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Modi Cabinet Approves Steep Hike in MSP for Kharif Crops

The CCEA has approved a rise in MSP for paddy by approximately Rs 250 per quintal to Rs 1,800 per quintal to honour the Budget announcement to ensure that farmers get at least 1.5 times of the production cost. Earlier, the prices were at Rs 1,550 per quintal.

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Updated:July 4, 2018, 3:33 PM IST
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Modi Cabinet Approves Steep Hike in MSP for Kharif Crops
A farmer gathers saplings to be planted at a paddy field in a village in Nagaon district, Assam. (REUTERS)
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New Delhi: The Cabinet Committee on Economic Affairs in its meeting on Wednesday approved an increase the minimum support price (MSP) for Kharif crops as a move to fulfil its Budget promise and address farmers' concerns about the cost of crops.

The CCEA has approved a rise in MSP for paddy by approximately Rs 250 per quintal to Rs 1,800 per quintal to honour the Budget announcement to ensure that farmers get at least 1.5 times of the production cost. Earlier, the prices were at Rs 1,550 per quintal.

The cost of the revised MSP is estimated to be around Rs 33,500 crore.

Minimum support price is a form of market intervention by the government to insure farmers against any sudden fall in agricultural produce prices. The MSP is a guaranteed price for their produce from the State.

Last week, Prime Minister Narendra Modi had announced that the Union Cabinet will approve the increase in MSP to at least 1.5 times of the production cost in the forthcoming meeting.

Paddy is the main Kharif crop, the sowing of which has already begun with the onset of the southwest monsoon.

“In some of the Kharif crops where the MSP is already 1.5 times of the production cost, the increase will be minimal. But there will a sharp increase in crops like paddy, ragi and moong, whose MSP are well below the 150 percent of the input cost,” an official source had said prior to the meeting.

The MSP will largely apply to paddy and pulses but will benefit ‘nutri-cereals’ like millets the most. The added cost of MSP is 0.2 percent of GDP, according to the Cabinet note. The share of paddy in the additional outgo will be around Rs 12,300 crore.

A range of crops was covered by the latest MSP, unlike the usual focus on rice and wheat. A procurement mechanism is to be announced later. The highest priority, in calculating the cost of production, has been given to labour, which is about 53 percent while other costs like fertilisers, farm animals, pesticides, seeds and irrigation make up the remaining.

According to a report in The Economic Times, the government has delayed the announcement of MSP of kharif crops, the sowing of which has already begun, as it was weighing whether to take such a big political decision considering the huge financial burden on the exchequer.

Farm experts are of the view that the sharp increase in the paddy MSP could further boost India’s rice production, which touched an all-time high of 111 million tonnes in 2017-18 crop year and the output is much more than the domestic demand.

The cultivation of paddy, which is a water-guzzling crop, needs to be discouraged and not promoted, they said, adding that higher rice production will lead to increase in government procurement and swelling of the food subsidy bill.

This hike assumes significance given that it covers the crop which constitutes over 50 per cent of the total acreage of food grain crops during Kharif season.

This move is expected to put an additional burden of an estimated Rs 12,000 crore on account of procurement based on records of procurement in previous years.

During the announcement of the Budget in February 2018, Arun Jaitley had said that the insurance of MSPs of Kharif crops at 1.5 times their costs will be based on the A2+FL costs, and not the more ambitious C2 costs formula favoured by farm scientist MS Swaminathan.

The A2+FL formula takes into account actual cost plus the imputed value of family labour in the production of a crop. But the C2 formula factors in a lot of costs, including imputed rent on land and interest on capital, which makes the cost of production much higher.

The move comes as a way to address farmers' distress as major nationwide protests with various demands have taken place this year.
| Edited by: Puja Menon
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