Chennai July 4, 2018: Today, the Cabinet has announced higher MSPs in recognition of the economic problems of farmers. The economic and ecological health of agriculture is not good as is clear from the massive protests by kisan organisations and the re-occurrence of farmer suicides. The two main demands of the farmer’s movement are for loan waiver and remunerative prices.

The monsoon and the market play an important role in the profitability and stability of income in agriculture. The government has taken steps to improve crop insurance but the coverage and performance are still far from satisfactory and risks are still high leading to demand for higher price and credit reform.

In terms of marketing support which farmers need, the policy should havethree integrated components:

i) A minimum support price or MSP based on the formula of C2 + 50%

ii) A favourable procurement policy to ensure that farmers do receive the MSP

iii) Increasing consumption through the effective implementation of the Food Security Act, school noon meal programmes, etc.

The announcement today has the following implications.

(i) The MSP announced is higher in absolute terms but below the recommended level. For example, the MSP of common paddy has been hiked from Rs 1550 to Rs 1750 per quintal. Taking the C2 cost of last year (2017-18) and assuming a 3.6 per cent rise in input costs based on the input cost index used by CACP, the estimated C2 cost for this year (2018-19) is Rs 1524. So, the new MSP is C2+15%, not C2+50%. In the case of ragi, the new MSP is C2+20%.Similarly, for moong, the MSP has been raised from Rs 5575 to Rs 6975, so it is now C2+19%.

(ii) Higher MSPs are welcome but there is inadequate public procurement at MSP, except in the case of wheat and rice. This is clear from the experience of farmers who cultivated more pulses, on the expectation of procurement but were let down by a crash in market prices. Indeed, for many crops including urad, tur, maize, groundnut, soyabean, bajra, rapeseed and mustard, the weighted average mandi price was below the corresponding MSP before the monsoon.

(iii) Other steps such as those recommended by the National Commission on Farmers which will help to improve both income stability as well as total income from farming will have to be introduced.Appropriate measures are also needed to ensure that groundwater over-exploitation, and other eco-destructive activities, are limited.

To sum up, announcement of higher MSPs is a welcome first step in the process of overcoming agrarian crisis. This has to be followed by more action as indicated above especially in terms of procurement and storage.