Seeds of discontent in govt over paddy support price

The National Democratic Alliance (NDA) government at the Centre seems to be in a dilemma over what should be the increase in minimum support price (MSP) for paddy for the 2015-16 crop season (July-June).

A section within the Narendra Modi-led dispensation is of the view that there should be a significant raise in MSP, to improve the government’s sagging image in rural India, especially because of the controversial land acquisition Bill and after massive crop losses due to unseasonal rains. Another section, though, is worried about the impact of such a move on subsidies and the fiscal consolidation exercise.

For paddy MSP to rise substantially, the government will have to overlook the recommendations of the Commission for Agriculture Costs and Prices (CACP), which, according to officials, has suggested an increase of less than four%.

The MSP currently stands at Rs 1,360 a quintal for common-grade paddy, and Rs 1,400 a quintal for Grade-A paddy. If the government goes by CACP’s recommendations, the support price for paddy for the 2015-16 season will rise by a nominal Rs 49-50 a quintal.

Earlier, the government had announced a similar increase in MSP for wheat — by Rs 50-55 a quintal — for the current crop season (July 2014 to June 2015), and the rabi season.

Officials said the CACP recommendations had come in for massive criticism from within a section in the government. A senior minister from Gujarat had gone to the extent of sending a dissent note on the issue and demanded that the Commission be scrapped, as it had failed to protect the interests of the farmers, particularly at a time when the Bharatiya Janata Party’s image as a pro-poor party had suffered a setback.

A dominant view within the government is also that MSP for paddy be increased by at least Rs 100 a quintal, and the Centre’s directive against states declaring bonus over and above the Centre-fixed MSP be temporarily withdrawn.

The food ministry had last year said that the Food Corporation of India (FCI) would limit its procurement of wheat and rice from states declaring bonus above the MSP to the extent needed for the public distribution system (PDS). This order was meant to stop states from arbitrarily distorting the market.

“It (increasing MSP for paddy substantially) will be a good beginning for the government to show its solidarity with farmers. But it should not end at that; it should be accompanied by measures like allowing states to declare bonus over MSP,” Ajay Jakhar, chairman of Bharat Krishak Samaj, a non-partisan farmers’ advocacy group, told Business Standard .

Those within the government who are opposed to a big increase in MSP say such a move will have a direct impact on food subsidies. That could affect the government’s efforts to bring down its fiscal deficit to 3.9% of gross domestic product this year, from the estimated 4.1% in 2014-15.

The government has already deferred the fiscal consolidation road map of the previous government by a year, and might not like to see any further deviation from the revised path. This could be crucial particularly because global agency Moody’s has raised its outlook on India’s sovereign rating to positive from stable, and will watch the government’s performance over the next 12-18 months before effecting any revision in the rating itself. It should be noted that rating agencies look at general fiscal consolidation — by both the Centre and states.

The Union Budget has pegged the food subsidy bill for 2015-16 at Rs 124,419 crore, about around Rs 1,800 crore more than the revised estimate for the previous year.

The Bharatiya Janata Party had in its manifesto for the 2014 Lok Sabha elections committed itself to “enhancing the profitability in agriculture, by ensuring at least 50% profits over cost of production”. The issue was also raised by some delegates during the recently concluded BJP national executive meeting in Bengaluru. Punjab and Uttar Pradesh, two of the country’s leading agrarian states, are scheduled to go to polls in early 2017. BJP will be keen to repeat its spectacular Lok Sabha election performance in the UP state polls, on the strength of keeping the promises it made to farmers.

“Villages and their welfare are at the core of BJP and the Modi government’s policy programmes. The Atal Pension scheme, Mudra Bank, and increasing the calamity relief fund for crop damage have all been measures to help the rural poor and farmers. We are committed to delivering on the promises made in our manifesto, to help agriculture become profitable,” BJP National Secretary Shrikant Sharma said.

Sharad Pawar, the agriculture minister in the previous government had told the Rajya Sabha in 2013 that though the MSP had been successively raised since 2011, it still was much lower than the input cost.