A hybrid of minimum support price (MSP) and price compensation scheme (PCS) will be an ideal solution to address agrarian distress as their combined impact on the economy would be minimal, according to SBI Ecowrap, a research report by the State Bank of India.
If these schemes are carefully chosen to cover the main crops, there will only be a marginal 17 base-point increase in inflation and cost only ₹13,110 crore, 0.08 per cent of GDP, to the exchequer, said the report
While most cereals and oilseed crops could be given a higher MSP — 1.5 times the production cost as announced in the Union Budget — pulses and groundnut could be covered under the PCS similar to Bhavantar Bhugtan Yojana implemented by Madhya Pradesh government last year, said the report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI.
Revised MSP scheme
The findings are important as the government is expected to announce a revised MSP scheme for crops.
The recent buoyancy in economy has come from the non-agricultural sector. While the nominal non-agri GVA expanded to 12 per cent in the fourth quarter of FY 2018 from that in FY 2017, nominal agri GVA declined to 4.9 per cent from 10.9 per cent during the same period, it said. The boost in tractor sales in FY2018, which in the past was cited as a barometer for the revival in the rural economy, was not an indicator of better price realisations in the farm sector. During FY18, tractor sales reached an all-time high of 7.11 lakh units, around 22 per cent higher than in the previous year.
“The relationship between tractor sales and farm realisations is weak as the commercial usage of tractors is increasing rapidly.” Tractors are being used more for transportation of building materials as costs increase when commercial vehicles are used, the report said.
Income support scheme
Apart from MSP and PCS, the study also explored the suitability of income support scheme on the lines of Rythu Bandhu Scheme implemented by Telangana Government recently in which, ₹4,000 per acre per season is given to farmers. If such a scheme is adopted across the country, its financial burden will be anywhere between ₹2.7 lakh crore to ₹3.5 lakh crore depending on whether it is applied to net sown area or total agricultural land.
The implications for the economy will be similarly high if MSP or the PCS scheme was chosen. If the PCS scheme is extended to all 17 crops now under MSP, the cost will be ₹32,302 crore.