Back to the old mindset

The new rabi price policy cleared by the cabinet committee on economic affairs (CCEA) on Wednesday offers few surprises. While the minimum support price (MSP) of wheat has been raised by Rs 10 a quintal, or 1.58 per cent, that of rabi pulses and oilseeds has been stepped up by relatively higher margins varying from Rs 25 to Rs 100 a quintal.

Prima facie, the price hike in wheat seems modest and may evoke an adverse response from farmers, partly because even last year the wheat price was kept virtually unchanged by the then NDA government; all that was done then was to merge the previous year's drought-linked bonus with the procurement price.

It had become the NDA's policy, in the later part of its tenure, to gradually correct the imbalance between domestic and international prices for at least some agricultural prices.

From this viewpoint, the UPA move seems a modest departure from that policy, though it has sought to explain this away by citing the need for raising rabi production to partly offset the monsoon-induced kharif losses.

Out of the different decisions announced, it is the hike in the MSP of wheat that matters. For this directly influences the food subsidy, with the obvious fiscal repercussions.

In the case of pulses, the hikes in the MSP are usually of little consequence as the market prices invariably remain higher than the official rates owing to perpetual short supply. Though this is normally the case also for oilseeds, this year may be different.

Global prices are on the decline and the country is poised to bag a record domestic harvest. This might tend to depress prices below the support price level, especially during the peak marketing season.

But, going by the past record, oilseed growers will have to bear the brunt of this in the absence of adequate price support arrangements in most places.

The time has come to have a national consensus on agricultural price policies, keeping in mind the WTO scenario with regard to trade talks, which will focus on agriculture. Artificially jacked up foodgrain prices are undesirable even for other reasons.

These can render staples out of the economic reach of the poor, as has already happened to some extent. Moreover, the economic impact of the price hike in a commodity like wheat, which enjoys open-ended procurement, is disproportionately high.

This is because incidental overheads, such as mandi charges, state levies and middlemen's commission, are determined on the basis of the MSP. The old mindset of viewing the MSP as the panacea for farmers' woes needs to change.