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Paddy price puzzle

Last week the government, in an ad hoc decision, raised the minimum support price (MSP) for paddy from Rs.745 to Rs.850 per quintal for most common varieties. On the face of it, a 14 per cent hike might seem good enough, neither disheartening the farmers nor hurting the consumers. However, for a variety of reasons, the decision has drawn flak. The Commission of Agriculture Costs and Prices (CACP) has recommended an MSP of Rs.1,000. Although the CACP’s recommendations are not binding, it has been the practice, over the years, to take them as the base — on many occasions, the government had improved upon them. In a departure from the past, the government has referred its proposal to the Prime Minister’s Economic Advisory Council. Fixing support prices for the principal agricultural crops has always been a political decision; it could not be otherwise especially now, given that general elections are some months away. The government has tried to explain the delay in arriving at a final MSP by pointing out that the State governments have reacted differently to the CACP recommendations, with States like Andhra Pradesh and Punjab wanting still higher prices. A comparison with wheat pricing has become unavoidable. For the last winter crop, the MSP for wheat was fixed at Rs.1,000. Unlike wheat whose cultivation is confined to one season and to the northern parts of the country, paddy is grown across the country and in both the principal seasons. It will be very difficult to establish that the costs of cultivation and the incentives farmers expect are the same across the country.

Obviously when the raging inflation is underpinned to a large extent by food prices, the determination of procurement prices for paddy and wheat has an enormous contextual significance. After the last winter crop, the government claims to have procured ample quantities of wheat for sustaining the public distribution system. The high procurement price has been an effective inducement. The government’s other measures to contain food prices included a ban on the export of non-basmati rice and a few other commodities. While some of these might be revisited in the light of satisfactory harvests and procurement, the delay in fixing the MSPs is retrograde. For paddy, the MSP, even if ad hoc, has now been announced, but for other major crops the prices are yet to be declared. The South West monsoon is well into its third week and the government’s ability to influence cropping patterns stands considerably diminished.

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