New Delhi: Tuesday’s decision by the Union cabinet to raise the minimum support price (MSP) for a number of rabi crops is likely aimed at slowing the rapid growth of India’s current account deficit (CAD) by stimulating domestic producers, according to economists.
The Cabinet Committee on Economic Affairs approved the increase in the MSP for all mandatory Rabi crops for the 2023-24 marketing season. The highest increase of Rs 500 per quintal was earmarked for lentils (mazury), followed by an increase of 400 rupees per quintal for rapeseed and mustard. The MSP for safflower was increased by Rs 209 per quintal and for wheat, barley and gram by Rs 110, Rs 100 and Rs 105 per quintal respectively.
The decision to increase the MSP, particularly for lentils and oilseeds such as canola and mustard, is an attempt by the government to encourage domestic production in order to reduce India’s import dependency for these two crops.
“We are heavily dependent on imports for legumes and cooking oils,” DK Pant, chief economist at Mumbai-based ratings agency India Ratings, told ThePrint.
“Look at the situation the country is facing with increased global prices causing your CAD to explode and affecting your currency. So it’s a double whammy of higher commodity prices and a weakening currency,” he said.
“Now, if you can increase domestic production by increasing MSP, you can have a beneficial impact, thereby reducing your import dependency,” Pant added.
India’s CAD — the amount by which imports exceed exports — grew to $23.9 billion in the April-June 2022 quarter, the latest data available. It’s the highest it’s been in at least three years. Some estimates put the CAD growing even further to $40 billion in the July-September 2022 quarter.
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incentive to increase production
Another reason the government could have gone ahead with such a significant increase in MSPs is to ensure domestic production either stays the same or increases in the face of an expected global deficit, said DK Srivastava, chief policy advisor for India at the consultancy Ernest & Young. said ThePrint.
“The entire global economy is characterized by a projected shortage of various foods and to avoid impacting this on the Indian economy, the government tends to ensure that farmers are given proper incentives to maintain or increase production of the selected crops . ” he explained.
Srivastava went on to say that the government also intends to source for its own reserves, adding that the MSP not only serves the purpose of providing farmers with a minimum income but also helps the government in sourcing these crops.
According to the press release of the MSP increase, the government intends to give farmers compensation rates in proportion to the cost of production.
“The increase in the MSP for Rabi Crops for the 2023-24 marketing season is consistent with the Union Budget 2018-19 announcement to set the MSP at at least 1.5 times the weighted average cost of production for all of India, providing a reasonable fair remuneration for farmers “, it says there.
It added that the maximum yield is 104 percent for canola and mustard, followed by 100 percent for wheat, 85 percent for lentils, 66 percent for grams, 60 percent for barley and 50 percent for safflower.
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“The Promise of the BJP”
In his 2018-19 budget speech, then-Treasury Secretary Arun Jaitley said the government had made good on the promise in the BJP manifesto to pay farmers a price equal to 1.5 times their cost of production.
“Our party manifesto stated that farmers should earn at least 50 percent more than the cost of their produce, in other words, one and a half times their cost of production,” Jaitley had said.
He had further said that the government had been very sensitive to this resolution and had declared MSP for the majority of Rabi plants at least one and a half times the associated costs.
Tuesday’s press release added that the government was particularly focused on increasing production of oilseeds and legumes. Government data shows that oilseed production increased to “37.7 million tons in 2021-22” from “27.51 million tons in 2014-15”, a 37 percent increase.
“The productivity of legumes and oilseeds has increased significantly since 2014-15,” states the press release, adding: “In legume crops, productivity has increased from 728 kg/ha (2014-15) to 892 kg/ha (4 estimates, 2021-22), ie an increase of 22.53%. Similarly, for oilseeds, productivity has increased from 1,075 kg/ha (2014-15) to 1,292 kg/ha (4th forecast, 2021-22).”
(Edited by Theres Sudeep)
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