Government claim to fulfill its promise of MSP at 150% is misleading. MSPs fall short of offering returns at 50% over comprehensive cost of production, as BJP had promised in 2014
By Asit Manohar
On July 4, the Narendra Modi-led government at the Centre announced the Minimum Support Prices (MSP) for the 2018-19 Kharif Season. In a tweet, Narendra Modi termed the increase ‘historic’ and claimed that his poll promise had been fulfilled. While the increase in MSPs was substantial for certain crops, has the BJP actually fulfilled the promise that it made to farmers during the 2014 election campaign?
Prior to the 2014 Lok Sabha elections, Narendra Modi had campaigned extensively trying to woo farmers by promising that if voted to power, his government would implement the recommendations made by the Swaminathan commission on farmers. Tangibly, the promise was, in the words of Modi, “We will change the minimum support price. There will be a new formula – the entire cost of production and 50 percent profit.”
After the MSP hike, in its propaganda, the government has claimed that it has provided farmers with MSP at cost plus 50 percent, as was promised by Modi before 2014, and hence the promise has been fulfilled.
To ascertain whether the promise has been fulfilled or not, it is important to understand the costing mechanisms that are used to determine MSP. The MSP for eligible crops is declared by the Commission for Agricultural Costs and Prices (CACP). The CACP has three different definitions of productions costs – A2 (actual paid out cost), A2+FL (actual paid out cost plus imputed value of family labour) and C2 (comprehensive cost including imputed rent and interest on owned land and capital). As is evident, C2 > A2+FL > A2.
While Modi did not specifically mention which of the three costs of productions he was referring to, it could only have been C2 for the following reasons:
At the time, the MSP for most crops was already higher than both A2 and A2+FL by more than 50 percent. Thus, Modi could not have promised something that the farmers were already getting.
Modi’s promise contained the words ‘the entire cost of production’. Of the 3 costs, only C2 can be termed as the entire cost of production as it includes the value of rent and interest on owned land and capital.
At various junctures in the campaign, Modi and several other BJP leaders promised that they would implement the recommendations of the Swaminathan commission. The key recommendation of the Swaminathan commission was that MSP be set at 1.5 times C2.
To determine whether the government has really fulfilled its poll promise of providing MSP at 1.5 times the cost of production, we need to see whether or not the MSPs provided are 1.5 times C2.
The first column in the above table shows the MSP had it been set at C2 plus 50 percent. And we can see, it is not. In fact, for no crop has MSP been set at C2 plus 50 percent. For paddy, as against Rs 2,340 per quintal as per the C2 plus 50 percent formula, the MSP announced by the Narendra Modi government is only Rs 1,750 per quintal. For moong, the difference between the MSP that Modi promised and what has been provided is a massive Rs 2,267. Similarly, the difference for cotton is Rs 1,621, and so on.
The returns over C2 for none of the crops whose MSP was declared yesterday exceeds 50 percent. Bajra comes the closest with 47 percent returns over C2, while the rest see returns ranging from 3 percent to 22 percent. The returns over C2 for the most significant kharif crop, paddy, are 12 percent.
So how is the government claiming that it has provided the farmers MSP that is 1.5 times the cost of production and fulfilled its election promise?
As is evident from the above table, the MSPs announced by the government provide returns at 1.5 times A2FL. And the government propaganda which has claimed that it has provided cost plus 50 percent, is clearly referring to A2FL as the cost of production and not C2, which had been promised by Narendra Modi prior to the 2014 elections.
Instead of taking C2 as the base, the government has chosen to continue taking A2+FL as the base while calculating MSP. Thereby, denying the farmers the comprehensive cost that includes the value of interest and rent on owned land and capital.
It remains unclear how the government is claiming that it has fulfilled its promise, while the MSPs continue to deny farmers returns of 50 percent over C2. The government’s claim of the MSP increase being ‘historic’ is also curious as the method of calculating MSP remains the same, and a ‘new formula’ – as Modi had promised – remains elusive.