The changes in minimum support
prices for rabi season crops illustrate the fact that
the government is bent on pursuing an infeasible
strategy for resolving the ‘food crisis’ it has itself
engineered.
The recent announcement of the minimum support prices
(MSP) for rabi season wheat, oilseeds, pulses and
barley reveal the rather convoluted manner in which
the government is attempting to muddle its way out of
a ‘food crisis’ of its own making. Going against the
recommendations of the Commission for Agricultural
Costs and Prices (CACP), the Food Ministry and the
Finance Ministry, which had argued for a freeze in the
support price for wheat, the Cabinet has increased the
MSP for wheat by a small but significant Rs. 10 per
quintal to Rs. 620 per quintal. It has however
accepted the CACP recommendations to hike the MSP for
oilseeds (rapeseed/mustard and safflower), gram and
masur by a substantial Rs. 100 per quintal to Rs.
1300, Rs. 1200 and Rs. 1300 respectively, while
keeping the MSP for barley at last year’s level of Rs.
500 a quintal.
These changes have to be assessed in terms of their
implications for the resolution of the peculiar ‘food
crisis’ confronting the government. This takes the
form of the accumulation of huge food stocks in the
hands of the Food Corporation of India (FCI) even when
poverty, endemic hunger and periodic reports of
starvation deaths persist. In the case of wheat, the
new marketing season is expected to begin with stocks
of 25 million tonnes, as compared with the minimum
required buffer stock at this time of year of 4
million tonnes. Such large stocks in both wheat and
rice have proved wrong and aborted the government’s
policy of curtailing food subsidies by raising the
issue prices of food distributed through the public
distribution system. Rising MSPs that have ensured
larger procurement and rising issue prices that have
reduced offtake from the PDS, have together
contributed to the burgeoning of stocks held by the
FCI. Since this increases the bill incurred by the FCI
in the form of carrying costs, the food subsidy has in
fact increased, though it currently finances
meaningless stock accumulation rather than serving as
a form of support to the poor.
The congruence of opinion across the Food and Finance
Ministries and the CACP, regarding the need to freeze
the MSP for wheat, comes as a response to this crisis.
Inasmuch as the freeze may help moderate the level of
sale by farmers to the procuring agencies, it is seen
as one of the many means required to bring down the
embarrassing level of food stocks. However, this
superficial congruence conceals the fact that the
demand for an MSP freeze emanates from analysts with
two different perspectives. There are those who still
believe that the provision of a cost-plus
‘remunerative’ floor to farmers is necessary to
encourage productivity increases and growth in the
agricultural sector. In normal circumstances, they
would have supported an increase in MSP since, the low
average rate of wholesale price inflation
notwithstanding, no one can deny that, in a period
when fertiliser subsidies are being phased out and
power tariffs are being raised, agricultural costs
would have risen. If yet they support the freeze, this
is because in their view, the government’s practice of
succumbing to pressure from the farm lobby and
providing a ‘bonus’ over and above the floor price
recommended by the CACP has taken wheat and rice
prices to unwarrantedly high levels in recent years.
The freeze is seen as an effort to rollback the MSP to
warranted levels, which would, hopefully, reduce
procurement.
There are, however, two problems with this argument
that seeks to deal with the problem of foodstocks by
acting on the supply of food to the procurement
agencies. To start with, it leaves unresolved the
question as to how the existing high level of stocks
at the start of the procurement season can be reduced.
But even if the problem created by pre-existing stocks
is ignored, the argument misses out on the possibility
that any cost-plus floor in the form of an MSP could
result in procurement levels that keep stocks high,
given the current regime for disposing of those
stocks.
