What is MSP and How the Hike Will Impact Exchequer

New Delhi: According to reports, the Union Government is likely to announce a hike in the Minimum Support Price (MSP) this week. The move will reportedly be applicable to several major crops, including rice.

Setting the MSP at 150% of the total input costs has been one of the biggest promises of the Narendra Modi government. The delay in its implementation has given the opposition ammunition against the Centre. But with move, the BJP-led government seems to be preparing for the election year .

Last week, the PM had promised that the MSP would be hiked soon. “The Prime Minister announced that the Union Cabinet would approve the implementation of Minimum Support Price of 150% of the input cost, in its forthcoming meeting, for the notified crops of Kharif season 2018-19. This would ensure a significant boost to the income of farmers,” a statement from the Prime Minister’s Office read last week.

What is MSP?

MSP is essentially a form of market intervention undertaken by the government, to provide a safety net to farmers in case of a price drop. It is a price for crops that the government guarantees to the farmers at all costs and under all circumstances. This week, the government is likely to announce the MSP for only the Kharif crop since the Indian agricultural cycle is currently in the Kharif season.

According to government policy, a total of 26 commodities/crops are covered under MSP, or Fair Remunerative Price (FRP) in the case of sugarcane. This includes 7 cereals (paddy, wheat, barley, jowar, bajra, maize and ragi), 5 pulses (gram, arhar/tur, moong, urad and lentil) 8 oilseeds (groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed), copra, De-husked coconut, raw cotton, raw jute, sugarcane and VFC tobacco.

The rise in MSP has been necessitated because of falling margins of profit for farmers, according to a report. On jowar, margins have reportedly fallen by as low as 18%. This has caused widespread farm distress, which led farmer organizations across the country to protest for the implementation of the MS Swaminathan Committee Report of 2006, which recommended a hike in MSP.

Reportedly, the government aims to spend over Rs. 15,000 crore this year on providing a higher MSP to farmers. This will be in line with Arun Jaitely’s budget speech this year, which promised a hike in MSP and also with Prime Minister Narendra Modi’s promise of doubling farmers’ incomes by 2022.