Arun Jaitley’s price promise to Indian farmers is either vague or impossible

False hope.
False hope.
Image: Reuters/Amit Dave
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India’s finance minister Arun Jaitley, in his budget speech on Feb. 01, promised to raise the minimum support price (MSP) for farmers on their produce, ensuring at least 50% profit on investment.

However, this promise may be vague at best and impossible at worst, contends Ashok Gulati, former chairman of the Commission for Agricultural Costs and Prices, which is mandated to recommend the MSP.

Edited excerpts from an interview with one of India’s best-known agricultural economists:

Do you think the budget’s farm thrust is significant or is it just posturing?

The biggest announcement for the farm sector is that they have promised 50% higher MSP than cost. They have not clarified which cost they are talking about. Is it the comprehensive cost (including rent and interest on owned land and capital), which is called C2? Or is it A2, which is the paid out cost? If it is A2, already MSPs are 50% higher than cost. If it is C2, then it will require a 50% hike in MSP, for instance, in paddy. That would cause huge distortion.

Is the food subsidy allocation reflecting the possibility of a sharp rise in food prices?

Food subsidy is Rs1.69 lakh crore ($2.6 billion), compared to a revised estimate of Rs1.4 lakh crore ($2.3 billion). Nearly Rs30,000 crore ($468 million), that’s a significant rise.

If they were to indeed hike the MSP, how soon will it reflect in food inflation?

At present, they have just announced a 50% increase over cost. I doubt they can do it. Inflation will go up, cropping patterns will get distorted, diversification will go for a six. It cannot happen even next year. How can you increase MSP by 50% in a year or two, when you haven’t done that in five years?

What is your overall verdict on the budget from the agriculture point of view?

There are a few things that are good. One is the fishery and animal husbandry fund of Rs10,000 crore. Number two, agriculture marketing and infrastructure support Rs2,000 crore—thumbs up! Initiating “Operation Green” for onion, tomatoes, and potatoes with a Rs500 crore outlay—thumbs up! On MSP, we need clarification.