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Friday, 11 May 2012 00:00
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Hiking MSP fine, CACP chief worries about FCI capacity
While the Cabinet is likely to take a call on the Commission for Agricultural Costs and Prices (CACP) recommendations to hike the minimum support price (MSP) for various crops in the next fortnight, CACP chief Ashok Gulati has larger worries. In a newspaper article on Thursday, he pointed out India could have record food stocks of 75.7 million tonnes this year (the FCI chief called him to say it was likely to be 80 million!) of which roughly a third would have to be stored in open areas, under what’s called Cover and Plinth (CAP)—large parts of this are likely to rot. The sharp hike in procurement by the Food Corporation of India (FCI) has led to its stocks rising from 23.9 million tonnes in 2007 to a likely 75.7 million tonnes in 2012 as compared to wheat and rice production rising from 175.3 million tonnes to 193.6 million tonnes in this period, and Gulati points out, this is the crux of the problem Indian agriculture faces.
Apart from the Centre’s hike in MSPs to meet the hike in costs (Gulati says these are growing 15-20% per year, largely due to sharp wage hikes), state governments give their own bonuses on top of this—MP’s procurement will rise 3-fold compared to FY10. Along with high taxes imposed by states (15% in Punjab and Haryana), this drives out private traders. While FCI’s stocks pile up and PDS offtake remains patchy, the government bans exports (wheat was banned in February 2007 and opened up only in September 2011). So here’s the cycle: government hikes MSP, FCI procures more than it can handle and, with PDS offtake patchy, foodgrains rot; with subsidies rising, government has less to invest in agriculture and this hits farm incomes, necessitating another round of higher MSPs to protect farm income … When he was Punjab chief minister, Amarinder Singh had asked for central subsidies for a few years to move farmers from cultivating wheat and rice to citrus fruits where incomes were higher and the damage to the water table a lot less—while clearing MSPs, the Cabinet needs to take a longer look at getting agriculture out of the vicious high MSP-high procurement-rotting food-high subsidy cycle it is in.

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