Centre marginally hikes kharif MSP even as rising food subsidy weighs

A higher MSP for paddy pushes up the economy cost, affecting the subsidy maths
The Centre on Monday raised the minimum support price (MSP) of common grade paddy for the 2020-21 crop season by a nominal 2.92 per cent compared to 2019-20 as it grapples to keep its burgeoning food subsidy under control.

The increase in MSP of paddy along with some other kharif crops was the lowest hike in the last five years.

A bigger increase in MSP for paddy would have further jeopardized the food subsidy calculation for 2020-21 which is already looking shaky due to extra grain purchases and additional release through the public distribution system (PDS) due to the Covid-19 crisis.

The food subsidy for 2020-21 has been budgeted at over Rs 250,000 crore, which includes an estimated Rs 136,600 crore borrowings from the National Small Savings Fund. A higher MSP for paddy pushes up the economy cost, thus affecting the subsidy math.
“Based on recommendations of the Commission for Agricultural Costs and Prices (CACP), the Cabinet approved the MSP of 14 crops. Paddy (common) MSP has been increased to Rs 1,868 per quintal for this year,” agriculture minister Narendra Singh Tomar told reporters after a meeting of the Union Cabinet.

He addded that the increase in support price of paddy would ensure 50 per cent returns over the cost to farmers.

As per government calculations, the expected returns to farmers over their cost of production are estimated to be highest in case of Bajra (83 per cent) followed by urad (64 per cent), tur (58 per cent) and maize (53 per cent).

For the remaining crops, returns to farmers over their cost of production is estimated to be at least 50 per cent.

However, farmers said barring paddy and to some extent pulses and oilseeds, most crops for which the government sets the MSP are not procured by it.

“The central government is only indulging in window-dressing or attractively packaging a bundle of lies. The MSP announced for paddy is not even 3 per cent higher than last year though the cost of cultivation has drastically escalated. The CACP’s cost calculations are questionable and weighted average costs are arrived at by making drastic undervaluation. They are nowhere near the actual costs,” the All-India Kisan Sabha said in a statement.
Punjab chief minister Amarinder Singh also termed the paddy MSP hike as 'shamefully woeful'. Punjab is one of the country's largest paddy producers. 

Siraj Chaudhury, managing director (MD) of the National Collateral Management Services, told Business Standard that it is good that the government raised MSP for kharif crops. However, a bigger question is how far the farmer will get benefit of it, especially in those crops where the government is not a big buyer, he asked.

Citing the example of maize, Chaudhury said while the MSP for 2019-20 was set at Rs 1,760 a quintal, the crop in most of the months sold barely at Rs 1,200-1,300 a quintal in most markets.

“In crops where consumption is directly linked to the industry and the government isn’t a major player, the farmer will remain exposed to vagaries of the market. These MSPs don’t have any meaning,” Chaudhury said.
He said that many times it has been seen that a farmer is lured by these high MSPs. But when the crop comes into the market, the prices are much lower and he suffers a loss.

Meanwhile, the government said that among other crops, the MSP of maize has been raised by 5.11 per cent as compared to 2019-20. Tur has been increased by 3.45 per cent, moong by 2.07 per cent and urad by 5.26 per cent as compared to 2019-20. 

The MSP of cotton has been raised by almost 5 per cent in 2020-21.

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