A price support policy that encourages growers in an artificial world of price security without actually helping build capacity and competitive strength cannot sustain for long.
The extra-ordinary hike in the minimum support prices (MSP) of major kharif crops — coarse cereals, pulses, oilseeds and cotton — announced by the Government recently has the potential to reverse the sentiment in the food produce markets. An increase of 35-40 per cent for various coarse cereals, 29-48 per cent for pulses and 32-48 per cent for major oilseeds is unprecedented. The trend seems to be a continuation of the 30-32 per cent increase in MSP for paddy and a 33 per cent hike for wheat made last April. Coming as it does rather late in the season, the latest MSP decision is of little consequence to growers in exercising planting options.
Farmers of major field crops would surely be pleased with the unsolicited largesse that appears to be more of a political message than a genuine desire to improve the terms of trade for agriculture. As open market prices are largely above the MSP levels announced, the hike is at best symbolic. Seldom in recent years has the government undertaken price support operations for major field crops (except procurement of rice and wheat) as open market rates have stayed above the MSP. In the unlikely event of prices falling below the MSP in the ensuing season, the Government would have to step in vigorously. It is unclear if the state machinery is ready. A disturbing question is: why did the Government choose to make such a drastic upward revision this year after making only minor changes in the last four years? How was such a high MSP arrived at and what is its relation to production costs and open market prices? To be fair, production costs, including that of labour and other inputs have escalated in recent months and a price hike was inevitable. But the scale of the present support price hike is somewhat disturbing given what it portends for inflation, and the limited ability of the population to absorb a large dose of food price increase.
Given that dependence on import of essential food articles such as edible oils and pulses will continue, the weakening rupee (currently ruling above Rs 45 to the dollar) will push up prices of imported foods. The effect of all the fiscal, monetary and administrative steps the Government has taken in the last several months to contain inflation may be largely neutralised by stubborn food prices. As the extant dear money policy too may adversely affect the marketability of the crops, it may be necessary for the Government to review administrative measures such as restrictions on storage, export, and so on. Last, but not least, a price support policy that encourages growers in an artificial world of price security without actually helping build capacity and competitive strength cannot sustain for long as an effective developmental tool.
