MSP decision: political gimmick or historical increase?

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“When you’ve heard one bagpipe tune, you’ve heard them both.”

– Jack Finney

 

The Union Cabinet’s decision to hike minimum support price (MSP) for 14 crops, as perceived,  is a move to ease agrarian distress as well as fulfill a promise made to farmers to ameliorate their lot. The crops would fetch the farmers almost 1.5 times the cost of cultivation. This increase, by 11.3-12.9 per cent over 2017-18, is the most significant of the MSP-related decisions. Ostensibly, it is a good move. The Agriculture Ministry says this would be a step towards doubling the farmers’ income by 2022. At present 23 crops are covered by MSP. However, it does not imply that all would be purchased at that price by government agencies. In a tweet, Prime Minister Narendra Modi described this move as a fulfillment of his government’s promise of providing cost plus half returns to farmers and termed the decision as historic. Looking back, Modi had in his election campaign in 2014 said that he would give farmers a price of 50 per cent over cost for their production. The farmers have to wait for four years (from 2014 and until July 6, 2018) to get what was promised to them. After four years, Prime Minister Modi is remembering his promise to farmers. Significantly, the promised MSP is given just before the crucial elections to some state assemblies as well as the next Lok Sabha election (2019).

The MSP hike is clearly a political move as it has come just six months before the BJP-ruled Madhya Pradesh, Chhattisgarh and Rajasthan — where the party faces heavy anti-incumbency — go to polls in December this year. The government will be hoping that this additional income will help it contain the anti-incumbency due to rural distress in the elections. The BJP is keen to bolster its prospects in these politically crucial states, especially Madhya Pradesh, which had witnessed a bloody farmers’  agitation in June last year. The three-BJP ruled states together send 65 MPs to Lok Sabha.

That this announcement is seen as a poll gimmick is also because the government had argued in the SC that prescribing the MSP to be 50 per cent above the cost of production is not possible and that such a step would “distort markets” and “be counterproductive in some cases”. In fact, soon after assuming office in 2014, BJP-led NDA government had even admonished state governments for granting bonuses over and above the MSPs. Now, how can it (the government) make such “historical increase”, as Prime Minister Modi said. On the top of it, the move could help push up inflation, add to the fiscal deficit and prompt the Reserve Bank of India to raise interest rates more steeply than expected. There is no denying that it is too early to evaluate the implication of the minimum support price (MSP) hikes on inflation. A clear picture will emerge by October-November to see the reality in terms of markets prices vs MSP to gauge inflationary impact.  So, time will tell whether the hike of 50 per cent in the MSP for kharif crops is really a “historical increase” or is another jumla as the Congress perceives it.

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