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 an Indian express editorial, Mandira Kala discusses the Bills, addressing corruption and good governance, pending in Parliament. She discusses what their fate may be given that the Monsoon session is widely being viewed as a make or break session for the government to get its legislative agenda through Parliament. The monsoon session of Parliament started on a stormy note last week. Question hour was disrupted on most days and only one government bill was passed. There are 11 days left in the session and more than 40 bills pending for parliamentary approval. With the 15th Lok Sabha drawing to an end, this session is being viewed as a "make or break" session for the government to get its legislative agenda through Parliament. Since 2010, there has been much debate in Parliament on corruption and an important part of the government's legislative agenda was the introduction of nine bills in the Lok Sabha to address corruption and improve governance through effective delivery of public services. Three of these bills have been passed by the Lok Sabha and are currently pending before the Rajya Sabha. These include legislation to address corruption in public office, enforce standards and accountability in the judiciary, and protect whistleblowers. The government has proposed amendments to each of these bills that the Rajya Sabha will have to consider and pass. If the Rajya Sabha passes these bills with amendments, they will be sent back to the Lok Sabha for approval. It is difficult to assess in what timeframe these bills will become law, given that both Houses need to agree on the amendments. The Lokpal and Lokayuktas Bill creates a process for receiving and investigating corruption complaints against public officials, including the Prime Minister, Ministers and Members of Parliament, and prosecuting these in a timebound manner. The government amendments include allowing states the flexibility to determine their respective Lokayuktas and giving the Lokpal power of superintendence over the CBI, if the case has been referred by him. A mechanism to protect whistleblowers and create a process for receiving and investigating complaints of corruption or wilful misuse of discretion against a public servant are proposed under the Whistleblowers' Protection Bill, 2010. The amendments proposed by the government prohibit whistleblowing if the disclosure of information affects the sovereignty of the country and its strategic, scientific and economic interest. The Judicial Standards and Accountability Bill requires judges to declare their assets, lays down judicial standards and establishes processes for the removal of judges of the Supreme Court and high courts. The bill is not listed in the government's legislative agenda for the monsoon session and media reports suggest that the government intends to make amendments to it. In the arena of strengthening governance and effective delivery of public services, there are three bills currently pending in Parliament. The Citizens' Charter Bill confers the right to timebound delivery of goods and services on every citizen and creates a mechanism for redressing complaints on such matters. The Electronic Delivery of Services Bill mandates that Central and state governments shall deliver public services electronically no later than eight years from the enactment of the law. The parliamentary standing committee had highlighted that the Citizens' Charter Bill and Electronic Delivery of Services Bill have an inherent overlap, which the government would have to resolve. While the former is listed for passing in this session, the government plans to withdraw the latter and replace it with a new bill. This new bill is not part of the list that is up for consideration and passing this session. To create a reliable method of identifying individuals to facilitate their access to benefits and services the National Identification Authority of India Bill was introduced in Parliament to provide unique identification numbers ("aadhaar") to residents of India. This bill has not been listed for parliamentary approval during this session. Two other pending bills do not find place in the government's legislative agenda for the session either. These include legislation that curbs the holding and transfer of benami property and regulates the procurement process in government departments to ensure transparency, accountability and probity. The Prevention of Bribery of Foreign Public Officials Bill, which imposes penalties on Indian companies and individuals who bribe officials of a foreign government or international agency, is listed for passing this session. Each of these nine bills were introduced in the Lok Sabha. If they are not passed by both Houses before the 15th Lok Sabha is dissolved in 2014, no matter where they are in the legislative process, the bills will lapse. This implies that the entire legislative process will have to start all over again, if and when there is political will to legislate on these issues in the 16th Lok Sabha. The challenges in getting legislation passed by Parliament are many, given that its overall productive time, especially time spent on legislation, is decreasing. Typically, Parliament spends about 25 per cent of its time debating legislation, but in the past few years this average has declined to 15 per cent. While the time lost by the House due to frequent adjournments is difficult to make up, parliamentarians will have to cautious about passing bills without the rigours of parliamentary debate. It is uncertain what the trajectory of the anti-corruption legislation in Parliament will be — enacted as law or resigned to a pool of lapsed legislation.
