Moving to per acre subsidies is the next step
While those who argue high minimum support prices (MSP) are the reason behind high food inflation will cheer the government’s decision to restrict the hike in wheat MSP to R50 per quintal, the real story lies elsewhere. And that is, over the years, the government using price incentives to get farmers to diversify into different crops, those that either help restore some nutrient to the soil or simply consumer less water. Given how costs have risen around 13-15%, restricting the wheat MSP hike to under 4% means farmers are being discouraged from growing wheat. On the other hand, barley MSP has been raised by over 12%. While the last kharif season saw a huge hike in maize MSP—to make them equal paddy—to wean farmers away from paddy, the last rabi season saw a very big hike in MSPs of oilseeds like mustard and sunflower, critical given India’s large imports of edible oils. According to CACP chief Ashok Gulati, this is going to result in India having a historical high crop of pulses and oilseeds this year.
There is, however, a limit to such strategy since not all states have active public procurement—Bihar, for instance, has very little. A CACP study by Ashok Vishandass and B Lukka analyses the profits of various crops in different states for the last decade—naturally, profits in states like Haryana and Punjab, and for crops like wheat and rice, are the highest. If these states are to be encouraged, a per acre subsidy—Punjab’s paddy farmer gets R12,000 per hectare annually—needs to be looked at. A start has been made in this budget, but it needs to be hiked.
The other problem pertains to taxes. At R1,400 per quintal, India’s wheat costs $225 per tonne. Once you add transport costs to the port and the 14-15% mandi tax that states like Punjab and Haryana levy, Indian wheat—this applies to other crops also—gets uncompetitive now that global prices have crashed. This too needs addressing if Indian agriculture is to become globally competitive.