The proof is in implementation

Rajeev Jayaswal

The BJP has partially fulfilled its four-year promise with the announcement of the MSP for the kharif season. The hike is apparently one-and-a-half times more than the cost of producing 14 kharif crops — paddy, jowar, bajra, ragi, maize, tur, moong, urad, groundnut, sunflower seed, soyabean, sesamum, nigerseed and cotton.

While the methodology of calculating the input cost is still debatable, the proof of the government’s ability to pass on the higher prices to farmers will come when the farmers take their crops to the mandis. This is because other than paddy and wheat, the government has not yet developed any foolproof mechanism to make large-scale purchases of other crops. The MSP announcement will, therefore, remain yet another poll promise unless the government guarantees procurement of all the 14 crops at the new MSP rates.  

It is but natural that questions will be raised on the timing of the announcement mainly on two counts — one is technical from the agro-economic perspective and the other is purely political.

The MSP announcement after the sowing season is over is bad economics. Ideally, the announcement should have come at least two-three months back when the farmer could have taken an informed decision. This would have also helped in the much-needed diversification of crops. In the absence of a timely announcement of MSP, the farmer would prefer the most secure way to de-risk his investments — cultivate the crop that is immune to market volatility. In the case of current kharif season, paddy is the preferred choice. This has not only negated all policy efforts to persuade farmers to move away from paddy cultivation, but also aggravated environmental problems such as further depletion of the precious groundwater, especially in Punjab, Haryana and western UP, and the pollution caused by stubble burning.

The political motive behind the announcement is quite obvious. The rural vote has been a sore point for the BJP, which had continued even after the Modi wave of the 2014 General Election. The realisation about its slipping graph in rural India dawned upon the BJP leadership only after the Gujarat Assembly elections. The recent debacle in Karnataka, where it could not form the government even after emerging as the single largest party, aggravated that anxiety. The party does not want to take any chance in the forthcoming Assembly elections of Rajasthan, Madhya Pradesh and Chhattisgarh. Winning elections in the three BJP-ruled states ahead of the 2019 General Election is crucial. Garnering a substantial rural vote is the only way to achieve this daunting task for the BJP. Promise of significant returns on the backdrop of a good monsoon is the most prudent politics no party in power would miss.

Undoubtedly, the timing is politically right for the incumbent government. But, the announcement is incongruous with the poll promise. The BJP’s 2014 election manifesto promised to the farmer that its government would take steps “to enhance the profitability in agriculture, by ensuring a minimum of 50 per cent profits over the cost of production”. Although the manifesto is silent about the input cost, there is dispute about the determination of the cost of production. The government-determined input cost may not necessarily reflect the ground reality in a diverse country like India. The cost of production of paddy in the western part cannot be equal to the eastern part. Besides, there are technicalities involved.

In March, PM Modi had unambiguously defined the cost factors that would form the basis of a revamped MSP. Besides, the traditional expenditures on land, labour and capital, he had specified that the farmer would get returns on interest paid on the working capital, rent of the leased land, cost of family/hired labour and the land revenue paid to the state. The PM appeared in synch with the Swaminathan Committee’s recommendations, one of the major demands of India’s agitating farmers. But, often political will folds up under bureaucratic pressure. In the case of MSP, the mandate to finalise rates rests on a five-decade agency under the Ministry of Agriculture and Farmers Welfare.   

 The Commission for Agricultural Costs and Prices (CACP), which determines the cost of production, also believes that it is not the sole determinant of the MSP.  It says that factors influencing MSP also include demand and supply; price trends in the market (domestic and international); inter-crop price parity; terms of trade between agriculture and non-agriculture; and likely implications of MSP on consumers of that product. It is not yet clear, what are the implicit factors that influenced the determination of the input costs of the crops.

There are three different methodologies to calculate input costs. The first one involves the actual paid-out cost (A2). The other one is, actual paid-out cost that also includes the value of family labour (A2+FL). The most desirable methodology is the comprehensive cost (C2) that includes labour, rent and the interest components. According to the official statement, the government claims to have adopted a comprehensive approach while computing the input cost, but there is no immediate clarity on certain components such as the value of land.

No doubt, there has been a considerable increase in the MSP of 14 crops. It is, however, not as dramatic as has been projected by the government. For example, it says the MSP for paddy has been determined at Rs 1,750 per quintal, 50.09 per cent more than the CACP-determined input cost of Rs 1,166 per quintal. In fact, compared to the previous year (Rs 1,550 per quintal), the raise has been little less than 13 per cent.

While a perfect MSP system is still elusive, credit must be given to the Modi government for attempting to implement one of its key poll promises. Its full impact would, however, be seen after the harvest of the kharif crops.

There are practical problems. Except for Punjab, Haryana and to some extent MP, the public procurement system is not well developed. Farmers in most of India would be forced to sell their produce to private merchants at a price much below the MSP in the absence of a competitive procurement infrastructure of the state agencies. Hopefully, the Centre must have thought out some mechanism to compensate such distress sell.

The much-hyped MSP rates would act as a double-edged sword for the ruling BJP. If implemented well, it can help Modi recoup his eroding rural base. Any glitch in giving farmers their promised due would prove costly for the party in the election year.