Higher MSPs won't help: Budget 2018 has other steps to allay rural distress

The debate on the agricultural package in the 2018-19 Budget is bogged down with the issue of minimum support prices (MSP) of crops, disregarding some other proposals that can potentially have a more enduring impact on farmers’ incomes. This discourse has also obscured the fact that the Budget does not offer any upfront succour to farmers as immediate relief from economic distress. The move to fix the MSPs at 50 per cent above the production cost, as announced in the Budget, can provide only cold comfort to farmers, and for good reason. For one, over 70 per cent of them seldom receive the MSPs for want of official market intervention. Besides, these prices are effective only for wheat and rice and, occasionally, for a couple of other crops in a handful of states. Elsewhere, the procurement infrastructure does not exist. 

Moreover, MSPs for many crops are already higher than 1.5 times the paid-out costs and the estimated value of family labour. In the case of wheat, for instance, the present MSP is 112 per cent above these costs. The M S Swaminathan-headed National Commission on Farmers had recommended the MSPs to be 50 per cent higher than the comprehensive production cost, including imputed rent on owned land and capital assets. Going by present indications, the government is unlikely to follow that formula. Anyway, the concept of MSP is meaningless unless some ingenious means are devised to ensure that all farmers receive these rates. That part has been left for the National Institution for Transforming India (NITI) Aayog to figure out. So, unless there is greater clarity on how the MSPs will be determined and enforced, it is futile to discuss the implications of this move.

A significant aspect of the government’s recent initiatives, including those mooted in this Budget, is that the focus is gradually shifting from production to income. The majority of the components of the Budget’s farm package are also oriented towards this end. Taking note of the fact that small and marginal farmers, forming 86 per cent of the total farm community, are unable to transact at the markets run by the agricultural produce marketing committees (APMCs), the Budget proposes to create parallel marketing infrastructure by upgrading the existing 22,000 rural haats into gramin agricultural markets. These mandis will be exempted from the APMC regulations to facilitate direct sale to consumers and bulk purchasers. Besides, the Budget proposes to launch “Operation Greens”, on the pattern of the milk sector’s “Operation Flood”, for the marketing of highly perishable commodities, such as tomato, onions, potato and others, that witness vicious price fluctuations. 

The move to encourage farmer producer companies and cooperatives by fully exempting their profits from income tax, too, seems to be aimed at enhancing farmers’ bargaining power in buying inputs and selling the produce. This apart, the Budget also rightly seeks to promote agriculture’s allied activities like animal husbandry and fisheries, which are more lucrative than crop farming. Besides setting up dedicated funds for these sectors, it proposes to provide a Kisan Credit Card-like facility to those engaged in these ventures. Moreover, a huge sum has been marked for creating additional sources of livelihood in the non-farm rural sector. Most of these seem to be steps in the right direction though their gains will be available only with a time lag.

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