Wednesday, February 20, 2019


Post-MSP promise, govt faces challenge managing conflicting interests
Wednesday, 14 February, 2018, 08 : 00 AM [IST]
Our Bureau, New Delhi
Having raised farmers’ expectations by promising them a minimum support price (MSP) which would be one-and-a-half times the cost of production, the government will find it a tight-rope walk to manage the conflicting interests between farm producers and consumers.

This was stated by Sandeep Jajodia, president, Associated Chambers of Commerce and Industry of India (Assocham) at a meeting of the Assocham Managing Committee, the top policy-making and governing body of the chamber, which took place in New Delhi recently.

He added that with the inflation maintaining an upward trend consecutively for the last six months, and possibly moving towards the six per cent mark, that can make general households restive.

While the Reserve Bank of India (RBI), in its credit policy commentary, stated that it is yet to assess the impact of increased MSP on retail inflation, the impact would be clearly seen, especially on cereals and other foodgrains like wheat and rice.

Despite inflation, measured on the Consumer Price Index (CPI) being pushed up by items like vegetables, eggs, etc., the level of price rise has remained muted for cereals (2.57 per cent year-on-year for December 2017), while pulses witnessed a huge drop, bringing down the overall headline inflation.
“Going forward, the situation cannot sustain and farmers growing pulses, for instance, would have to be protected along with ensuring adequate remunerative prices for wheat and paddy. Therein lies the problem,” said Jajodia.

“With vegetables and fruits having seen notorious gyrations in prices, the overall CPI inflation may well cross even the limit of four per cent by the RBI,” he added after discussing the issue with the Assocham Managing Committee.
The Chamber said while the RBI had an elbow room of plus or minus one or two percentage points from the threshold of four per cent, the question remained whether the consumers, especially those in urban India, would bear with the government and buy the argument that farmers have to be protected.

Besides, even in rural India, there are more landless workers than land owners growing grains. The entire rural population, especially those earning wages, have to be protected against inflation, which is considered to be a painful tax on the poor. For instance, according to the December 2017 CPI data, the Consumer Food Price Index for rural areas (5.08 per cent) was higher than it was for the city-dwellers (4.71 per cent).”
The Assocham chief also said that country would soon be in election mode, first in key states like Madhya Pradesh, Chhattisgarh and Karnataka and then the general elections in 2019.

“The Budget, with a huge focus on agriculture has raised expectation levels in the rural landscape. Besides, the entire national discourse has shifted to problems of rural India,” he added.
“The government would find it very difficult to adjust MSPs, which do not appear to be in line with promises. Even the formula for costing is being debated in the media and among agricultural economists and farmers’ organisations. That means the pressure on retail inflation is bound to be seen,” Jajodia said.
The Chamber stated that the policy-makers were going to face the most challenging times.

“The two recent examples illustrate the dilemma before the government. Despite onions selling at Rs 40-50 a kg, the government had to lift export control on it to protect the growers,” it added.

“Similarly, the import duty on sugar has been doubled to 100 per cent, along with other measures like strict enforcement of stock limits for sugar mills,” the Chamber said.

The ministries of food and consumer affairs, agriculture, commerce, finance and the Prime Minister’s Office (PMO) would need to keep a strict vigil on maintaining a balance between interests of growers and consumers. What makes the situation difficult is that at this point of time, both have become vocal.  

As the RBI has highlighted in its credit policy document, households’ inflation expectations, measured by its survey of households, remained elevated for both three-month ahead and one-year ahead horizons even as the inflation expectation for the one-year ahead horizon moderated marginally. The RBI said that the inflation outlook beyond the current year was likely to be shaped by several factors, including crude prices.
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