agencies at the bottom values, hoard, process and then sell in competition with pulses imported by private traders at high prices.
The central government has been advocating to states such as MP and Chhattisgarh for the last two years to refrain from giving bonuses for wheat and paddy to which they abided. But the government itself is now resorting to bonuses for pulses, even though on paper!
Relaxation of moisture content of paddy is a normal ritual. And if the government does not give in to such demands, arthiyas and procurement officials work hand-in-glove under the umbrella of MSP regime.
For wheat, where MSP is routinely applied, there is a bigger aberration this year. Of the 27 million tonnes procured at MSP, most of it is of lower quality/rain-damaged grain that has landed in government warehouses. Since wheat production is estimated at about 90 million tonnes, better quality wheat will be traded in the market or imported. Such a situation also emerged in early 2002-03 when lustre loss wheat was procured. MSP, thus, acts as enabling instrument for the acquisition of junked grain as well.
MSP of wheat and paddy with promised procurement transmits a signal to sow more and more of these cereals even at the cost of other crops (pulses, oilseeds, maize) because the government is the guardian angel for them. The effect is that India is a net importer of 12 million tonnes of edible oil and 4-5 million tonnes of pulses.
For sugarcane, the SAP (state-advisory price) fixed by the state is the MSP which millers must pay to farmers for vote-bank politics irrespective of market realisation by the millers for sugar. Take the case of sugar sector in Uttar Pradesh. Arbitrarily fixed sugarcane price is R280 per quintal, production cost of refined sugar ex-mill is at R3,500 per quintal and market price is R2,400 per quintal—a loss of R1,100 per quintal or R11,000 per metric tonne. Bad debts of millers to banks have mounted. Arrears to farmers at national level have spiked from R9,000 crore in FY12 to R21,000 crore in FY15. Sugar production has escalated form 24 million tonnes to 28 million tonnes with carry-over stock of 10 million tonnes. The global prices have collapsed and there are hardly any takers for Indian sugar abroad. Logically, sugarcane price should scale down to R170-180 per quintal to set some sense in the market. Neither the Centre nor the state governments are willing to correct the distortion of SAP.
When India is moving fast towards market economy and the evidence of failure of socialism is now a historical record, the time is ripe to say goodbye to the mirage of MSP/SAP. There is no necessity to ‘fix’ MSP of commodities because markets are incorrigibly volatile. Even if they are to be procured for official intervention, let the guidance be given by the market rather than the babus or economists or even politicians sitting in the Krishi Bhavan or in various states.
Also, there could be some form of ‘price deficiency programme’ where the farmers are compensated for ‘average lower price realisation’ in the market, if that be the case, through direct bank transfers under the Jan-Dhan Yojana. Such a scheme may be applied to all commodities to cover 100% of farming community.
The author is a grains trade expert