Agriculture

Government Announces Marginal Increase in Rabi Crop MSP

The government has claimed that the increase is in line with the principle of setting MSP at 'cost plus 50%' but this claim is misleading.

New Delhi: The Cabinet Committee on Economic Affairs (CCEA) on Wednesday announced the annual increase in minimum support prices of rabi crops for the 2020-21 marketing season. 

The MSP of wheat has been increased by 6% to Rs 1,840 per quintal, while that of lentils has increased 5% to Rs 4,475 per quintal. Barley too has seen a minor increase of 2% to Rs 1,440 per quintal.

The maximum hike was for safflower, the MSP of which has been increased 20% to Rs 4,945 per quintal. 

The government has claimed that the increase is in line with the principle of setting MSP at “cost plus 50%”. But this claim, as The Wire has pointed out in the past, is misleading. The government is able to claim that MSP is 50% more than cost by setting the lower of two costs between A2+FL (actual paid out cost plus imputed value of family labour) and C2 (comprehensive cost including imputed rent and interest on owned land and capital). 

The Swaminathan Commission on farmers had recommended in 2006 that the higher of the two costs – C2 – be taken as base when the MSPs are set. It suggested that the MSP be at least 50% higher than C2. The implementation of these recommendations was promised by BJP before the 2014 Lok Sabha elections. 

The government, though, has used A2FL as the base for setting MSP and claimed that it has fulfilled its election promise by setting MSP at cost plus 50%. But the MSP for most crops had already been giving farmers returns of over 50% the A2FL cost. 

Also read: Why MSP at 1.5 Times Cost Is Another Empty Promise for Farmers

This practice has continued in this season’s announcement and the claim that MSP is 50% higher than the cost of production continues to be misleading. 

The difference between A2FL and C2 costs can be substantial. For the 2019-20 marketing season, the Commission for Agricultural Costs and Prices – whose job it is to determine the costs of production and recommend the MSP to be set – has shied away from publishing the data for C2 costs. 

But, if a comparison is made between the A2FL and C2 costs for the 2018-19 season, for which C2 data was published, it is clear that the difference between A2FL and C2 costs is substantial. For instance, the difference is the least, at 27%, in the case of safflower. 

In the case of wheat, a major rabi crop which has a good procurement network in parts of north India, the difference between A2FL and C2 costs is 53%. For lentil the difference is 57%. 

As is evident, if C2 costs are taken as base, as the Swaminathan Commission had recommended and as the BJP had promised prior to the 2014 elections, the MSP will have had to be substantially higher than what they are in order to be 50% more than the C2 cost.