dailyO
Politics

Dear Rahul Gandhi, minimum support price will not rescue the farmers

Advertisement
Tina Edwin
Tina EdwinApr 22, 2015 | 16:06

Dear Rahul Gandhi, minimum support price will not rescue the farmers

Congress vice president Rahul Gandhi is right and wrong about the role minimum support price (MSP) plays in the farm economy. However, a higher MSP does not prevent an agrarian crisis, particularly when it is caused by freak weather conditions or man-made droughts.

An attractive MSP encourages a farmer to raise more of a crop that fetches him better returns. Conversely, it can also lead to excess production of a crop, leading to a glut and consequently, a crash in its open market price. Not everything a farmer produces is procured under the MSP regime. Excessively high MSP for a set of crops can also cause shortage of the others, which are not offered attractive MSP.

Advertisement

When MSP was first announced in 1966-67, it was necessary for the success of the Green Revolution that had just been launched. Initially, MSP was announced only for wheat but over time it was extended to cover more crops. Now MSP is announced for 25 crops, including foodgrain, oilseeds, sugarcane and cotton.

The big increases in MSP during UPA’s term did benefit farmers. As the Congress vice president pointed out, MSP for wheat rose at compounded annual growth rate (CAGR) of 9.1 per cent between 2004-05 and 2013-14. Rice was up 9.9 per cent CAGR during this period. Sugarcane was up 12.2 per cent. Arhar dal, urad dal and moong dal were up 13.4 per cent, 13.2 per cent and 13.8 per cent, respectively.

These increases helped transfer wealth from consumers to producers in rural areas. That helped raise rural incomes and the resulting prosperity increased demand for consumer goods from rural areas, when demand collapsed in urban areas following the break out of the financial crisis.

Wages of farm hands too rose, boosted by better price for farm produce as well as by the Mahatma Gandhi National Rural Employment Guarantee Scheme, aiding a further rise in rural demand. This rural wage increase slowed towards the last two years of UPA rule.

Advertisement

But raising the MSP year after year is also not always desirable. It stokes inflation. Food inflation has stayed elevated for years now. It also skews cropping patterns and incentivizes farmers to grow certain crops at the expense of others. This has been happening for years now. Particularly with wheat. The godowns are overflowing, large quantities are stored in open and left to the mercy of weather and rodents. Sizeable quantity of wheat procured at great price rots every year.

The government should ideally use MSP as a tool to incentivise farmers to produce more of what people are consuming. It is well documented that consumption patterns of people are changing. Consumption of cereals is gradually shrinking and those of proteins such as pulses and lentils are rising. On the other hand, consumption of milk and other dairy items is rising. India has faced severe shortage of pulses in the past, leading to sharp increase in its price. A steep 30 per cent increase in the MSP for arhar dal in 2010-11 and then again a 20-30 per cent increase for pulses in 2012-13 helped bring more acreage under cultivation, thus aiding control of shortages and volatility in their prices.

Advertisement

Sharp increase in MSP for water-intensive crops has also led to deterioration of the water table in certain places. While a farmer can choose what he wants to cultivate, rice and sugarcane are among crops that should ideally be raised in the water surplus regions of the country. However, we find rice being grown in Punjab where the water table is sinking and sugarcane being raised in areas around the drought-prone Marathwada.

Given the current reality – surplus supply of foodgrains and their falling consumption – it would be more prudent for the government to encourage farmers to shift to horticulture in water deficient areas, where more fruits and vegetables can be grown using modern irrigation techniques.

Last updated: April 22, 2015 | 16:06
IN THIS STORY
Please log in
I agree with DailyO's privacy policy