Jaitley clears the air on MSP calculation formula

NEWDELHI: Finance minister Arun Jaitley said on Friday that farmers would be provided 50% returns over and above what they spend on inputs like seeds and fertilisers and an imputed value of family labour, clearing the confusion over which measure of cost of cultivation would be used to decide minimum support prices (MSP).

“We will follow this as a matter of principle and this will set a rule for future governments and a new benchmark for farmers,” he said in the Rajya Sabha during a discussion on the budget.

The Union budget presented on 1 February promised that the government would fix MSPs at 50% over cost, acceding to a major demand of farm organizations following months of farmer protests seeking remunerative crop prices.

However the budget did not clarify which measure of cost would be used to decide MSPs.

The Commission for Agricultural Costs and Prices (CACP), which recommends crop support prices to the government, uses two measures--A2+FL, which includes paid out costs on inputs plus an imputed value of family labour, and C2 or comprehensive cost of cultivation. To arrive at C2 costs, imputed rent and interest on owned land and capital is added to A2+FL.

The finance minister’s clarification that the government will use the A2+FL measure is likely to disappoint farmer organizations which were demanding MSPs at 50% over C2 or comprehensive cost of production.

A comparison of A2+FL and C2 costs with MSPs announced in January for major winter crops such as wheat, mustard and chana shows that net returns to farmers were lower than 50% when C2 costs were used, while they were significantly higher than 50%—from 79% to 112%— when A2+FL costs were used.

This implies that farmers are already receiving 50% returns over costs for most crops when the A2+FL measure is used, and the budget announcement may not translate into higher returns.

“The current crisis of farming needs real measures to address low prices and the government is deceiving farmers... even the previous UPA government’s MSP announcements gave significant returns over A2+FL costs for many crops, and the Prime Minister had criticised this in his election campaigns (in 2014), promising better returns to farmers,” said Kavitha Kuruganti, convenor of the Alliance for Sustainable and Holistic Agriculture (ASHA), a farm policy advocacy group.

Taking on the Congress, Jaitley said the BJP-led NDA government had moved the country’s economy out of the Fragile Five (which also included other emerging markets Brazil, South Africa, Indonesia and Turkey) during the UPA government to the fastest growing in the world.

On former finance minister P Chidambaram’s comment on Thursday that chief economic advisor Arvind Subramanian was a good doctor but the government was a bad patient, Jaitley said while a bad patient had some chance of getting cured under a good doctor, UPA had a “terrible” doctor, referring to former prime minister Manmohan Singh.

Jaitley also defended the decision to tax businesses with revenue up to Rs250 crore at a lower corporate tax rate of 25%, saying micro, small and medium enterprises (MSMEs) were the largest job creators in the country.

“They help the working class. MSMEs cannot compete with large-scale companies, who are entitled to sectoral and regional tax exemptions,” said the minister, adding that 99% of companies will now come under the 25% tax rate.

He also said that a GST Council-like structure could be evolved for pursuing reforms in areas such as agriculture, health and power, for which coordination with states was required. “It is not only highly desirable, but will be eminently possible. We will make every endeavour in that direction,” he added.