Govt likely to hike MSP by 5-20% for summer crops

The government may announce higher-than-usual increases in minimum support prices (MSP) for the summer-sown crops in 2022-23 year soon, taking into consideration a sharp rise in costs of farming inputs.

The MSP increases this year could roughly be in the range of 5-20%, the highest since 2018-19 when a new policy of 50% profits over computed cost of production led to MSP hikes for kharif crops in the range of 4.1-28.1%.

In the last three years, MSP increases were roughly in the 1-5% range.

According to sources, the sharpest MSP hikes this year have been recommended by the Commission of Agriculture Costs and Prices for oilseeds like soyabean and groundnut. Among pulses, tur and moong may also see steep hikes in support prices, as the imports of these items rose last year amid a domestic supply crunch. The government also reckons that higher domestic production of other oilseeds will help reduce palm oil imports.

While elevated MSPs, backed by procurement, could potentially boost rural income and purchasing power, these can also increase inflationary pressures further. Wholesale inflation in April rose to 15.08%, highest in at least 17 years.

Food inflation came in above the overall retail price inflation for April and May, 2022. It was 8.1% in April, while the CPI inflation was 7.79%.

The cost of production for MSP will be include all paid-out costs directly incurred by the farmer — in cash and kind — on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel and irrigation and an imputed value of unpaid family labour.

“Rise in MSPs of commodities such as oilseeds, pulses and nutri-cereals (jowar, bajra and ragi) and cotton is expected to be higher than for paddy,” a source said, adding that the idea is encourage farmers to reduce cultivation of water-intensive crops and aid crop diversification.

“Our focus is to realign the MSPs in favour of oilseeds, pulses and coarse cereals to encourage farmers to shift to these crops, which are environmentally sustainable and thereby reduce the country’s dependence on imports,” an official said.

India imports about 55-56% of its total domestic requirement of edible oil while 15% of pulses consumption is met through imports.

In race to get on top of rising food inflation, the government recently allowed tariff-free imports of crude soyabean and sunflower oils during this financial year and the next. The tax waiver is also subject to an annual cap of 2 million tonne for each , which will more than suffice to meet the needs of domestic refiners and ease supplies in the domestic market.

A waiver of basic customs duty for the two edible oils, which together account for a quarter of India’s edible oil imports, was extended till FY24-end, and a residual 5% agriculture infrastructure development cess on the two crude edible oils was removed.

On July 1, the Food Corporation of India is expected to have a rice stock of around 29 to 30 million tonne (MT) excluding around 17 MT of grain receivable from millers against the buffer norm of 13.5 MT.

“With cost of production rising in the last one year, the hike in MSP for kharif crops has to be substantial so that government meets its commitment of providing 50% more than cost of production to farmers,” Ashok Gulati, former chairman, Commission for Agricultural Costs and Prices and chair professor (agriculture), India Council for Research in International Economic Relations told FE.

Prices of farming inputs like electricity, transporarion and pesticides have seen big increases. Though prices of fertilisers and key fertiliser inputs also increased in the global market, a sharp increase in subsidies by the government will give farmers largely immune to the cost increases.

The government’s food subsidy expenses are expected to rise further from budgeted Rs 2.06 trillion for 2022-23.

The government has decided to absorb a substantial part of the rise in fertiliser prices and subsidies are expected to touch Rs 2.15 trillion in 2022-23 against Rs 1.62 trillion in 2021-22 mainly because of spike in global prices of phosphatic and potassic (P&K) fertilisers and urea in last one year.

“Thrust of the MSP regime should be to increase oilseeds and pulses production so that import dependence is reduced and farmers’ income get a boost,” P K Joshi, former director (South Asia), International Food Policy Research Institute, said.

While FCI procures rice during October-September period from grain surplus states of Punjab, Haryana, Chhattisgarh, Odisha, Andhra Pradesh and Telangana for meeting public distribution system (PDS) requirement, the farmer cooperative Nafed procures oilseeds and pulses when prices go below MSP. Nafed has to maintain a buffer of 2.2 MT of pulses as buffer stock.