Do not leave it to states
Farm price deficiency payments are better than raising MSPs
Indications that the Budget for 2018-19 is likely to be farmer-centric, with focus on remunerative prices for agricultural produce, make sense in view of the widespread economic distress in rural areas. But some of the measures being considered by the government to provide effective marketing support for major crops do not inspire much confidence in their success. These include the proposal to give greater responsibility to states to intervene in the market to provide price support, with the Centre bearing up to 30 per cent of the losses incurred on such operations. A more or less similar system, with the Centre shouldering up to 100 per cent losses, is already in place for some pulses, oilseeds and staple vegetables such as onions but without much success. Expanding it to all the 20-odd crops for which minimum support prices (MSPs) are fixed by the Centre may, in fact, further worsen its performance. Besides, this will require the deployment of huge manpower and creation of massive infrastructure for purchasing, transporting and storing the procured commodities - steps that the states may not be able to afford.
Even for wheat and rice, where the primary responsibility of providing price support is that of the Centre, such infrastructure remains inadequate despite constant expansion over several decades. Expecting the states to fare better and that too right from the beginning seems totally futile. In any case, the physical market intervention-based system of price assurance is not without adverse fallout as has been apparent in the case of wheat and rice. It has resulted in distortion of the cropping pattern, alienation of the private trade from the grain market and unwarranted accumulation of stocks on the government account. Replicating the same in other crops would be ill-advised. A lasting solution lies really in making farming profitable by reducing production costs and improving returns on the produce. For this, agricultural marketing reforms need to be expedited. Wooing private investment in setting up crop mandis can enhance competition. Electronic platform-based transactions can lend greater transparency to marketing operations.
The other way of tackling this issue is to go in for a wholly novel system, such as the price deficiency payment mechanism, mooted by a task force of the NITI Aayog. It has already been introduced in Madhya Pradesh. Some other states are trying it out for cotton. It involves fixing floor prices for crops based on their previous years' market rates and compensating the growers for any shortfall in realising these prices. Being a non-procurement-based mechanism, it can safely be applied to all crops and in all areas without needlessly accumulating unwanted inventories, which are difficult to liquidate later. Such a system offers an added advantage of allowing production to respond to market demand, thus, striking the much-needed balance between the output and the requirement of farm commodities to ensure price stability. There is need also to put in place stable policies for agricultural pricing and trade, both external and domestic. The bottom line is that the Centre should lead from the front instead of passing the buck to the states.