Storage, funds to hamper PM’s MSP plan

Crash in commodity prices has led to a waning of Modi’s popularity

Mumbai/ New Delhi, July 5: Prime Minister Narendra Modi’s pre- election gambit to sharply hike state- mandated prices for summer crops, including rice, may mean little to millions of farmers, as the government lacks the storage and funds needed to buy most of the produce.

The median increase in the so- called minimum support prices ( MSPs) approved by the government on Wednesday was 25 per cent, compared with 34 per cent in the first four years in office for Modi, whose bid for a second term next year is expected to be much tougher than his victory in 2014.

The government announces MSPs for most crops to set a benchmark, but state agencies mainly buy limited quantities of staples such as rice and wheat at those prices, restricting benefits of higher prices to only around 7 per cent of the country’s 263 million farmers, according to various studies.

Implementing the scheme in full would be expensive, economists say.

The government’s fiscal deficit target for the current financial year, at 3.3 per cent of GDP, is already under pressure due to high oil prices.

“With funding under stress, the government can’t widen the scope of agri purchases,” said Sanjay Mookim, India equity strategist at Bank of America Merrill Lynch. “And even if it does, there is no storage available and you can’t build storage in two- three months.”

The ministries of agriculture and food did not immediately respond to requests for comment.

The government said its limited purchases could cost it ` 150 billion this year, although industry officials say it is difficult to estimate actual spending, which depends on the quantity procured.

MSPs typically dictate crops that most farmers opt for, often leading to a glut of certain commodities, millions of tonnes of which have to be sold into a depressed local market at well below the cost of production, sparking angry farmer protests across the country.

A crash in farm commodity prices over the past few months has led to a waning of Modi’s popularity in the countryside — where more than twothirds of India’s 1.3 billion people live — prompting the premier to invite a group of farmers to his residence last week and promise MSPs at 1.5 times of input cost.

With funding under stress, the government can’t widen the scope of agri purchases... And even if it does, there is no storage available and you can’t build storage in two- three months. — SANJAY MOOKIM, India equity strategist, BoA- ML