The Hindu Business Line : Propitious price hike

Last week's announcement of the Minimum Support Price for various kharif crops is important for a number of reasons. Mercifully, and perhaps for a change, the decision was made just when farmers across the country begin to make the planting decision and start buying inputs such as seeds. It is also propitious in the context of the forecast of a near-normal South-West monsoon and the possibility of rains breaking over Kerala a week ahead of the usual June 1.

Interestingly, this time, pulses are the major beneficiary of New Delhi's munificence (11-13 per cent increase in the MSP) followed by paddy and coarse cereals (10-11 per cent). The MSP hike for oilseeds (groundnut in-shell, soyabean) is modest at 2-3 per cent. So, what inferences can be drawn from the higher MSP and the timing of the announcement? One, the hike clearly reflects the growing concern of policymakers over flattening farm output, worsening rural distress and, of course, food-related inflation. They seem to believe that higher support prices will automatically translate into higher production and help rein in prices next season. The policymakers have decided that grains should be favoured over oilseeds. The continuing sluggishness in pulses production and sharp price spikes have put the Government on the defensive, even forcing a temporary embargo on futures trading, and an announcement of large-scale, subsidised imports by parastatals. Maize (corn) imports are allowed duty-free. Despite easing the so-called supply-side constraints, prices are stubbornly high, for reasons both domestic and international.

Under Indian conditions, supply response to prices is rather limited. That does not mean growers should be denied remunerative prices. But it must be clearly understood that in addition to price, several non-price initiatives are necessary. Agriculture continues to be a gamble on the monsoon. Coarse cereals and pulses are grown on marginal land under rainfed conditions with low inputs, resulting in poor yields. Unlike fine cereals rice and wheat, coarse grains and pulses do not enjoy any marketing support in the form of government procurement. Farmers are entirely dependent on middlemen. Despite the shortage, the primary producer seldom gets a reasonable share of the high open market price that consumers shell out. In addition to technological and other input support, there is complete absence of assured returns commensurate with the risks associated with growing pulses and coarse grains. This must change.

If the country is serious about raising production and productivity, marketing support is essential. The Government is considering inclusion of pulses and edible oils in the Public Distribution System. The sooner it is done the better for the vulnerable sections. Apart from doubts over the price impact on output, a sharp hike in the support price is sure to lead to higher open market prices, something that would compromise consumer interest.

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