Indian Prime Minister Narendra Modi said on Sunday a planned increase in guaranteed price for farm goods will be based on the comprehensive cost of production including land rentals and unpaid-for labour by family members of a farmer.
The government, which sets a minimum support price (MSP) for nearly two dozen farm commodities, said in its budget last month that MSP will be set at least one and a half times the cost of production. The announcement marks a major shift in the government's approach after it had kept increases in the average minimum support price to low single digits over the past three years.
New Delhi did not spell out whether the production cost would include just input costs, or all other expenses incurred. Farmers' organisations have long demanded that the government takes into consideration the comprehensive cost of production while deciding the MSP for a crop.
In his monthly address on state radio, Prime Minister Modi, who faces general elections by May next year, said the budget had taken a "big decision" to ensure that farmers get a fair price for their produce. "If I may elaborate on this, MSP will include labour cost of other workers employed, expenses incurred on own animals and cost of animals and machinery taken on rent, cost of seeds, cost of each type of fertilizer used, irrigation cost, land revenue paid to the state government, interest paid on working capital, ground rent in case of leased land...," Modi said."...and not only this but also the cost of labour of the farmer himself or any other person of his family who contributes his or her labour in agricultural work will also be added to the cost of production," he added.
Analysts have warned that the increase in minimum support price for crops could push up inflation and would weigh on the fiscal deficit. It could also hurt exports if domestic prices are higher than global prices.