MSP for cotton is now Maximum Support Price, who will bear and benefit
The union government on 4 July announced minimum support price (MSP) for 14 crops sown in the current kharif season with a median increase of 25%, compared with 3-4% in the first four years. It is clearly apparent that this bonanza was kept as one of the ammunitions by the current government just in the year when it will bid for a second term which is expected to be much tougher than the landslide victory in 2014. Farmers have been in distress and demanding MSP
Nevertheless, this announcement also appear one sided since on the other side government lacks the storage capacity and funds to buy surplus produce. Such hikes also result in bumper crop (if rain God blesses the fields) and bring down prices dramatically, many time even below the MSP.
A case, for such instance, is not far away. A generous MSP increase for tur (pulse) in 2017, prompted farmers to increase acreage and output, which in turn brought down prices to levels that barely covered their cost. The Commission of Agriculture Costs and Prices had cost at INR3,318 per quintal while market prices of tur fell to INR3,500-4,000 per quintal against the MSP of INR5,450 per quintal. High MSPs have only end up fueling inflationary pressures and increase distress in farmers.
Among the 14 crops, cotton saw a hike of 28%. This will firm up cotton prices in India, largest exporter of the fibre, and reflect in global market soon. It is clear that such repercussions on global markets were not considered at all while fixing the MSP for cotton. MSP for cotton has been fixed at INR5,540 per quintal for long staple against INR4,320 a quintal last year. For medium staple the numbers are INR5,150 a quintal and INR4,020 a quintal respectively.
The budget has already allocated huge funds to Cotton Corporation of India to procure cotton if spot prices fall below the MSP. The union budget 2018 has allocated INR7,148 crore to the ministry of textile for the fiscal year 2018-19, as against INR6,251 core in 2017-18 (revised) and INR6,227 crore (budgeted). Allocation for procurement of cotton by Cotton Corporation under Price Support Scheme, was pegged at INR924 crore in 2018-19 as against INR303 crore in 2017-18 revised and nil in budget. This only showed the government’s intention to woo farmers with an eye on general elections next year.
A hike is MSP which now appear as Maximum Support prices will benefit the government as it prepares to win a second term. But the farmers and consumers will bear the brunt. In case prices fall due to bumper crop, farmers are at a loss, and in case cotton prices move up, consumers will have to bear the cost. Exporters of cotton yarn and textile will lose low cost advantage as cotton prices hike will distort market for yarn and textile industry and thereby the entire industry.
