The Hindu : Methodology for computing MSP to be upgraded

Online edition of India's National Newspaper
Sunday, Feb 24, 2002

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Methodology for computing MSP to be upgraded

By Gargi Parsai

New Delhi Feb. 23. The Government plans to upgrade the methodology for computing the minimum support price (MSP) of farm commodities to equip itself with quality data for launching claims with the WTO in case of disputes. The methodology will be made transparent for all States to participate fully.

For starters, it was agreed, at a national workshop here, to compress the data from over three to four years to one season and to enhance the coverage of crops from 80 to 120. It was also decided to upgrade the quality of data.

The workshop, however, rejected the proposal for insurance of an individual farmer as a unit instead of as a block on the ground that it was not feasible for insurance companies.

Payment of premium is shared by the Centre and the State and only a small fraction is paid by the individual farmer.

Experts particularly went into the question of evaluation of the cost of family labour, imputed rent of the farm land and of interest on working capital while computing the costs for setting the minimum support price.

The workshop was organised by the Commission for Agriculture Costs and Prices (CACP). The CACP collects data on 120 crops from a sample of 9,000 farmers at a cost of Rs. 88 crores every year. The same set of farmers are interviewed over five years.

The Secretary, Ministry of Agriculture, J.N.L. Srivastava, said India was required to bring down the rates of import duties under international commitments and it already faced competition in several commodities. In view of this, transparency in estimation of the cost of cultivation of crops will help devise the right strategy for facing challenges thrown up by the WTO regime.

Referring to the prevailing MSP of wheat and rice which were higher than the international market rates he said the WTO obligations dictated that the MSP should not outstrip the market rates he said to distort the global agri-business.

Mr. Srivastava said questions were being asked whether in a competitive market place, a price policy based on actual cost of cultivation was sustainable. He said suggestions were also being made that a price policy based on just the cost of cultivation will reduce the role of market forces substantially.

Even the U.S., which had previously linked its price policy to the cost of cultivation, had to abandon it and base it on a five-year moving average of market prices.

The CACP Chairman, G.K. Chadha, however, said that in the U.S., cost estimation was done on the basis of operational and overhead costs. Labour was included under overhead costs, whereas in India this was not possible.

He said the workshop had been organised in response to suggestions from several farmer organisations, State Governments and public policy analysis that the basis for computing cost of cultivation under the comprehensive scheme for studying the cost of cultivation of principal crops needed to be reviewed.

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