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Experts discuss why MSP policy has not worked and what are the ways to solve the rural distress

Updated : October 28, 2018 12:38 PM IST

In June this year economists worried over the government announcement that the minimum support prices for all crops will be 50 percent above cost; with cost computed as cost of inputs plus family labour. Many economists raised inflation estimates in June for the rest of the year, but with the kharif now behind us what the country has harvested is a severe and unexpected food disinflation. While this is good for urban poor and rural landless labour, the fall in food prices means that 9 crops are currently below the minimum support price. For some crops the prices are about 6-7 percent below MSP but for about 5 others crops, the selling price is more than 20 percent below the MSP and in some areas even 50 percent.

So the questions we ask today are: - Why are farmers not getting the minimum support price promised by the government with such fanfare? - Is inflation control a wrong policy for India? - How does one solve rural distress if the problem is overemployment in agriculture?

- How does one resolve this entire issue of rural distress and farm incomes?

Dr Ashok Gulati, former chairman of the Agricultural Prices Commission and Dr Himanshu, associate professor at Jawaharlal Nehru University (JNU) spoke at length about the same and answered a few of the questions.

Gulati said that the governments cannot swim away against the forces of demand and supply for too long and in so many commodities there are market fundamentals of demand and supply that operate and the basic rules of MSP is that it has to be a little below the market equilibrium price with a view that when you bring the produce to the market the market should not crash.

“If you announce a price which is way above the market equilibrium price then everything will come to you, so you should be ready to procure. Now you don’t have an apparatus at present, the system is not in place, the money that will be required to procure literally everything of all pulses, of oilseeds and what not it is not in Rs 10,000-15,000 crore. You need Rs 100,000 crore to do that,” he added.

“I think the problem that we are harvesting today actually lies in when we had a bumper crop last year and we were still importing for the last two years massive imports of pulses so there are accumulated results in the system. We were very slow in looking at what the trade policy is and there was no connection of MSP policy with the trade policy. I think it is a very poor functioning at the policy level,” he further added.

Talking about MSP, Himanshu said, “What the government has been doing over the years is using the MSP as the only price intervention that it has in its arsenal – that is not going to work. So you do not have to do it for every crop but for some crops.”

Also Read: Using MSP as the only mode to intervene on crop prices won’t work, say experts
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