The C2 formula of calculating cost of cultivation includes the imputed cost of capital and the rent on the land to give farmers 50% returns, rather than a narrower measure that takes into account the all paid-out costs incurred by a farmer and the value of family labour (A2+FL ).(PTI)
The C2 formula of calculating cost of cultivation includes the imputed cost of capital and the rent on the land to give farmers 50% returns, rather than a narrower measure that takes into account the all paid-out costs incurred by a farmer and the value of family labour (A2+FL ).(PTI)

Swaminathan says MSP better than loan waiver

The protesting farmers, apart from a repeal of the laws, have also demanded a law guaranteeing MSPs calculated using the C2 yardstick. The farmers will hold the next round of negotiations with the Centre on Friday.
Hindustan Times, New Delhi | By Zia Haq, New Delhi
UPDATED ON JAN 09, 2021 11:50 AM IST

Agricultural scientist Monkombu Sambasivan Swaminathan, known as the father of India’s Green Revolution, has said the Union government should fix minimum support prices (MSPs) for farm produce by using a broader and more comprehensive measure of cultivation costs than the one being currently used.

Swaminathan first recommended that MSPs – which act as a floor price to avoid distress sales – should be “at least 50% more than the weighted average cost of production” in the fifth report of the National Commission on Farmers set up under his chairmanship.

“When we recommended 50% over costs, we meant complete costs called C2, which includes all assumed costs. In fact, that is what farmers are also demanding,” Swaminathan told HT in October.

He did not, however, comment on the ongoing farm agitation against three contentious new laws that aim to liberalise the farm economy.

The protesting farmers, apart from a repeal of the laws, have also demanded a law guaranteeing MSPs calculated using the C2 yardstick. The farmers will hold the next round of negotiations with the Centre on Friday.

The C2 formula of calculating cost of cultivation includes the imputed cost of capital and the rent on the land to give farmers 50% returns, rather than a narrower measure that takes into account the all paid-out costs incurred by a farmer and the value of family labour (A2+FL ).

How cost of production is calculated matters. Average MSPs fixed for winter-sown crops show that if C2 costs are used as a benchmark, returns for most crops are lower than 50%. However, when A2+FL is used, returns are higher than 50% in crops such as paddy and wheat.

The Union government says it has implemented the Swaminathan commission recommendation by setting MSPs such that they offer 50% returns over costs of cultivation, a decision first announced in the 2018-19 budget.

However, the government uses the narrower A2+FL measure to calculate MSPs.

“Our demand is that MSPs should be based on C2 costs and the government should make it compulsory for all traders to pay MSP rates to farmers,” said Darshan Pal, a senior farm union leader.

Stressing that MSPs should include the broadest measure of a farmer’s costs including rental value of land, Swaminathan said: “Many states announce loan waivers. Instead of spending so much on loan waivers, the government should use the money to give 50% profits based on C2 costs.”

It has been argued, however, that the Swaminathan report plainly states that “MSP should be at least 50% more than the weighted average cost of production” without specifying which cost of production is to be used.

Swaminathan’s report also states that the net take-home income of farmers should be comparable to those of civil servants.

The Swaminathan Commission, set up in November 2004, has initially submitted four reports in December 2004, August 2005, December 2005 and April 2006, followed by a fifth and final report in October 2006.

“The recommendation of 50% profits over cost needs to be read along with other sections of Swaminathan’s report including Annexure 2.2 which clearly delineates how C2 was not getting covered by MSP in most states’,” said Arun Kavi of Farmers’ Rights Forum, an advocacy group.

On September 28, 2017, Swaminathan tweeted that MSPs should be calculated to cover C2+50%, in addition to being accompanied by procurement, storage and distribution.

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