• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Harish Damodaran

NEW DELHI, Sept. 25

THE Commission for Agricultural Costs and Prices (CACP) has recommended a Rs 20 per quintal increase in the minimum support price (MSP) of paddy to be procured during the coming kharif marketing season beginning October.

In its revised crop pricing policy report— submitted in the wake of the nation-wide drought— the CACP has also called for a roll-back of fertiliser prices to pre-Budget levels and a complete interest waiver on all farm loans for a one year period.

If implemented, the entire package is expected to cost the exchequer around Rs 7,000 crore. The CACP is understood to have suggested that the Rs 20 per quintal increase be paid as a one-time bonus. This would ensure that the new price does not form the basis for deciding the MSP to be paid in future seasons.

The CACP had earlier submitted its report on Price Policy for Kharif Crops of 2002-03 on May 16. The report had then recommended a freeze in the MSP of paddy at last year's levels of Rs 530 and Rs 560 per quintal for common and Grade `A' varieties, respectively. If the proposed Rs 20 per quintal `drought bonus' is factored in, the revised MSPs would work out to Rs 550 per quintal for common paddy and Rs 580 per quintal for Grade `A' varieties.

Assuming rice procurement for the coming season at 16 million tonnes (around 24 million tonnes in terms of paddy), the Rs 20 per quintal bonus will imply an extra burden of over Rs 500 crore for the Centre.

In the case of fertilisers, the 2002-03 Union Budget had effected an increase in the farmgate price of urea from Rs 4,600 to Rs 4,830 per tonne, while revising the same from Rs 8,900 to Rs 9,350 per tonne for Di-Ammonium Phosphate (DAP) and from Rs 4,255 to Rs 4,455 per tonne for Muriate of Potash (MoP). Prices of various complex fertilisers, too, were raised from Rs 6,620-8,520 per tonne to Rs 6,980-9,080 per tonne.

At the time of announcement, the impact of the higher fertiliser prices was assessed at roughly Rs 1,000 crore for an entire year. If prices are now rolled back to their pre-Budget levels for the ensuing rabi planting season, it would translate into an extra fertiliser subsidy outgo of Rs 500 crore.

But it is the recommendation pertaining to complete interest waiver on all farm loans that would have the maximum fiscal implications. By the Agriculture Ministry's own reckoning, the cost— in terms of interest income foregone by the banking system for a one year period— comes to a whopping Rs 6,040 crore, of which Rs 2,360 crore would be on short-term loans and Rs 3,680 crore on outstanding medium and long-term loans. The banks would have to be re-imbursed for these losses by the Centre.

While the CACP's recommendations are likely to be viewed as being populist and anti-reforms, informed sources, however, say that the Agriculture Minister, Mr Ajit Singh would go whole hog in pushing through the proposals.

With production of kharif foodgrains estimated to be lower by almost 21 million tonnes (18.5 per cent) and output of cotton and oilseeds also plunging by 24 per cent and 11 per cent, respectively, the farming community is said to have suffered income losses upwards of Rs 15,000 crore. The proposed Rs 7,000-crore package would partially mitigate these losses, it is felt.

''If the proposed huge bailouts to the Unit Trust of India, IFCI and IDBI is being defended in the name of protecting the investor interests and averting a potential systemic risk to the financial sector, how can one argue against providing much needed emergency assistance to the drought-hit farm sector'', an Agriculture Ministry official quipped.

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
Seafood units discuss ban with Ministry officials

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line