Modi Government's 'Historic' MSP Hike Is Nothing More Than a Band-Aid for Farmers

Not only has year-on-year MSP growth been much higher in previous years, the government still remains silent on how it will manage to increase procurement.

The Narendra Modi government recently approved the decision to hike the minimum support price (MSP) for the kharif marketing season for 2018-19.

The MSP for paddy has been increased by Rs 200 per quintal, and the MSP has gone up for other crops too. The minister of agriculture and farmers’ welfare, Radha Mohan Singh, in his tweets, and home minister Rajnath Singh, in his press briefing, hailed this as a “historic decision”.

It is important to do a quick fact-check and put this hike into perspective.

In its 2014 election manifesto, the BJP had promised to fix the MSP at 50% above the cost of production. Months after being elected, the government took a U-turn and argued in the Supreme Court that prescribing the MSP to be 50% above the cost is not possible and that such a step would “distort markets” and “be counterproductive in some cases”.

Under severe pressure due to farmers’ protests across the country and with the 2019 elections in sight, a hike has now been approved. It must be noted that the increase at the moment is only for the kharif marketing season for 2018-19 and no policy decision has been made to fix the MSP at 50% over cost of production. There is no assurance that the same method will be followed in the rabi marketing seasons and for the years to come.    

Moreover, the 50% hike in MSP is not over cost ‘C2’ as promised, but over cost ‘A2+FL’, which is considerably lower than cost C2 as it does not include the rental value of own land.

The increase of Rs 200 per quintal in the MSP of paddy is a hike of 13% over the previous year. The MSP for arhar and urad has been increased by about 4%, while the highest hike has been done for bajra, jowar and ragi (over 30%) .

A quick look at the MSP data reveals that the year-on-year MSP growth has been much higher in previous years.

The MSP hike for paddy* this year is lower than the year-on-year hike during the three years between 2007-08 and 2009-10, and in 2012-13. In the case of other crops as well, the hike in MSP was higher in previous years. For instance, the hike in MSP for cotton (long staple) of 26% this year is lower than the 48% hike in 2008-09. The hike in MSP for sunflower seed of 31% is lower than the hike of 47% in 2008-09.

Is this then really a historic hike in MSP? Only if history began after May 2014.

It must also be noted that during the tenure of the present government, the rise in MSP till now has only been modest. For instance, in the case of paddy, the real MSP, computed by deflating the nominal MSP by the consumer price index for agricultural labourers, has actually declined between 2013-14 and 2016-17. The increase in MSP was long overdue.  

The hike in MSP will only be effective if a number of steps are taken along with it. It is well-known that procurement levels vary significantly across crops and regions.

For instance, much of the paddy procurement is concentrated in the states of Punjab, Haryana, Andhra Pradesh and Chhattisgarh. While some improvements in procurement have been made in recent years, procurement as a percentage of production remains low in states like West Bengal, Assam, Uttar Pradesh and Bihar. In the absence of proper procurement, the market price of rice has fallen below the MSP for a number of years in these states.

Already, there are calls in this regard on the legislative front. The Commission for Agriculture Costs and Prices (CACP), the body which fixes MSPs for 23 kharif and rabi crops, has asked the Modi government to bring  in a ‘right to sell at MSP’, which will give some actual legal teeth to this whole exercise.

The NSS Situation Assessment Survey of Agricultural Households (2012-13) data also show that the awareness about MSP and the procurement agency is much lower among marginal and small farmers (cultivating less than two hectares of land) as opposed to the large landowners, even though the marginal and small landowners constitute 85% of the cultivator population. Hence, a rise in MSP will not benefit a large number of cultivators, unless concrete steps are taken to ensure procurement across states.

Historically, the food policy in India has relied on protecting the poor from price rise and food shortages through the public distribution system (PDS). There have, however, been attempts to exclude the poor from the PDS by introducing targeting, setting arbitrary and low poverty lines, and most recently by linking the PDS to Aadhaar. Notwithstanding the recent improvements in the PDS, the Economic Survey 2016-17 made a case for scrapping the PDS and other such welfare programmes in favour of direct cash transfers.   

The track record of this BJP government on the agricultural front has been poor. The average agricultural growth during the first four years of the present government was only 2.4%. The real wage of agricultural labourers grew annually by 0.67% in this period. While drought did dampen the prospects in 2014-15 and 2015-16, the government did precious little to provide relief and the investment in agriculture declined in real terms. Add to this the crash in prices owing to demonetisation.

These failures are being hidden by tactics like stalling the release of data on farmer suicides for the past two years. Celebrating this MSP hike as historic and calling it a game changer is overblown at best and bad economics at worst.

Whether it is good politics or not will be answered in the forthcoming elections.

*From 1997-98, the MSP in paddy is given announced for two categories- common and grade A. Prior to that, MSP was announced for three categories-common, fine and super-fine.

Ishan Anand is a PhD scholar at Jawaharlal Nehru University, New Delhi.