Cost, inflation impacts major cause of worry
There is unease in the government, especially in the finance ministry, on the implications of the 15-53 per cent rise proposed by the Commission on Agricultural Costs and Prices (CACP) in the Minimum Support Price (MSP) for kharif crops.
However, the CACP has defended its recommendations as just enough to ensure a reasonable return to farmers and for food security.
The Cabinet is likely to take a decision on the MSP next week, to give enough time to farmers on planning their sowing decisions. Official sources were doubtful if an increase could be sustained beyond 10-25 per cent, barring one or two crops where production needs to be enhanced or farmers had faced big losses due to unfavourable weather conditions, as in groundnut.
Besides, the Prime Minister’s Office has ruled out any possibility of a bonus in addition to the MSP. Officials say a bonus is to be considered if the MSP does not take into account any sudden increase in cost of production or any external factor not factored in. There is no case for an additional, said officials.
It is learnt the ministries of finance and food have questioned the recommended increases of the CACP, citing high inflation and food prices as a cause of worry.
The defence
The CACP, as mentioned earlier, has made a case for its recommendations. For instance, in the case of paddy (de-husked rice), it wants a rise of 16 per cent, to Rs 1,250 per quintal in the 2012-13 season. Critics, including from outside the government, said the recommendations, if implemented, would fuel inflation and exacerbate the glut in grain stock. However, CACP has said the bare minimum cost of cultivating paddy is estimated to increase on an average to Rs 1,185 a quintal in the current crop season starting July, just Rs 65 less than the proposed MSP. In the absence of such a rise, farmers would lose interest in cultivating paddy, says CACP.
Senior CACP officials say the average weighted cost of production of paddy across the country is estimated to rise 34 per cent in 2012-13 from last year.
Being an average, the MSP recommendations do not even cover 80 per cent of the production cost in the big rice producing states of Andhra Pradesh, West Bengal, Karnataka and Chhattisgarh, they added.
“In the main paddy growing states, the cost of production is much higher, but we can’t make region-wise recommendations. Hence, despite our best efforts, the MSP won’t cover the entire cost of production in these states,” said CACP Chairman Ashok Gulati.
Besides, MSP takes into account only the bare cost of production such as those for seed, fertiliser, labour and irrigation.
It does not include other costs like the rental value of land, let alone the opportunity cost if the land had been used for some other purpose.
However, Planning Commission member Abhijit Sen told Business Standard, “Given our stocks, we should give less hike in MSP. It would helped private purchases and also problems related to government storage would be less.” He said a high MSP for wheat had killed the export market. For paddy, it would have a huge impact on the already high subsidy outgo of the government.
India’s foodgrain stocks in state granaries are 70 million tonnes, while storage space is 66 mt. The excess lies in the open. And, while, wholesale price inflation came down to 6.89 per cent in March from 6.95 per cent in February, food inflation rose to 9.94 per cent from 6.07 per cent in the period. Inflation in rice rose to 4.73 per cent from 1.53 per cent over the period.
‘Barely enough’
Gulati counters that unless we provide adequate return to growers through a transparent and just system of MSP, it will be very difficult to sustain their interest in farming. “Already, uneven markets do not allow a fair price to farmers. If we do not (even) cover his cost of production, then there is no point in making the recommendations,” he said.
The major jump in cost of production has been witnessed by states where labour cost has risen manifold in the past three-four years. “And, mind you, we are not giving any extraordinary remuneration to our farmers,” Gulati added.
In fact, Thailand, the top world exporter of rice before India upstaged it in 2011-12, gives around $480 per tonne support to its paddy farmers, while India gives just around $240 per tonne, assuming the average currency exchange rate of Rs 53 against a dollar.
On the rise in edible oil MSP, the Commission said India imports 40-50 per cent of its annual requirement. The figure is expected to be almost Rs 50,000 crore in 2011-2012. “Either you increase the MSP to encourage farmers to shift from grain to oilseeds and pulses or be ready to bear the enormous import bill every year,” says Gulati.
Compared with the current MSP of Rs 2,700 per quintal for groundnut, Rs 3,400 for sesame and Rs 2,800 for sunflower oil, the CACP has recommended a 23 per cent in sesame and 30-37 per cent for all others.
Gulati gave a similar reasoning for jowar, where the MSP has been suggested at Rs 1,500 per quintal, 53 per cent more than in 2011-12. For millets in general, the recommendations are for a 20-53 per cent rise for bajra and maize, 43 per cent for ragi and 53 per cent for jowar. There is a general shortage of millets, used as both a cereal and as fodder for poultry. As for jowar, the government has said it wishes to encourage its output. “The all-India average weighted cost of production of jowar is Rs 1,646 per quintal, so our 53 per cent suggested hike in MSP is not even enough to cover that. How can we say that we have given unjustified increases?” asked another senior CACP official.
As for pulses, the suggested rise in 25-30 per cent. Except for tur, moong and sunflower seeds, the suggested MSP is less than the average market price, argue proponents for the CACP view.
