Will legalising MSP reduce import Bill of edible oils and pulses?

Protesting farmers' main demand of legalising minimum support price (MSP) has divided opinion. While one school of thought says that it would lead to crop diversification and help India keep its burgeoning import bill on edible oils and pulses under check, the other opines that it would incentivise farmers to produce low-quality crops.

Contrary to popular perception, India has a trade surplus in agriculture and allied activities, which stood at $18.65 billion during 2022-23 against $15.92 billion in the previous year.

However, the surplus was mainly on account of rice, wheat, sugar, spices and buffalo meat. However, it was dragged down by vegetable oils and pulses, which India imported to meet the domestic demand. The country had a $20.84 billion trade deficit in vegetable oils during 2022-23, up from $18.99 in the previous year. The deficit was around three times during 2022-23 against $7.2 billion ten years ago. This deficit during the year alone constituted 7.8 per cent of India's total trade deficit at $266.78 billion.

The enormity of edible oil imports could be gauged from the fact that India was the top country to import this food stuff in the world in 2022, according to the UN trade statistics book.

India imports pulses, too, but the trade deficit here is not as enormous as in edible oils. The deficit here fell to $1.28 billion during 2023-24 against $1.87 billion the previous year. The deficit remained less than $two billion during the last five years each but it had risen to as high as $four billion during 2016-17. It had remained over $2 billion during each of the first four years of the Modi government 0.1.

Farmers are pressing to legalise MSP for all 23 crops, among their other demands. But will legalising MSP, at least on pulses and oilseeds, lead to diversification of cultivation?

To a query over this, S Mahendra Dev, director and vice-chancellor of Indira Gandhi Institute of Development Research, says if procurement is there, farmers will diversify.

He says farmers will shift to pulses and oilseeds only if the rate of return is equal to or higher than that of rice and wheat.

"Otherwise, farmers won't diversify," he points out.

Bank of Baroda chief economist Madan Sabnavis says MSP does theoretically lead to diversification.

"We already have the MSP every year and there is no need really to legalise it," he emphasises.

The government does not have machinery for procuring all crops any way, Sabnavis says.

The problem with MSP is that farmers will gravitate to the lowest acceptable quality, and hence, it is counter-productive, he highlights.

Dev points out that the rate of return is dependent on the yield and price of the produce. If you increase MSP but the yield is low, farmers' income will be low, Dev points out.

"So, we should have policies for both yield and price, then people will shift to pulses and oilseeds. MSP takes care of price, technology will take care of yield," he says.

Rice and wheat are grown on 58 per cent of total land under foodgrain cultivation. While rice was grown on 43.90 million hectares, wheat was grown on 30.28 million hectares (average of 2016-17 to 2020-21). On the other hand, pulses were grown on 29.10 million hectares. Major oilseeds were grown on 25.65 million hectares.

While area under pulses and oilseeds each is not very less from that under wheat, the yields are not comparable. The yields are much higher in rice and wheat compared to pulses and oilseeds. This is so because rice and wheat are grown on irrigated land, while pulses and oilseeds are cultivated on mostly dry land.  

The yield of rice was 2607 kg per hectare (average of 2016-17 to 2020-21), and that of wheat was 3384 kg per hectare. On the other hand, the yield of major oilseeds was 1,242 kg per hectare and that of major pulses at 805 kg per hectare, according to data from the Department of Agriculture.

Dev says if the assured price is there, people will plant pulses and oilseeds in irrigated areas, too.

While the government does announce MSP for major pulses and oilseeds, there is very little procurement and hence it is meaningless.

Won't increasing procurement of oilseeds and pulses will disturb export markets for rice and wheat?

To this, Dev says this will but imports of pulses and oilseeds will reduce.

Rice, wheat and sugarcane consume 80 per cent of water used in agriculture and exporting these crops is like exporting water, he explains.

Diversification of pulses and oilseeds is not only good for soil and the environment but also for climate change. If drought is there, these crops would be more resilient, he says, while emphasising that pulses and oilseeds are also nutritionally good.