Continuous MSP hikes hurt India’s farm exports
At a time when global prices of agricultural commodities have tanked because of oversupply, sustained increase in minimum support price (MSP) has resulted in India’s agricultural commodities being outpriced in the world market, hurting the country’s farm exports.
The Indian government has raised MSP of various agricultural commodities between 40 per cent and 70 per cent over 2013-14 to 2018-19.
Going by the projections of the World Bank in the latest commodities outlook that global agri prices are expected to remain weak for some time, exporters are unlikely to have any respite soon. A Regional Comprehensive Economic Partnership (RCEP)like agreement would further dampen the prospects of increasing farm exports because it may open floodgates for imports.
The data compiled by the Ministry of Commerce showed India’s overall exports of agricultural commodities stood at $28.62 billion for FY19, 13 per cent lower than the peak witnessed in FY14. Between April and September this year, India’s export of agricultural commodities declined 4.8 per cent to $12.86 billion. It was $13.79 billion last year.
"In a globalised economy and when the government of India is going ahead with negotiations on various free-trade agreements (FTAS), including the RCEP, the role of MSP has become meaningless. If foreign exporters offer products at a low cost, India’s MSP traders will import and not buy from local farmers. A continuous MSP hike would make India’s agricultural commodities outpriced in the world market,” said Vijay Sardana, an expert on the agriculture and food sector.
Bulk consumers of commodities like maize and wheat in south Indian states have started importing from overseas as sourcing from local farmers has become expensive. Juice makers, too, have started importing raw materials.
Therefore, the government must keep international prices in mind before fixing MSP of any agricultural product, said Sardana. Madan Sabnavis, chief economist at CARE Ratings, also apprehended that increasing MSP would hit India’s exports of some commodities.