Central govt's MSP: A hoax on farmers

Farmer organisations reject the Modi government’s “deceitful” minimum support price for major rabi crops and urge it to recalculate the procurement rates to offset the rise in input costs.

Mustard being cleaned at the Najafgarh wholesale grain mandi near New Delhi on June 15, 2021.

Prime Minister Narendra Modi chaired a Cabinet Committee on Economic Affairs on September 8 that approved an increase in the minimum support price (MSP) for 23 crops for the 2022-23 rabi marketing season. Primary among the designated crops are wheat, barley, gram, masur, rapeseed and mustard.

However, the overall increase in the MSP when compared with last year for all the crops was only between 2 per cent and 8.6 per cent. Farmers were especially disappointed with the 2.03 per cent increase in the MSP for wheat, which translated into a Rs.40 hike, which they said was the lowest in 12 years.

Prof. Sukhpal Singh, Principal Economist (Agricultural Marketing) of Punjab Agricultural University (PAU), told Frontline that while the MSP was not lower than the one declared last year, it had been reduced drastically in terms of percentage value.

He said: “The MSP for wheat has been increased to Rs.2,015 a quintal, when, in fact, using the M.S. Swaminathan and Ramesh Chand formulas, it should be at least Rs.2,830. Therefore, there is a deficit of Rs.815 in the MSP declared.”

The estimated cost of production of wheat is Rs.1,008 a quintal, according to the government.With the prices of diesel and petrol shooting up this year, there has been a sharp rise in input costs and farmers are unsure if the increase in the MSP would be sufficient to cover even the input costs.

Protests by farmers

In such a scenario, the government’s claims of the MSP being an “extraordinary favour to the farmers” ring hollow. A legal guarantee for MSP has been a longstanding demand of farmers since a large number of farmers, particularly in States where the mandi system is weak, are forced to sell their crops below the MSP.

The Samyukta Kisan Morcha, a coalition of more than 40 farmer unions formed in 2020 to coordinate protests against the controversial farm laws enacted by the Central government, said in a release that the government had actually reduced the MSP of rabi crops in real terms.

It said: “While the retail inflation stands at 6 per cent, the MSP of wheat and chana has been increased by 2 per cent and 2.5 per cent alone. This means that in real terms, the MSP of wheat and chana [gram] have been reduced by 4 per cent and 3.5 per cent respectively. The new MSP of Rs.2,015 declared for wheat is equivalent to Rs.1,901 when adjusted for inflation, which is Rs.74 less than [the MSP of] Rs.1,975 declared for 2021-22 [rabi marketing season]. Similarly, the MSP of chana has been reduced from Rs.5,100 to Rs.4,934 in real terms.”

The release added: “On the one hand, the farmers are facing the brunt of increased prices of diesel, petrol, agricultural inputs and their daily necessities, and on the other they are becoming poorer as their income is getting reduced.”

The joint release, issued by Balbir Singh Rajewal, Dr Darshan Pal, Gurnam Singh Charuni, Hannan Mollah, Jagjit Singh Dallewal, Joginder Singh Ugrahan, Shivkumar Sharma ‘Kakkaji’, Yudhvir Singh and Yogendra Yadav, who are spearheading the farmers’ protests, stated that the government was “deceitfully misusing” the term ‘comprehensive costs’, which has always been used to refer to the C2 cost of production.

They said: “As pointed out by farm unions since 2018, the government is blatantly deceiving the farmers and the nation by using a lower cost measure (A2+FL [family labour]) and claiming that it is providing MSP as 50 per cent above the comprehensive cost. For example, in 2021-22, the comprehensive cost of production (C2) for wheat was Rs.1,467, which is 50 per cent higher than the lower cost of Rs.960 used by the government. Once again, the farmers of India reject the government’s play with numbers and demand real remunerative prices, not imaginary profits.”

Agricultural incomes

In a strong indictment of the Modi government, the farm unions said: “The National Statistical Office’s (NSO) 77th round of survey shows that over 50 per cent of the agricultural households are in debt, with the farmers’ debt increasing by 58 per cent over the last five years. Income from farming has decreased in real terms, with majority of the agricultural income coming in the form of wages or non-farm business.”

They added: “This confirms an overall trend of making farmers into agricultural labourers in India. It is high time that the Modi government appreciates the price route, which is the most direct and proximal route, of improving farmer incomes in India, and fulfils the demand of the farm movement for legally guaranteeing remunerative MSP for all farmers.”

Commenting on the NSO report, Devinder Sharma, a food and trade policy analyst, said: “Almost 26 years after the WTO [World Trade Organisation] was launched, the latest report of the NSO on agricultural households and incomes in rural India paints a rather gloomy picture. This Situation Assessment Survey (SAS) was conducted in 2018-19. While the survey report hasn’t drawn any correlation between a farmer and a cow, what it has clearly brought out is no less frightening: an average Indian farmer fares much worse than a labourer.”

He added: “If, 75 years after Independence, farmers are earning more from wages than from crop cultivation, it only shows that the overarching economic design of keeping farm incomes deliberately low so as to accelerate rural to urban migration, because cities need cheap labour, is on track.”

Devinder Sharma also said that as far as crop cultivation was concerned, the average agricultural household earned Rs.3,798 a month in 2018-19. In real terms, when adjusted for inflation, the earnings from cultivation had declined by 8.9 per cent between 2012-13 and 2018-19. He added: “Further, broken on a per day basis, a newspaper has worked out the income from crop cultivation at Rs.27 a day. Even an MGNREGA worker earns more. It only establishes what I have been saying for long: farmers are in reality being penalised for growing food. In any case, income from cultivation is certainly less than the earnings from an average lactating cow on a per day basis, given the farm gate price of approximately Rs.30 a litre.”

Prof. Sukhpal Singh told Frontline that farmers were suffering from indebtedness because the MSP was perpetually underestimating the cost of production and was, therefore, never sufficient for the farmer. (Also, according to reports, procurement as a percentage of production varied from 7 per cent for groundnut to 43 per cent for rice for 2019-20. This means that a significant chunk of agricultural produce is sold amid stiff market competition and farmers receive meagre earnings.)

According to Prof. Sukhpal Singh, one of the ramifications of low prices of farm produce was the intensifying of agrarian distress, which was visible in escalating farmer indebtedness and suicides. Therefore, for the overall sustainability of farming, it becomes even more crucial to increase the MSP and widen its reach and cover to all farmers and all crops, he said.

He added: “For the MSP to be remunerative, farmers across the country have been demanding the fixation of MSP as per M.S. Swaminathan’s formula, ever since 2006. Increasing MSP by pegging it at cost plus 50 per cent—the idea being drawn from M.S. Swaminathan’s formula for the computation of remunerative MSP—was a primary component of the original multifaceted government plan towards doubling farmer income. However, policy planners have reneged on the promise, as the current MSP is less than as recommended by Swaminathan’s report and is highly mismatched with the actual cost of production.”

According to Prof. Sukhpal Singh, there are six types of cost concepts—A1, A2, B1, B2, C1 and C2—only in agriculture. Under this cost accounting method, C2 is considered the final cost or comprehensive cost. He said: “In no other sector do we have such a complicated cost accounting method. Besides, there are several non-economic factors at the national and international level that are used to determine the MSP.” Some of these factors are the WTO’s terms, international prices of market produce, fiscal deficit, inflation, surplus food stocks and elections, he said. Prof. Sukhpal Singh added: “In 2004, 2009, 2014 and 2019, just before the Lok Sabha election, the percentage increase in MSP of wheat and paddy was higher than in the years following the elections. Here, MSP is used as an election plank. The actual cost of production plays a secondary role in determining MSP.”

Even the Bharatiya Kisan Sangh (BKS), a farmers’ organisation affiliated to the Rashtriya Swayamsewak Sangh (RSS), has staged protests in hundreds of districts in support of the farmers’ demand for assured MSP. In a memorandum addressed to Prime Minister Modi, the BKS sought a law that would make payment of crop prices lower than MSP a punishable offence.

The organisation urged the government to take a sympathetic view of the farmers’ demands and said that there was a huge difference between the MSP and the price at which farm produce was sold to consumers. It said that arhatiyas (commission agents) and corporates were getting richer by the day while farmers were getting poorer.

Thousands of farmers from across the country, particularly Punjab and Haryana, have been camping at the borders of Delhi since November last year demanding the repeal of the three farm laws and a new law to guarantee MSP for their crops.

Meanwhile, in Himachal Pradesh, Adani Agri Fresh, a major buyer of apples, said in August that it had fixed its procurement rate of A-grade premium apples at Rs.72 a kilogram, compared with Rs.88 last year, triggering farmers’ protests across the State because this reduced rate would result in losses to them. The apple farmers were joined by farmers growing vegetables and other crops for a legal guarantee of MSP for all crops.