Agri Politics News

Playing with numbers – Is MSP hike a significant move in doubling farmers income ?

“Cultivators are the most valuable citizens; they are tied to their country.”

       – Thomas Jefferson, 3rd US President.

The Union Budget 2018 has kindled the expectations of Agriculture sector by many peal of trumpet announcements focusing farmers and rural development. The most alluring part among them is ‘setting up of minimum support price for agricultural produce above 1.5 times of production cost’. There is no hidden secret that this announcement is made to build strong vote bank ahead of next lok sabha elections by wooing small and marginal farmers, constituting 70 per cent of total agriculture population.

Shrewdly, the announcement failed to provide in-depth details about the MSP offerings. Everyone was fascinated at that moment believing that ‘National Commission on Farmers’ proposal is on the field to harvest after wait for nearly a decade.

National Commission on Farmers was constituted by Government of India on November 18, 2004 headed by Professor M.S.Swaminathan as the chairman to address the nationwide issue, “Farmers Suicide”.  The report submitted in 2006 by the commission contains slew of suggestions to achieve “Faster and more inclusive growth” in Agriculture sector. One of the famous suggestion by the committee is restructuring MSP based on production cost (C2 cost) plus 50% margin. Now, the Commission for Agricultural Costs and Prices (CACP) recommends MSP to the central government.

The important cost heads considered for the calculation of MSP are

Cost A1=  Cost of physical inputs such as seeds, pesticides, insecticides, fertilizers, manures (owned and purchased), irrigation charges, machineries (owned and hired), hired human labour, animal labour(owned and hired), machine labour and land revenues.

And other costs such as depreciation of implements and machineries, interest on working capital, miscellaneous expenses.

Cost A2= Cost A1 + rent paid for lease in land. Cost A2 includes all expenses paid by farmers in cash or kind in production of the crop. It also includes rent paid for leased land, depreciation of assets and interest on working capital.

Cost C2= Cost A2 + Family labour + rental value of owned land and interest on fixed capital assets (excluding land).

As from few news reports, its learnt that the government has decided to give minimum support price as per the formula Comprehensive cost of production, C2  = 1.5 × (Cost A2 + Family labour) which means Union Budget has ensured MSP for all 23 crops with at least one and half times of production cost (A2) plus the imputed value of family labor at prevailing wage rate (FL).

But what NCF recommended is 1.5 × cost C2. The M.S.Swaminathan committee report had recommended a MSP of 50 percent profits above the cost of production classified as ‘C2’ or Comprehensive cost of production which includes imputed rent and interest on owned land and capital. By announcing hike of one and half times of the production cost it doesn’t mean the same formula recommended by M.S. Swaminathan headed National Commission on Farmers.

Ramesh Chand, NITI Aayog member, said in the Economic Times: “In my view, the government will take A2 plus FL, to give margin of 50% for consideration of MSP. The rationale for this is that rental value of own land which is included in C2 is not incurred by 88% of the farmers.” Further, Finance Minister Jaitley himself replying to a debate on Union Budget 2018-19 said the government will take the A2+FL formula (covering actual paid out cost plus imputed value of family labour) to determine the cost of production of agri-crops and fix accordingly the MSP.

So, there is no confusion about Government calculation of MSP and it is certainly different from NCF recommendations. MSP hike is important for the reason that it has immediate effects on farmers income, agricultural productivity and growth. Let’s wait to see how this move is significant in doubling farmers income and their livelihood development.

The author, Swathy. P  is a PGDM Student in Agribusiness and Plantation Management, Indian Institute of Plantation Management, Bangalore.

Edited by Ram sundar. M