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Harish Damodaran

NEW DELHI, March 20

IGNORING the Commission for Agricultural Costs and Prices' (CACP) recommendation of `no increase', the Agriculture Ministry has proposed a Rs 15 per quintal hike in the minimum support price (MSP) of wheat to be procured during the ensuing 2002-03 rabi marketing season beginning April.

Official sources told Business Line that the proposal is likely to be taken up by the Union Cabinet, when it meets again next week. If it goes through, the Food Corporation of India (FCI) and State Government agencies would have to purchase wheat at Rs 625 per quintal, as against the MSP of Rs 610 per quintal fixed for the 2001-02 marketing year.

The Agriculture Ministry's stance is at variance with that of CACP, which, for the last three years, has refrained from recommending any MSP increase. While for the 2000-01 marketing season, the CACP had suggested that the MSP be retained at the previous year's level of Rs 550 per quintal, the Centre's, however, announced a price of Rs 580 per quintal.

For 2001-02, the Commission did not explicitly recommend any specific MSP, though it advocated limiting wheat procurement for the Central pool at around 11 million tonnes (mt), keeping in view the FCI's already bloated inventories. This, in turn, required the MSP to actually be slashed to Rs 520 per quintal, which would have still more than covered the farmers' entire `C-2' costs. These included all real expenses incurred in cash and kind, interest on value of owned capital assets, rental value of land and imputed value of family labour.

But again, the Centre ended up hiking the MSP further to Rs 610 per quintal rather than even considering a reduction to Rs 520 per quintal in line with the CACP's implicit suggestion. For the current year's crop — to be marketed during 2003-03 — CACP has renewed its advice of not effecting any MSP increase, even as the Agriculture Ministry has piloted the proposal for a further Rs 15 per quintal hike.

Significantly, the initiative for raising the MSP this time has been taken mainly by the Agriculture Minister, Mr Ajit Singh. Mr Singh's position is in contrast to that of his `reformist' predecessor, Mr Nitish Kumar, who had, in fact, mooted that the MSP for 2001-02 be frozen at the previous year's Rs 580 per quintal. The decision to hike the MSP to Rs 610 per quintal was supposedly taken at the level of the Prime Minister's Office, with the views of the Chief Ministers of Punjab and Haryana gaining precedence over those of the concerned administrative Ministries (Agriculture and Food).

It is a different story though that the move ultimately led to the Government agencies procuring a record 20.63 mt of wheat and not 11 mt as desired by the CACP.

The higher procurement came notwithstanding a 7 mt decline in wheat production last year. The agencies mopped up over 30 per cent of the total wheat output — again an all-time high (see Table).

The situation is likely to further aggravate this year, with production estimated to recover to 73.1 mt.

Even if official procurement is contained at last year's level of 20.6 mt, a Rs 15 per quintal increase in MSP would translate into an additional burden of over Rs 300 crore to the exchequer.

Worse could follow if the higher MSP results in procurement upwards of 25 mt. Given that FCI is projected to start the new marketing season with wheat stocks of around 25 mt — over six times the minimum buffer norm of 4 mt for April 1 — a further accumulation would only add to its cost of `carrying' the excess buffer grain.

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