The Hindu Business Line : Price conscious

It is that time of the year when farmers across the country start planting major crops (paddy, jowar, bajra, maize, groundnut, soyabean and cotton) for the kharif season, due for harvest about four months from now. It is also the time for the Government to announce a minimum support price (MSP) for various crops so that, at least theoretically, farmers can decide on crop selection and are assured of a certain minimum price. In recent years, the MSP was seldom announced in time for growers to take an informed decision. Often, it was done when the crops were well into their growth cycle. It is now early June and the South-West monsoon is set to unburden itself over the subcontinent. The General Elections and the subsequent formalities of government formation reportedly prevented New Delhi from taking a decision on the MSP. Now that the Government is in place, any further delay would be unpardonable.

If Krishi Bhavan continues with its casual approach to decision-making on matters such as the MSP, it is cause for concern. There is an air of heightened expectancy about the MSP this time; but caution is necessary. Policymakers are sure to find themselves in an awkward position. Last year, as late as September, the government announced a rather sharp hike in the MSP for various crops. There was reason to suspect it was an attempt to woo the farm voters. A sharply higher MSP did nothing to help expand crop size. If anything, output of major kharif crops such as oilseeds and cotton, coarse grains and pulses actually declined in comparison with the previous year. A high MSP prevented a fall in food inflation which, in turn, hurt consumers. The processing industry, especially of such cash crops as oilseeds and cotton, had a tough time as the economic slowdown squeezed the domestic and export markets. Cotton provides a remarkable example of how fixing MSP unrelated to domestic and global market conditions can play havoc with the industry and trade. While cotton textile mills are starved of raw material at internationally competitive prices, cotton exports have fallen to less than half of the previous year’s.

To be sure, there can be absolutely no argument against growers getting higher prices; but much of the premium should be dictated by the market and not forced by official diktat in the form of unconscionable MSPs. It is important to bear in mind that the ability of an average Indian farmer (80 per cent are small and marginal) to respond to price signals is rather limited, given the challenging conditions under which he operates. Farm policies in recent decades did nothing to build capacity among farmers to respond to price signals. It would be a pity if the new government, in its anxiety to show ‘performance in the first 100 days,’ once again resorts to a sharp hike in the MSP that is divorced from market realities. It is time to recognise the dangers of cocooning poor farmers in an artificial world of price security that is not sustainable.

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