Thousands of farmers have been hit on the knuckles by a prolonged stand off between the finance and agriculture ministries over the support price to be paid for wheat, harvest for which will begin in just a few weeks.
Encouraged by good prices that wheat fetched last year, farmers in northern and central India this year took to sowing of the staple getting ready for another year of handsome gains.
Sowing for the wheat crop began in late October and soon after, talk of increase in support prices started making the rounds in corridors of Krishi Bhawan that houses the farm ministry.
But two months down the line, there is no final word on the support price, except official pronouncements that the matter will come up at the next scheduled cabinet meeting. For the 2009 crop, the Commission on Agricultural Costs and Prices has recommended a support price of Rs 1,080, up from Rs 1,000 a year ago, to ensure farmers plant more wheat.
But the finance ministry, which has burnt its fingers after a steep increase in the support price for cotton, sees no need for any increase as it fears this would only add to the ballooning food subsidy bill.
If the support price of wheat is increased substantially for the new season, the government’s procurement will be even higher, and it may have to give larger subsidies to dismantle the large stock and ensure adequate economical supplies to user industries such as flour mills.
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A sharp rise in wheat support price would add to the government’s problem of plenty and also lead to higher open market wheat prices, which could add to inflationary pressures. The agriculture ministry has over the last two years been announcing the minimum support price for wheat well ahead of the planting season in November to ensure higher sowing.
The country, among the largest producers and consumers of wheat globally, had to import the food grain in 2006 and 2007 to meet domestic requirement amid a production shortfall, and has since been encouraging higher wheat sowing to avoid further shortages.
It has also maintained that the domestic support prices should be linked to international prices of the grain.
But this year like most commodities, global prices of wheat too have tanked, leaving little reason for the government to increase the domestic support prices.Also, with global prices weak private players are unlikely to mop up wheat from farmers, leaving most of the purchases to the Food Corporation of India and other state agencies.This will only add to bulging stocks and will in no way influence the cropping pattern as wheat sowing is all but complete.
The government had set the minimum support price for wheat at Rs 1,000 a quintal in the last Rabi season to encourage farmers to grow more of the food grain and help India tide over an emerging threat on food security. But in India, the supply response to high support prices have been rather muted with several factors like monsoon, weather patterns, seeds and irrigation facilities ultimately deciding the crop size.
So, what benefit is to the Congress Party-led government to announce the support price for wheat, with just a few months to go for general elections?
The government seems to be caught between the devil and deep sea — if it does not increase prices, farmers will be hurt; if it does, the subsidy bill will go up, already high stocks might mount and the consumer may be hit by way of higher market prices of wheat.
Why should the government, considered farm-friendly with a plethora of loan waivers and easy credit schemes, land itself on the receiving end? It has invited a problem by increasing the cotton support price by about 40 per cent this year.
The sharp increase in the base price for cotton, aimed largely at pleasing the rural electorate ahead of polls next year, has come when the global prices are depressed, and ginners and textile mills are finding it unviable to buy cotton from domestic markets at the prevailing price.Ginners are now asking the government to either reduce the support price or give subsidy for purchasing cotton at uneconomical prices. Textile mills too have a sob story, with exports already hit by a global economic downturn.
In the last Rabi season, wheat acreage rose to a record high of over 28 million hectares, encourage partly by high support prices and to a degree by conducive weather conditions. Plantings this year have crossed 26 million hectares and acreage this season too appears to be the same or marginally higher.
And output could top 78.4 million tonnes produced last year, a higher or lower MSP making little difference to the production. As such, why should the government rock the boat?
Silence is golden, as the maxim goes.