. MSP system was the creation of the era of scarcity in the mid-1960s. Indian agriculture has, since then, turned the corner from scarcity to surplus. The policy instruments of dealing with shortages are different from those dealing with surpluses. In a surplus economy, unless we allow a greater role for markets and make agriculture demand-driven, the MSP route can spell financial disaster.
MSPs pertain primarily to paddy and wheat in selected states — in recent years, the government has also been buying some amounts of pulses, oilseeds and cotton occasionally. A perusal of the MSP dominated system of rice and wheat shows that the stocks with the government are way above the buffer stock norms. The economic cost of procured rice comes to about Rs 37/kg and that of wheat is around Rs 27/kg. The CTC (cost to company) of departmental labour of the Food Corporation of India is six to eight times higher than contract labour in the market. No wonder, market prices of rice and wheat are much lower than the economic cost incurred by the FCI. In Bihar’s rural areas, for example, one can easily get rice in the retail market at Rs 23-25/kg. The bottom line is that grain stocks with the FCI cannot be exported without a subsidy, which invites WTO’s objections. The real bill of food subsidy is going through the roof but that is not reflected in the Central budget as the FCI is asked to borrow more and more. The FCI’s burden is touching Rs 3 lakh crore. We are simply postponing a financial crisis in the food management system.