Dr Ashwani Mahajan
Recently Government of India decided to give minimum support price (MSP), adding 50 percent to the cost of cultivation to the farmers. This decision of the Government has been widely welcomed by many, except a few political voices, which call this to be inadequate. Agriculture is perhaps the only sector where farmers are generally, not able to recover even their cost of cultivation. Statistics reveal that the contribution of agriculture in GDP which was 45 percent in 1970-71, has come down to nearly 15percent now. The condition of farmers has been getting bad to worse. Inequalities between rural and urban areas have increased so much that the ratio of per capita income in rural and urban areas is now nearly one to nine. That is, if per capita income in rural areas is rupees one thousand in urban areas it’s nine thousand.
Why do farmers need MSP
Provision of minimum support price (MSP) improves the incomes of the farmers, and at the same time, encourages the agricultural production. Today, farmers are not able to fulfill their bare necessities of life due to extremely low income, as the prices they fetch for their produce do not even cover their cost of production. Farmers are fast deserting agriculture and their next generation is not willing to engage in agriculture. It is obvious that in such a situation production of agricultural commodities dampens and availability of agriculture produce would go down. In the past, there has been an increase in the demand for agricultural commodities, especially food products, due to rising income in non agricultural sectors. In such a situation the prices of food products have been rising, because of mismatch between demand and supply. Such a situation is called food inflation. Food inflation increase the wages, because subsistence cost goes up. Because of food inflation, food also goes outside the reach of the common man, and causes malnutrition, especially among women and children.
Because of the non-remunerative prices, farmers get more and poorer and the burden of debt on farmers also keeps on rising. In the last one and a half decades, so far three lakh farmers have committed suicide. As a populist measure, which was necessitated due to farm crisis in the post liberalisation era, firstly UPA Government came out with the farm loan waiver of nearly rupees 70,000 crores in 2008. In the last two years, many State Governments, including Uttar Pradesh, Madhya Pradesh and Maharashtra, have also implemented debt relief schemes. Latest farm loan waiver comes from newly formed Karnataka government on July 4, 2018, and state government there, has announced a debt relief of nearly 34,000 crores of rupees. Not to say that such loan waivers are essential in present circumstances, to provide relief to farmers from distress.
However, the bigger question is that what to do that farmers do not go into the debt? For this it is essential that they get remunerative prices for their produce. If they get 10 percent over and above the cost of production and their income is rupees 1000 but if they get 50% over and above their cost their net income would be Rs.5000. That is, five times increase. If we think deeply remunerative prices to farmers saves farmers from going into debt.
How much has been the increase in MSP
Bhartiya Janata Party, in its manifesto in 2014 Lok Sabha elections promised that in their rule, farmers would be given MSP, by adding 50% to their cost of production. Government could not fulfill this task in the first four years of its rule. However, in the present kharif season the government has announced increased MSP for 26 agricultural commodities. In case of Ordinary Paddy, this increases is 13%; in case of Jawar, it is 43%; in case of Bajra, it is 36.8%; and in case of Moong it is 25%. Government has announced MSP by adding 50% to the B2 cost plus family labour cost. One can say that farmers are going to get much better MSP in the present Kharif season.
Does increased MSP causes inflation?
There is no doubt that with increase in MSP, the condition of the farmers would improve, as their income would increase. However, some economists are expressing this concern that this decision of the Government would lead to inflation, especially of food products. It seems that these economists are not aware of the dynamics of agricultural pricing and their relationship with inflation. Perhaps that’s the reason that they are looking at the mathematical relationship between MSP and inflation.
The practical observation is that after harvesting the supply of agricultural products increases suddenly, causing prices of agricultural produce drop in the short run. As farmers do not have holding capacity due to their weak economic conditions, they are forced to sell off their produce at whatever price they get in the market. In the last six decades government has been making provisions of MSP for various crops so that the farmers are saved from the sudden fall in the prices. Experience so far has been that assurance of minimum support prices makes the farmer work more harder and produce more agricultural products. As a result of more supplies, prices of agricultural products, especially food products do not increase even in future, and therefore common man is the real beneficiary, as prices of food products do not increase haywire and food remains well within the reach of the common people.
Many economists and agencies have made researches in this context and have proved that provision of higher MSP is not inflationary. Prof KU Gopakumar and Prof VN Pandit, International Monetary Fund, Bank of America, State Bank of India and a few others have produced research papers and reports in this regard. On the contrary some economists even say that this increase in MSP would rather reduce the prices of agriculture produce.
Does it cause additional burden on exchequer?
Some economists argue that provision of higher MSP would cause additional burden on the exchequer. If we look at this deeply, we find that this argument is also not valid. In the past, sometimes government both at the central level and at state-level, because of the worsening conditions of the farmers, have been trying to calm down farmers, by announcing loan waivers. If we provide remunerative prices to the farmers, they would no longer need loans and thus loan waivers from government would no longer be needed. Therefore, we can say that providing remunerative prices to the farmers would not cause burden on the exchequer rather this burden would go down in future.
(The author is Associate Professor, PGDAV College, University of Delhi)
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