Jaitley's cost price-based MSP formula to cost Rs 115 bn for 4 crops: SBI

Amid the debate on whether procurement of grains under price deficiency scheme with the newly announced formula of 1.5 times over the A2+FL cost will balloon public expenditure, a report by State Bank of India (SBI) presents a contrarian view.

The report prepared by its Chief Group Economic Advisor Soumya Kanti Ghosh shows that combined cost if a price deficiency based market intervention scheme is implemented for wheat, paddy, bajra and maize on a conservative basis would be less than Rs 115 billion.

This calculation is based on the 2016-17 MSPs which in case of wheat alone was 104 per cent more than the A2+FL cost as calculated by the Commission for Agriculture Costs and Prices (CACP).

The report also discounts the popular perception that introduction of Madhya Pradesh’s Price Deficiency Financing Scheme (Bhaawantar Bhugtan Yojana) artificially depressed prices during the September to December period as urad prices had not only declined in Madhya Pradesh, but also in Chhattisgarh, Maharashtra and Uttar Pradesh.

In case of wheat, the report said that assuming that all production comes to the market and after adjusting the procurement figure, the total cost of deficiency payment comes out to be around Rs 23.25 billion.

If the monthly average price is taken instead of minimum price, then the total expenditure comes even lower at Rs 6.5 billion.

For wheat, SBI has arrived at the figure in each after deducting the state procurement from the total production.

This is then multiplied by the difference between average market price and MSP or the minimum market price and MSP.

The wheat MSP of 2016-17 season which is around Rs 1,625 per quintal has been taken for this purpose.

An updated MSP would obviously boost this expenditure figure.

“We found out that there has been downward pressure on market prices during the post-harvest period, but the difference between the market price and MSP varies from state to state.

Even for some states, the post-harvest price is higher than MSP,” the report said.

It said that in a state like Gujarat, Maharashtra, Karnataka and Jharkhand, the market price ( both minimum and average price) was higher than MSP in 2017.

“Hence, if the government is not able to procure all the major crops and decides to transfer the MSP based deficiency payment directly to farmers, the overall burden will be much less than what is being envisaged in public domain,” the report said.

It, however, cautioned that governments for proper monitoring of any such proposed scheme of price deficiency payment based on MSP. “It is important to move ahead with an income compensation scheme rather than perpetually promote a loan waiver culture for farmers,” Ghosh wrote.