Highest MSP Hike for Paddy? We Have Seen Steeper Hikes Before

While the government called the 13 percent hike the highest ever, data from RBI clearly proves otherwise.

Unprecedented, historic, highest ever – these were the expressions used to describe the steep hike in minimum support price (MSP) for paddy and 13 other Kharif crops in the pre-election year.

This has happened after four consecutive years of a miserly approach to the farmers’ concerns. In percentage terms, the hike comes to 12.9 percent. Is this the highest ever? In absolute rupee terms, yes. But in percentage terms, which is what should be looked at, we have seen much steeper hikes before.

Previous Hikes

As per data available at the Reserve Bank of India (RBI) website, we had nearly 29 percent MSP hike for common paddy in 2007-08, 21 percent in 2008-09 and another 17 percent in 2009-10.

In other words, the government mandated support price of paddy increased from Rs 580 in 2006-07 to Rs 1,050 in three years. The hike was nearly 100 percent in three years then.

But see the record of the last three years: a modest 4 percent in 2016-17, miserly 5 percent in 2017-18 and “historic” 13 percent now. Can we still use historic and unprecedented to describe the current hike?

The announcement, at best, is an attempt to set right the approach followed by the present government in the first four years.

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Negligible Impact on Farmers

But much bigger question to ask is whether farmers are going to get the benefits of such an “unprecedented hike”. The problem is that the government is not even aware of the reports it publishes from time to time. The Commission for Agricultural Costs and Prices (CACP), which is entrusted with the task of recommending MSPs for selected agricultural items, brings out a detailed report every year. Please read the 2017 report (especially pages 29-30 and 33).

The report says, “There are still some major rice producing states, where procurement operations are either absent or very limited. For example, there was almost negligible procurement of rice in Assam during TE2015-16, even though rice is a major crop in the state and has 3 percent share in marketed surplus. As regards West Bengal, the procurement share is only 5 percent though marketed surplus share is 14 percent. The share of other states like Bihar, Tamil Nadu and Karnataka in procurement is also very low.”

There are only a handful of states where the government’s procurement programme functions smoothly and they are Punjab, Andhra Pradesh, Chhattisgarh and Odisha.

If the procurement programme is almost missing in so many states, what difference does it make to farmers there whether the hike is historic or modest.

Lack of Awareness on MSP

Let us quote yet another excerpt from the report, which states, “As per NSSO data for 2012-13, all farmers, who reported sale of paddy during July-December 2012, only 13.5 percent households sold it to procurement agencies and in case of wheat (January-June, 2013), 16.2 percent households sold to procurement agencies. Together they account for only 14.9 percent of total households in the country.”

And take a look at the level of awareness among farmers about the existence of an alien concept called MSP. Only 15 percent farm households tendered their produce to government agencies? See the chart below:

Incidentally, only 2.5 percent of all farmers who grow ragi are even aware of the existence of MSP. Ragi has seen the steepest hike among all Kharif crops.

If the awareness level is so abysmally low, how can one expect farmers to get the benefits of the changing MSP regime. How can they be impacted by the “historic” decision?

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Who Benefits?

The government report itself highlights the inadequacies of the MSP programme as less than 15 percent of all farmers avail of the benefits of the government’s procurement programme using MSP. The question, therefore, is who is going to get the benefits of the estimated outgo of Rs 15,000 crore? Influential groups of intermediaries, perhaps, who buy cheap from farmers and sell at a premium to government’s procurement agencies.

And what are we going to get:

1. An estimated hit of 0.35 percent of GDP on fiscal deficit putting pressure on interest rates
2. An estimated 0.7 percent upward pressure on inflation

Now you know the full impact of the “historic” decision. The headline seems grossly misleading and hides more than what it reveals.