The new MSP hike to cost Centre Rs 33,500 crore more

In the earlier reports as stated that the government is set to announce a new minimum support price (MSP) regime that will provide farmers a profit margin of 50% over cost of production. Now the additional bill is likely to be around Rs 33,500 crore.

On Wednesday, 4th July 2018, the cabinet is going to consider the new MSP which will largely apply to paddy and pulses but will benefit ‘nutri-cereals’ like millets the most. According to the cabinet note, the added cost of MSP is 0.2% of GDP. In the additional outgo, share of paddy, will be around Rs 12,300 crore.

This time a range of crops will be covered by the promised MSP moving away from a focus on rice and wheat. Also, procurement mechanism will be announced later. The maximum weight in calculating cost of production has been accorded to labor, which is about 53% while other costs like fertilizers, farm animals, pesticides, seeds and irrigation add up to the rest.

Among millets, ragi (finger millet) will see a maximum hike of over 52% compared to its current MSP, followed by 42% for jowar (sorghum) and 36% for bajra (pearl millet). The hike in MSP of nigerseed (oilseed) and moong (pulse) is also expected to be much higher. As compared to other non-cereal crops, pulses have been procured in larger quantities.

The main Kharif crop is still paddy. The revised MSP will be Rs 200 higher than the current Rs 1,550 per quint. The procurement of paddy stood at 38 million tonnes which was last year. Some things will remain untouched like farmers in some states are already getting a price that equals or exceeds 150% of production cost. States such as West Bengal, Assam and Maharashtra, with lower yields and productivity, will gain.

Wider procurement of crops is being highlighted by the new MSP regime. Things like the details of procurement and storage with sources saying it was still three months to harvest. After the 2017 Gujarat elections he plan for a higher MSP gained momentum where farm protests were seen to reflect a “problem of plenty” as agriculturists expressed discontent over falling prices. Providing some political buffer to the government boosting farm incomes is aim of the move to hike MSP.

Also Read: PM Modi says, ‘next week MSP decision announcement to be made’

However, procurement of pulses, oilseeds and cotton is done under a ‘price support scheme’ (PSS), the procurement method has suffered from shortcomings. At present, farmers get lower than MSP prices for a majority of the 23 notified crops including groundnut, soyabean, ragi, maize, bajra and jowar. For procurement of these farm products, the government will compensate agencies concerned for losses.

It seems the government is ready with a mechanism that includes market assurance scheme (MAS). Decentralised procurement and disposal by state agencies is included in MAS. The price deficiency payment scheme (PDPS) like ‘Bhavantar’ in Madhya Pradesh while a third option involving private agencies is not being considered will be the second proposal.

Well, he Centre had in April notified millets as ‘nutri-cereals’ that are not only a powerhouse of nutrients but also are climate resilient, consuming less water and growning in drought prone areas. More widespread MSP could help diversify cultivation of non-cereals.

The government has gone for A2+FL formula (which includes actual paid out cost of all inputs in addition to imputed value of unpaid family labour) to calculate cost of production.

Also Read: Announcement: Highest increase in MSP for paddy crop