New MSP for Kharif crops: Historic or Histrionics?

Govt. can’t stop patting its own back for benefits it never provided


On July 4, 2018, the cabinet approved a hike in the Minimum Support Price (MSP) for Kharif crops, triggering an unabashed display of self congratulations and sycophancy on social media. But given how the MSP hike without any guarantee of procurement is a meaningless publicity stunt, one wonders if the move is just a means to build a farmer friendly image for the ruling disposition in the run up to the elections next year.

Finance Minister Arun Jaitley who had presented his fourth budget earlier this year, had then said that he is fulfilling a promise made by the BJP in the election manifesto for the 2014 Lok Sabha elections- that of a Minimum Support Price (MSP). He said, “Government has decided to keep MSP for all the unannounced crops of Kharif at least at one and half times of their production cost.” He also remarked that this decision will prove to be a ‘historic’ step towards doubling the income of farmers.
The cabinet has now approved the median increase in the Minimum Support Price (MSP) as ’25 percent’, compared with 3-4 percent in the first four years since the government came into power.

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Many, including minister of agriculture and farmers’ welfare, Radha Mohan Singh and home minister Rajnath Singh hailed this decision as “historic”. In fact, even the Prime Minister congratulated himself as well by calling it ‘historic’. Interestingly this move is rather hollow as the government never actually provided the benefits it claims to have promised.

BJP followers on Twitter went gaga over this and trended hashtags such as #FarmersWithModi, #Modifor2019 etc. Here are a few images that were tweeted with much enthusiasm.

Here is a quick fact-checker to understand this move of the government and its impact on farmers.

Swaminathan report and its relationship to MSP

The National Commission for Farmers (NCF) was constituted in 2004 in the background of suicides being committed by thousands of farmers across the country, and the larger agrarian distress that was plaguing the rural India. Five reports were submitted to the then government between December 2004 and October 2006.

The recommendation regarding MSP appeared in the fifth report which was titled, ‘Serving Farmers and Saving Farming: Towards Faster and More Inclusive Growth of Farmers’ Welfare’

MSP as defined by the Swaminathan report

“The Minimum Support Price (MSP) should be at least 50% more than the weighted average cost of production. The “net take-home income” of farmers should be comparable to those of civil servants.”

Government’s method for fixing MSP before every planting season

The Commission for Agricultural Costs & Prices (CACP) in the Ministry of Agriculture recommends MSPs for 23 crops. These include 14 grown during the Kharif/post-monsoon season and six in Rabi/winter (wheat, barley, chana, masur, mustard and safflower), apart from sugarcane, jute and copra. The CACP is supposed to consider various factors while recommending the MSP for a commodity, including cost of cultivation. The CACP has three different definitions of productions costs – A2 (actual paid out cost), A2+FL (actual paid out cost plus imputed value of family labour) and C2 (comprehensive cost including imputed rent and interest on owned land and capital). As is evident, C2 > A2+FL > A2.

What was promised?

The BJP had promised to fix the Minimum Support Price (MSP) at 50% above the cost of production in its 2014 manifesto which should ideally have been C2.

What we got?

However, the increase in MSP that has been announced is not over cost C2, as promised, but on A2+FL. A2+FL is considerably lower than cost C2. A2+FL doesn’t include the rental value of own land.

What is the duration of increase?

The suggested increase at the moment is only for the Kharif marketing season for 2018-19.
No policy decision has been made to fix the MSP at 50% over cost of production
There is no assurance that this method will be followed in the Rabi marketing season and also for the years to come

What is the hike in MSP of Paddy, Arhar, Urad and Ragi?

The increase of Rs 200 per quintal in the MSP of paddy is a hike of 13% over the previous year. The MSP for Arhar and Urad has been increased by about 4%, while the highest hike has been done for Bajra, Jowar and Ragi (over 30%)

Is this ‘hike’ really a hike?

Actually, the MSP hike for paddy this year is lower than the year-on-year hike during the three years between 2007-08 and 2009-10, and in 2012-13.

  • Paddy-

State projection of Cost of Production for 2017-18 by Andhra Pradesh- Rs. 1866/Qtl, CACP projection- Rs. 1495. AP had proposed Rs. 2799/Qtl.

States of Maharashtra, Chhattisgarh and Madhya Pradesh had proposed MSP of Rs.3251/Qtl, Rs.2,200/Qtl and Rs.2,700/Qtl respectively for paddy in 2017-18.

Other major paddy growing States like Tamilnadu and Punjab had recommended MSP of Rs.2300/Qtl and Rs.2000/Qtl for 2017-18.

Kerala is already procuring at Rs.2350/Qtl

Due to the absence of public procurement farmers in most States are forced to sell at distress prices ranging from Rs.800/Qtl to Rs.1200/Qtl even when MSP was Rs.1550/Qtl.

In the case of other crops as well the hike in MSP was higher in previous years!

Cotton-Hike in MSP for Cotton was 48% in 2008-09, this year it is only 26% this year

Sunflower seed-Hike in MSP for Sunflower seeds was 47% in 2008-09, this year it is only 31%

  • Groundnut-

BJP ruled Gujarat had proposed Rs.6500/Qtl for groundnut last year while the MSP announced by the centre was a mere Rs.4890/Qtl.

  • Pulses-

Farmers were expecting a huge hike in pulses as an incentive for producing more to meet the country’s needs and also for naturally fixing nitrogen to the tune of about Rs.4000/hectare.

For Arhar/Tur, the cost of production determined by Telangana and Andhra Pradesh were Rs.5984/Qtl and Rs.7123/Qtl, while the CACP projections were way below at Rs.5683/Qtl only, for both the states. Farmers are forced to sell at rates ranging between Rs.3400/Qtl to Rs.4,200/Qtl only which is below the then MSP of Rs.5450/Qtl

Karnataka which is a major producer of Arhar/Tur had suggested an MSP of Rs.7000/Qtl while the MSP announced is only Rs.5675/Qtl which is way below the cost of production in the major Arhar/Tur growing States. Karnataka and Madhya Pradesh had suggested Rs.4800/Qtl and Rs.4000/Qtl for soyabean while the MSP announced is only Rs.3399/Qtl.

For cotton the Andhra Pradesh and Telangana Governments cost projection for 2017-18 was Rs.5042/Qtl and Rs.5337/Qtl while CACP projection was only Rs.4625/Qtl. They had proposed MSP of Rs.7564/Qtl and Rs.8005/Qtl respectively and BJP ruled Maharashtra had proposed Rs.7204/Qtl while the MSP announced is only Rs.5150/Qtl.

Differences in C2 and A2+FL costs


Per Quintal
Per Quintal
MSP (2018-19)
Per Quintal
C2+50%Difference Between C2+50 & MSP
Per Quintal
CACP Costs for 2018-19
Jowar Hybrid1619218324303274.5-844.5
Sunflower Seed3592450153886751.5-1363.5
(Medium Staple)

Table: SabrangIndia

How many farmers have access to MSP?

As many as 93% farmers in the country don’t have access to MSP. They are left to deal with market fluctuations on their own. There is no provision in the budget to increase the ambit of farmers covered by MSP.

Is it enough to increase the MSP?

  • It is a myth that hike in MSP is the only step forward. Procurement levels vary signicantly across crops and regions.
  • Much of the Paddy procurement is concentrated in the states of Punjab, Haryana, Andhra Pradesh and Chhattisgarh.
  • Procurement as a percentage of production remains low in states like West Bengal, Assam, Uttar Pradesh and Bihar.
  • In the absence of proper procurement, the prices of crops even falls below MSP.
  • For instance, the price of Rice has fallen below MSP in states such as West Bengal, Assam, Uttar Pradesh and Bihar.

Can anything be done at the legislative front?

The Commission for Agriculture Costs and Prices (CACP), the body which fixes MSPs for 23 Kharif and Rabi crops has asked the Modi government to bring in a ‘right to sell at MSP’. This, the body believes, is to give some actual legal teeth to the exercise.

What about procurement?

The awareness about MSP and the procurement agency is much lower among marginal and small farmers (cultivating less than two hectares of land), as per the NSS Situation Assessment Survey of Agricultural Households (2012-13). The small and marginal farmers constitute 85% of the cultivator population. A rise in MSP is unlikely to benefit a large number of cultivators.

Fluctuations in prices of other crops

MSP is only announced for 25 crops, while for other crops they have to deal with market volatility. There is no MSP for fruits and vegetables. Industrialists don’t have to face massive fluctuations.

Aspirational targets, but what is the reality?

Prices of most cash crops are more influenced by their demand-supply equations and by international prices. Though the government may set an aspirational target but its exact influence on prices on the ground remains limited. This is due to the constraints in reach and infrastructure facilities.

The average agricultural growth during the first four years of the current government was only 2.4%. In this entire period the real wage of agricultural labourers grew annually only by 0.67%. The government hardly did anything in drought affected regions. Owing to massive dissatisfaction among farmers across the country on various issues, movements took place including the Long march in Maharashtra in March. The government then promised that it will accept the key demand of ensuring MSP. However what the government has actually introduced looks far from promising.
Feature Image: Representational Image

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