Recently, the Cabinet Committee on Economic Affairs approved an increase in the Minimum Support Prices (MSPs) for Kharif crops for the 2018-19 marketing season. Subsequently, the Commission for Agricultural Costs and Prices (CACP) released its price policy report for Kharif crops for the marketing season 2018-19.
The central government notifies MSPs based on the recommendations of the CACP. These recommendations are made separately for the Kharif marketing season (KMS) and the Rabi marketing season (RMS). Post harvesting, the government procures crops from farmers at the MSP notified for that season, in order to ensure remunerative prices to farmers for their produce.
In this blog post, we look at how MSPs are determined, changes brought in them over time, and their effectiveness for farmers across different states.
How are Minimum Support Prices determined?
The CACP considers various factors such as the cost of cultivation and production, productivity of crops, and market prices for the determination of MSPs. The National Commission on Farmers(Chair: Prof. M. S. Swaminathan) in 2006 had recommended that MSPs must be at least 50% more than the cost of production. In this year’s budget speech, the Finance Minister said that MSPs would be fixed at least at 50% more than the cost of production.
The CACP calculates cost of production at three levels: (i) A2, which includes cost of inputs such as seeds, fertilizer, labour; (ii) A2+FL, which includes the implied cost of family labour (FL); and (iii) C2, which includes the implied rent on land and interest on capital assets over and above A2+FL.
Table 1 shows the cost of production as calculated by the CACP and the approved MSPs for KMS 2018-19. For paddy (common), the MSP was increased from Rs 1,550/quintal in 2017-18 to Rs 1,750/quintal in 2018-19. This price would give a farmer a profit of 50.1% on the cost of production A2+FL. However, the profit calculated on the cost of production C2 would be 12.2%. It has been argued that the cost of production should be taken as C2 for calculating MSPs. In such a scenario, this would have increased the MSP to Rs 2,340/quintal, much above the current MSP of Rs 1,750/quintal.
Which are the major crops that are procured at MSPs?
Every year, MSPs are announced for 23 crops. However, public procurement is limited to a few crops such as paddy, wheat and, to a limited extent, pulses as shown in Figure 1.
The procurement is also limited to a few states. Three states which produce 49% of the national wheat output account for 93% of procurement. For paddy, six states with 40% production share have 77% share of the procurement. As a result, in these states, farmers focus on cultivating these crops over other crops such as pulses, oilseeds, and coarse grains.
Due to limitations on the procurement side (both crop-wise and state-wise), all farmers do not receive benefits of increase in MSPs. The CACP has noted in its 2018-19 price policy report that the inability of farmers to sell at MSPs is one of the key areas of concern. Farmers who are unable to sell their produce at MSPs have to sell it at market prices, which may be much lower than the MSPs.
How have MSPs for major crops changed over time?
Higher procurement of paddy and wheat, as compared to other crops at MSPs tilts the production cycle towards these crops. In order to balance this and encourage the production of pulses, there is a larger proportional increase in the MSPs of pulses over the years as seen in Figure 2. In addition to this, it is also used as a measure to encourage farmers to shift from water-intensive crops such as paddy and wheat to pulses, which relatively require less water for irrigation.
What is the effectiveness of MSPs across states?
The MSP fixed for each crop is uniform for the entire country. However, the production cost of crops vary across states. Figure 3 highlights the MSP of paddy and the variation in its cost of production across states in 2018-19.
For example, production cost for paddy at the A2+FL level is Rs 702/quintal in Punjab and Rs 2,102/quintal in Maharashtra. Due to this differentiation, while the MSP of Rs 1,750/quintal of paddy will result in a profit of 149% to a farmer in Punjab, it will result in a loss of 17% to a farmer in Maharashtra. Similarly, at the C2 level, the production cost for paddy is Rs 1,174/quintal in Punjab and Rs 2,481/quintal in Maharashtra. In this scenario, a farmer in Punjab may get 49% return, while his counterpart in Maharashtra may make a loss of 29%.
Figure 4 highlights the MSP of wheat and the variation in its cost of production across states in 2017-18. In the case of wheat, the cost of production in Maharashtra and West Bengal is much more than the cost in rest of the states. At the A2+FL level, the cost of production in West Bengal is Rs 1,777/quintal. This is significantly higher than in states like Haryana and Punjab, where the cost is Rs 736/quintal and Rs 642/quintal, respectively. In this case, while a wheat growing farmer suffers a loss of 2% in West Bengal, a farmer in Haryana makes a profit of 136%. The return in Punjab is even higher at 1.5 times or more the cost of production.
In Budget Session 2018, Rajya Sabha has planned to examine the working of four ministries. The Ministry of Drinking Water and Sanitation is one of the ministries listed for discussion. In this post, we look at the key schemes being implemented by the Ministry and their status.
What are the key functions of the Ministry of Drinking Water and Sanitation?
As per the Constitution, supply of water and sanitation are state subjects which means that states regulate and provide these services. The Ministry of Drinking Water and Sanitation is primarily responsible for policy planning, funding, and coordination of programs for: (i) safe drinking water; and (ii) sanitation, in rural areas. From 1999 till 2011, the Ministry operated as a Department under the Ministry of Rural Development. In 2011, the Department was made an independent Ministry. Presently, the Ministry oversees the implementation of two key schemes of the government: (i) Swachh Bharat Mission-Gramin (SBM-G), and (ii) National Rural Drinking Water Programme (NRDWP).
How have the finances and spending priorities of the Ministry changed over time?
In the Union Budget 2018-19, the Ministry has been allocated Rs 22,357 crore. This is a decrease of Rs 1,654 crore (7%) over the revised expenditure of 2017-18. In 2015-16, the Ministry over-shot its budget by 178%. Consequently, the allocation in 2016-17 was more than doubled (124%) to Rs 14,009 crore.
In recent years, the priorities of the Ministry have seen a shift (see Figure 1). The focus has been on providing sanitation facilities in rural areas, mobilising behavioural change to increase usage of toilets, and consequently eliminating open defecation. However, this has translated into a decrease in the share of allocation towards drinking water (from 87% in 2009-10 to 31% in 2018-19). In the same period, the share of allocation to rural sanitation has increased from 13% to 69%.
What has been the progress under Swacch Bharat Mission- Gramin?
The Swachh Bharat Mission was launched on October 2, 2014 with an aim to achieve universal sanitation coverage, improve cleanliness, and eliminate open defecation in the country by October 2, 2019.
Expenditure on SBM-G: In 2018-19, Rs 15,343 crore has been allocated towards SBM-G. The central government allocation to SBM-G for the five year period from 2014-15 to 2018-19 has been estimated to be Rs 1,00,447 crore. Of this, up to 2018-19, Rs 52,166 crore (52%) has been allocated to the scheme. This implies that 48% of the funds are still left to be released before October 2019. 
Construction of Individual Household Latrines (IHHLs): For construction of IHHLs, funds are shared between the centre and states in the 60:40 ratio. Construction of IHHLs account for the largest share of total expenditure under the scheme (97%-98%). Although the number of toilets constructed each year has increased, the pace of annual growth of constructing these toilets has come down. In 2015-16, the number of toilets constructed was 156% higher than the previous year. This could be due to the fact that 2015-16 was the first full year of implementation of the scheme. The growth in construction of new toilets reduced to 74% in 2016-17, and further to 4% in 2017-18.
As of February 2018, 78.8% of households in India had a toilet. This implies that 15 crore toilets have been constructed so far. However, four crore more toilets need to be construced in the next 20 months for the scheme to achieve its target by 2019.
Open Defecation Free (ODF) villages: Under SBM-G, a village is ODF when: (i) there are no visible faeces in the village, and (ii) every household as well as public/community institution uses safe technology options for faecal disposal. After a village declares itself ODF, states are required to carry out verification of the ODF status of such a village. This includes access to a toilet facility and its usage, and safe disposal of faecal matter through septic tanks. So far, out of all villages in the country, 72% have been verified as ODF. This implies that 28% villages are left to be verified as ODF for the scheme to achieve its target by 2019.
Information, Education and Communication (IEC) activities: As per the SBM-G guidelines, 8% of funds earmarked for SBM-G in a year should be utilised for IEC activities. These activities primarily aim to mobilise behavioural change towards the use of toilets among people. However, allocation towards this component has remained in the 1%-4% range. In 2017-18, Rs 229 crore is expected to be spent, amounting to 2% of total expenditure.
What is the implementation status of the National Rural Drinking Water Programme?
The National Rural Drinking Water Programme (NRDWP) aims at assisting states in providing adequate and safe drinking water to the rural population in the country. In 2018-19, the scheme has been allocated Rs 7,000 crore, accounting for 31% of the Ministry’s finances.
Coverage under the scheme: As of August 2017, 96% of rural habitations have access to safe drinking water. In 2011, the Ministry came out with a strategic plan for the period 2011-22. The plan identified certain standards for coverage of habitations with water supply, including targets for per day supply of drinking water. As of February 2018, 74% habitations are fully covered (receiving 55 litres per capita per day), and 22% habitations are partially covered (receiving less than 55 litres per capita per day). The Ministry aims to cover 90% rural households with piped water supply and 80% rural households with tap connections by 2022. The Estimates Committee of Parliament (2015) observed that piped water supply was available to only 47% of rural habitations, out of which only 15% had household tap connections.
Contamination of drinking water: It has been noted that NRDWP is over-dependant on ground water. However, ground water is contaminated in over 20 states. For instance, high arsenic contamination has been found in 68 districts of 10 states. These states are Haryana, Punjab, Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, West Bengal, Assam, Manipur, and Karnataka.
Chemical contamination of ground water has also been reported due to deeper drilling for drinking water sources. It has been recommended that out of the total funds for NRDWP, allocation for water quality monitoring and surveillance should not be less than 5%. Presently, it is 3% of the total funds. It has also been suggested that water quality laboratories for water testing should be set up throughout the country.
