(FE)
The government’s plan to raise MSPs for crops to 1.5 times the A2+FL costs is likely to cost around Rs 1,75,000 crore in a full year if market prices are lower than the MSP by 20%. The exceptionally high cost of this plan, it is likely, was the reason for the delay in the announcement of this season’s MSP as the government was trying to work on ways to finance it; the plan is now likely to be announced later this week.
A calculation by Ashok Gulati, Tirtha Chatterjee and Siraj Hussain at Icrier a few months ago put the cost at Rs 113,035 crore, assuming the market price of crops was lower than the MSP by 20%; the figure was Rs 56,518 crore if the fall was 10% and Rs 169,553 crore if the fall was 30%. The Icrier analysis, however, was based only on the marketable surplus, an assumption that may not hold when the government is promising an MSP for crops and saying it will compensate farmers at this price if the crop is not procured. In which case, it makes sense for farmers to bring in all their produce to sell to the government and buy back what they need for consumption from the market later, when prices have fallen. Madhya Pradesh’s Bhavantar saw an increase in market arrivals as farmers realised they could get a better deal, though 100% arrivals may not happen for a few years.
