Context:
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Government claims that Swaminathan Committee recommendations are used in calculation of MSP.
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Protesting Farmers claims that government is using its own formula which provides significantly low MSP.
What are the various formulas used to calculate the cost of production in agriculture?
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Formulas used to determine the cost of production
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Criteria included
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A1 method
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all actual expenses in cash. Included the value of hiring human resource, the value of owned machine labour, hired machinery charges, the value of seeds both farm produced and purchased, the value of pesticides etc.
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A2 method
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A1 plus rent paid for leased-in-land
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B1 method
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A1 and interest on the value of an owned capital asset
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B2 method
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B1 plus the rental value of owned land and rent paid for leased-in-land.
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C1 method
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B1 and the credited value of family labour
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C2 method
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B2 and the credited with the value of Family Labour
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M S Swaminathan report had recommended that the MSP should be calculated by including all actual farm costs as C2 along with an additional 50% margin.
What formula does the government use, to calculate MSP?
Different formulas were recommended by different committees formed for calculating MSP. For example, Dr M S Swaminathan Committee recommended C2+50%, Ramesh Chand Committee (RCC) recommended MSP on C2+10% formula.
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The government used its own formula A2+ Family Labour as a cost of production. The government then pay farmers 1.5 times the amount of A2+FL. But, the increase in the revenue of farmers did not make any difference in reality.
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A comparison with the government method and Swaminathan report shows that there is a huge difference between A2+FL (Government) and C2 (Swaminathan committee) for the main crops. The value of A2+FL is much lower than the C2.
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Even if the costs suggested by RCC are taken into consideration, it can also improve the welfare of farmers. But the government is calculating MSP based on their own formula.
The way forward
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Swaminathan report’s MSP formula, C2 plus 50% is better for providing farmers with a higher value for their produce.
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Thus, the government should fix MSP by calculating C2, along with an addition of 50% margin. The MSP for wheat would be Rs 2,787 and paddy Rs 3,116 per quintal.
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If the RCC formula (C2 +10%) is adopted, then the MSP should be fixed at Rs 2,044 (wheat) and Rs 2,285 (paddy), respectively.