While the possibility of a drought is likely to make food prices rise, the other fear is that, were a BJP government to come to power, it will raise support prices in such a way as to assure farmers a 50% return on costs. Considering net returns for wheat are the highest among cereals, at 36% of costs?the figure is 15% for paddy?hiking MSPs will lead to a dramatic hike in costs. A more reasonable way to achieve the same goal would be to work on the supply side, on yields. Indian yields in the case of wheat, for instance, are 2,583 kg per hectare versus 3,969 in the case of China, so getting to these levels would imply that profits could go up 53% without increasing MSPs. There are various ways to achieve these, topmost of which are better seeds as well as more irrigation.
A CACP analysis, for instance, finds that gross returns for farmers have a correlation of 0.64 with area under irrigation?that is, a 10% increase in the area under irrigation will increase gross returns for farmers by as much as 6.4%. Combine this with the correlation?0.66?between areas under irrigation and use of fertilisers, and the equation gets even more robust. That is, growth in irrigation not only results in higher yields, it also leads to a higher usage of fertilisers?and that, in turn, leads to a higher productivity.
Add to this the gains to be made by opening up agriculture markets. In cereals like wheat and rice, around 14.5% of the value is given to state governments by way of mandi taxes. Another 4-5%, sometimes more, gets taken away by way of commissions of middlemen in these mandis. Simply opening up agriculture markets and doing away with these taxes and commissions will also add to the income of farmers. In other words, there are more than just one way to raise the profitability of the farm sector. It is to be hoped the next government, whoever forms it, does not succumb to the lazy solution of simply raising MSPs?apart from what it does to inflation, it only works in the handful of states where FCI undertakes procurement operations.
