MSP Hiked for Kharif Crops But Still It's Short of Cost +50%

The Union Cabinet on July 4 has approved the Budget 2018 proposal to hike the Minimum Support Price (MSP) for various Kharif crops this year. The government had earlier promised to increase the MSP of the crops to one and half times of the production cost,  but the formula used in calculating the MSP was not in line with the one provided by MS Swaminathan Commission or National Commission of Farmers or as demanded by farming communities.

The Commission report submitted to the government in 2006 recommended that the MSP should be farmers’ input cost plus at least 50 per cent premium over it. The input cost, denoted as C2, includes the sum of paid out costs (A2), imputed value of family labour (FL), interest on the value of owned capital assets, rent paid for leased-in land and the rental value of owned land. As against to this, the government’s formula used calculating the input cost considers only the sum of A2 and FL.

That is, instead of calculating MSP as C2 + 50% , the government used MSP as (A2 + FL) + 50%

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For more than a decade now, the farming communities have been agitating across the country demanding the government to fix the MSP based on the C2 formula. However, the governmental move of rejecting the people’s demand didn’t come as a surprise as its think tank – NITI Aayog – has been opposing the C2 formula for several times now. For instance in February this year, NITI Aayog member Ramesh Chand suggested that the government will not use C2 cost as it includes the rental value of land. Chand told The Economic Times: “In my view, the government will take A2 plus FL, to give a margin of 50% for the 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.” Recently, NITI Vice Chairman Rajiv Kumar went to a further extent when he said that the Swaminathan commission’s recommendation is “impractical” for policy implementations.

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Exclusion of rental value or interest on the value of owned capital assets in calculating MSP is direct discrimination on the part of small, marginal and tenant farmers who constitute to more than 86 per cent of total farmers in the country. Commentators have criticized the A2 plus FL formula, speculating that the farmers would be pushed to cultivate crops where C2 costs are not recovered.

Reportedly, the MSP for paddy has been raised by around Rs 250 per quintal.

The MSP of cotton (medium staple) has been increased to Rs 5,150 from Rs 4,020.

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In pulses, tur MSP has been raised at 4.13 % to Rs 5,675 per quintal from Rs 5,450, moong at 25.11 % to Rs 6,975 per quintal from Rs 5,575 and the MSP of urad has been increased at 3.7 % to Rs 5,600 from Rs 5,400 per quintal.