Centre weighs 2 price formula for crops
The Govt is mulling a proposal, separating support price & procurement price for crops. At times of output shortfall, the farmer would get a market-friendly, remunerative price from the state.
By Prabha Jagannathan, ET Bureau |
NEW DELHI: The government is mulling a proposal to declare separate minimum support (floor) and procurement prices for crops in future. The move is under consideration after it was strongly recommended by the Prime Minister���s Economic Advisory Council (EAC), in a note to the Cabinet Committee on Economic Affairs (CCEA), early last month.
It could help the government save on food subsidy in times of farm distress, as it would then mean that its procuring agencies would be obliged to only procure farm produce at the floor price. It would, nonetheless, continue to ensure that the farmer gets a minimum price from the government for his produce in times of glut, even if open market prices plummet to below declared floor price.
Separating the two price factors would also mean, crucially, that in times of output shortfall the farmer would get a market-friendly, remunerative price from the State. That would prevent procurement shortfall for the government for its buffer stocks and key PDS and welfare programmes.
Consequently, it would prevent high priced imports that balloon state spends on food subsidy as happened with wheat in 2006 and 2007. An estimated total of Rs 4,000 crore was spent on wheat imports in these two years.
���The earlier practice of having separate MSP and procurement prices should be restored,��� the EAC suggested to the CCEA in a note on the contentious subject last month. The EAC was asked for its views by the government on the MSP recommendations made by the CACP for 2008-09 kharif crops including paddy.
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For some time now, a higher MSP has been equated with a higher procurement price for the government since the two were not distinctly differentiated. To rein in a consistent rise in the MSP, the price at which the State buys farm produce to prop up its social welfare and PDS programmes, was something that several agri economists have repeatedly recommended. The urgency of the demands were more apparent in the food economy regime that now appears to be history: the pre-UPA era when food grains choked up storage agencies countrywide and expanded the nation���s food subsidy bill to unprecedented levels. But like with history, there is every possibility of a repeat of the context in which the urgent demands were couched.
In the current agricultural scenario where a significantly low 2.5% sectoral growth has been projected for 2008-09 compared to the 3.6% growth in 07-08, agri economists have recommended for quite some time now that all managerial costs and those involving input price increases in crop production are factored into the MSP.
That would insure the floor prices against political and other extraneous pressures. A separate procurement price should, on the other hand, be based on current market realities and other crucial factors not related to production input costs such as market price realities, government buffer and available welfare programme stocks apart from prevailing global prices.
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In early August, while recommending to the CCEA that the CACP���s high MSP recommendation on all other crops but paddy be accepted without demur, the EAC stressed, ���It is important to make a distinction between the MSP and procurement prices. The basic objective of MSP should be to give an assurance to farmers at the time of sowing that all their production costs including some imputed costs would be adequately covered.
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That is the reason why the MSP is primarily related to cost. The procurement price could reflect prevailing market conditions and stock position.���Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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