Union Budget 2018

Yet another hike in MSP- Agri reforms take a back seat to Populism

Yesterday the Finance Minister, Arun Jaitley, announced increase in the minimum support price of crops to 50% over the cost of production. However, the measures are halfhearted as no concrete measures have been announced and in doing has provided for more uncertainty than celebrations.

Rural distress has been around for quite sometime and the MSP increases by various state governments have failed to alleviate farmers. There is no reason why Central government would succeed which states have already failed. This implies an overhaul of the system as to how government agencies buy agricultural produce in the first place.

We have long believed Minimum Support Prices to be the root cause of farming distress instead of being a solution to it.

MSP Screws market pricing

When government announces that it will buy any produce of food grains at a specific price irrespective of it quality or market potential, it tampers larger forces of economics.

The farmers are incentivized to grow only specific kind of crops. This results in rain deficit, water deficit Cauvery basin investing in paddy fields. The Karnataka vs Tamil Nadu water wars are a result of this. Similarly, farmers are also incentivized to produce in higher quantities, even at the cost of quality. It almost ensures that the higher quality food ends up on table of rich (as the market price of that crop sky rockets above MSP) and majority of poor end up with barely edible supplies from PDS systems.

Nutrition is compromised

Indian food palate used to comprise of various kinds of grains and vegetable, almost all have been discarded by farmers in favor of wheat and rice. Ragi, Jwar and other millets are now luxury items no longer adding to the nutrition of poor. Combine that with low quality of Rise and Wheat as explained above and you have a crisis in hand.

MSP as an inhibitor to the growth of agricultural sector

With MSP becoming mainstay of our agricultural economy, which in effect destroys any viable business model Agriculture an industry continues to suffer. Farmers will keep on growing the paddy and wheat for inherent safety net of MSP, the processed food industry will keep on providing higher than fair market prices for their input and Indian farming will never move up the value chain.

Minimum Support Pricing regime, in its present ‘get me votes’ format is evil. The thought process to provide safety net to farmers from both exploitation and step in case of market meltdown has long been replaced by a ‘mai baap’ solution. Then again who cares long term as long as it guarantees power for next five years

 

 

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