Low MSP Increases Makes Up For The Sins of the Past Government

2 comments Written on June 26th, 2014 by
Categories: Inflation

Minimum Support Prices for agricultural goods have been increased in 2014-15, but only by a marginal amount, less than 5% over the previous year.

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If you don’t know what MSP is: the government buys these goods from farmers at these prices, guaranteeing that a certain amount of their produce will definitely be sold at a certain price. This is supposed to help them get the confidence to sow and reap and harvest.

This has turned into a ridiculous exercise because in no field is your income guaranteed - I would also like to know that someone will keep paying me year after year, but it doesn’t mean taxpayer money should be used for the purpose.

And if you’re wondering that the price increases are low, here’s how much they have increased since 2007-08, both in absolute terms and an annualized basis.

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The second chart shows you how, even after this low increase, the total annualized increase since 2007-08, a seven year inflationary period, has been above 10% for nearly all such goods!

My Take

Someone has finally seen the light. I congratulate this government for helping to bring down food inflation. Food inflation hurts the poor the most. If we don’t cut MSP, we will never see the end of food inflation. In the next few years, we might see prices moderate.

The next step must be to completely disband APMC as a licenced body (it should be “just another market”) and to eventually stop this massive government food purchase program (which is just a subsidy).

Also See: Why Food Inflation Haunts Us and What We Can Do To Fix It

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2 comments “Low MSP Increases Makes Up For The Sins of the Past Government”

Only cutting MSP rise may not help. It may lead farmers to sell agricultural land to builder lobby and thereby reducing agricultural land, which will again pressurize the prices.

I believe Government should:
– invest in agricultural technology to increase production
– find a way to consolidate farm land – say on a ‘Gram Panchayat’ level and ensure joint farming
– discourage conversion of farm land to NA (by say reducing FSI, etc)
– find ways to ensure cultivation by farmers

Real estate is where the bulk of black money is, not Swiss Bank. Indian real estate is a bubble, supported by politicians.