TOO LITTLE, TOO LATE
The government has finally announced higher minimum support prices for 24 crops. But it looks suspiciously like a pre-election sop, given the procurement hiccups and poor awareness of the price mechanism
The NDA government’s minimum support price (MSP), announced by the Cabinet Committee on Economic Affairs last week for 14 kharif (summer) crops, is the highest ever, with prices set at an unprecedented minimum of 1.5 times the cost of production. It will cost the exchequer an estimated Rs 12,000-15,000 crore annually. This should have pleased farmers. And yet ground-level reports indicate that the announcement has brought cheer neither to the mandis nor farmers.
Why so? Because the minimum support prices declared by governments often remain on paper. According to a report submitted by the NDA government-appointed high-level committee on restructuring the Food Corporation of India, chaired by former Himachal Pradesh Chief Minister Shanta Kumar, only 5.8 per cent of the total farmers in the country are able to sell their crops at MSP. “Only states like Punjab, Haryana, western Uttar Pradesh and, partly, Tamil Nadu, Andhra Pradesh, Odisha, Madhya Pradesh and Chhattisgarh have some MSP procurement mechanisms in place,” says Dr Sukhpal Singh, professor at the Centre for Management in Agriculture, Indian Institute of Management (IIM), Ahmedabad. The rest of the states, especially in eastern India, have pitiful procurement, if any.
Although there are 24 crops for which MSP has been raised (14 kharif and 10 rabi),
procurement is effective only in paddy, wheat and cotton. This is the reason why most farmers—even in Punjab, despite the water shortage—grow paddy instead of other crops.
WOOING THE FARMER
The MSP+50 per cent announcement was first made in the 2018 budget by Arun Jaitley, the Union minister for finance. “I’m confident,” he had declared, “that this historic decision will prove an important step towards doubling the income of our farmers.”
Doubling farmers’ incomes was something Prime Minister Narendra Modi had promised during his Bareilly speech a day before the 2016 budget. He had elaborated on the issue of MSP both during the March 2018 Krishi Unnati Mela as well as during his 42nd Mann Ki Baat on March 25, 2018.
In this edition of the programme, the prime minister offered a little tutorial on MSP: “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 fertiliser used, irrigation cost, land revenue paid to the state government, interest paid on working capital, ground rent in case of leased land. Not only this, 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. Moreover, an extensive exercise on agricultural reforms is being undertaken across the country in order to ensure that our farmers get a fair price for their crop.”
The agricultural reforms he was referring to came in the form of soil health cards, agricultural insurance, ‘per drop more crop’ irrigation schemes and e-mandis, all targeted at doubling farmers’ incomes.
LACK OF MSP AWARENESS
A September 2017 study titled ‘Awareness about MSP among Farmers’, by K.S. Aditya et al, based on the National Sample Survey Office 70th round data observes: ‘Only between 20.04 per cent and 23.72 per cent of farmers in rural agricultural households in India are aware of MSP for crops grown by them in the kharif and rabi season.’ The study concludes that ‘MSP needs to be backed by effective procurement coupled with awareness creation to enable more number of farmers to take benefit of this safety net’.
Moreover, the recent MSP decision reeks of political expediency, of being a manoeuvre aimed at short-term electoral gain rather than being driven by sound long-term economics, say experts. For timing is of the essence in policy-making. While the promise of hiking the MSP by 1.5 times was undoubtedly successful in attract-
“The announcement comes four-and-aquarter years late and nine months before general elections... it makes the entire attempt to relieve the suffering farmer a chunavi jumla”
ABHIJIT SEN, Economist
ing farmers to vote BJP in the 2014 elections, the increase has finally been announced four years later, less than a year before the next general elections.
MORE ELECTIONS THAN ECONOMICS
This inordinate delay and the proximity of the announcement not just to the Lok Sabha election but also the imminent assembly elections in Rajasthan, Madhya Pradesh and Chhattisgarh “makes the entire attempt to relieve the sufferings of farmers appear like another election gimmick, a chunavi jumla, not a sincere commitment by a government committed to the farm sector,” says former Planning Commission member Abhijit Sen who headed the Commission for Agricultural Costs and Prices (CACP) between 1997 and 2000.
Additionally, the NDA government had been rather conservative in hiking the MSP for the last four years given fears of stoking inflation and making agricultural exports uncompetitive. However, with elections looming, the central government has thrown all caution to the winds.
Taking its cue from the Manmohan Singh-led UPA government’s highest MSP announcement right before the 2009 elections (see The MSP Poll Dance), the Modi-led NDA government has entered into a competitive electoral game of luring the majority voters in the countryside with an election sop of unprecedented proportions. Whether such a major farm gamble will fetch votes is to be seen but what remains unmistakeably clear is that all promises of MSP remain empty rhetoric unless they are tied up at the ground level with corresponding levels of procurement and awareness creation programmes.
A MINIMUM GUARANTEE
The MSP regime was instituted in 1965, with the aim of boosting food production and protecting farmers from any sharp fall in market prices. It is a form of market intervention by the government to insure farmers and agricultural producers against any sharp fall in farm prices. Despite the protestations of market cheerleaders, it is not antithetical to markets. Instead, it helps reduce extreme market fluctuations and volatility which can play havoc with the lives and livelihoods of farmers across the country.
Sen describes it as equivalent to “price and volume triggers” in the American markets and it is even allowed under WTO guidelines. He estimates that “MSP has led to Indian agricultural markets becoming 20 to 25 per cent less volatile than American or global markets in agriculture”.
Introduced for the first time after the green revolution experiment for wheat in 1966-67, the formulas used to calculate the appropriate MSP have always generated heated controversy. Estimated by the CACP which relies on data collected from various agricultural universities and centres spread across the country, it could be A2 cost (just the paid-out cost) or the A2+FL cost (the sum of paid-out cost and the imputed value of family labour) or the C2 cost (total of paid-out costs, imputed value of family labour, interest on the value of owned capital assets, rent paid for leased-in land and the rental value of owned land).
Agricultural scientist M.S. Swaminathan, heading the panel of the National Commission on Farmers, had in his 2006 report laid out a ‘holistic national policy for farmers’. ‘MSP,’ he spelt out, ‘should be at least 50 per cent more than the weighted average cost of production’. Thus he ended up laying the template for calculating MSP. Farmers’ organisations swear by the Swaminathan formula. However, neither the UPA government at that time nor the NDA government ever accepted the Swaminathan formula.
SWAMINATHAN’S TWEET ON C2
Even after the recent MSP hike of 1.5 times the cost of production, irate farmers’ organisations have been quick to point out that the formula for determining the rates of MSP is not based on a comprehensive basis (C2) as laid out by the Swaminathan committee recommendations but by A2+FL. A visibly agitated All India Kisan Coordination Committee (AIKCC), the umbrella body of 194 farmers’ unions across the country, has convened a working group meeting on July 13 and a general body meeting on July 14 to discuss and debate the MSP hike for kharif crops and announce a nationwide agitation to press for the implementation of the Swaminathan Commission recommendations.
An AIKCC media statement issued after the hike said ‘it is highly disappointed by the Modi governmentannounced MSP following which the farmers’ union has initiated a nationwide campaign for the MSP to be calculated as per the recommendation of the Swaminathan Commission report, that is, as per the comprehensive cost, known as C2’.
It does seem that experts in the NITI Aayog have created ambiguity over the formula as did the previous governments. Ramesh Chand of the NITI Aayog argued: “In my view, the government will take A2 plus FL, to give margin of 50 per cent for consideration of MSP. The rationale for this is that rental value of own land which is included in C2 is not incurred by 88 per cent of the farmers.” The finance minister also held the same view in Parliament on February 9: “My understanding is that this will be over A2+FL cost of production.”
The truth flies in the face of such ambiguity. Swaminathan himself in a tweet on September 28, 2017, had clearly stated: ‘MSP should be C2+50 per cent with procurement, storage and distribution. Agri policies must be based on conservation, cultivation, consumption, commerce.’
“I have known Swaminthan for years, he always had C2 in mind as costs of production... which he also clarified in the various annexures in the report,” says Sen. Former CACP chairman Ashok Gulati calls the ambiguity in calculating the costs of production in the 2018 budget “a smokescreen, a sleight of hand that could boomerang and cause farmers’ resentment”.
Raju Shetti, MP and All India Kisan Sangharsh Core Committee (AIKSCC) member, has submitted a private member legislation, ‘Guaranteed Remunerative MSP Bill’, which states that ‘the fixation of MSP has to be made in terms of C2 and not A2+FL. Every grain produced by the farmer and all the crops, including milk, vegetables and fruits, must be purchased via MSP’. This private member legislation has the support of 21 political parties in Parliament, including some NDA allies. “It would be in the interest of the farmers that when it is tabled on July 20, the government adopts the bill and passes the same,” says V.M. Singh, AIKSCC convenor.
In 2009, the Manmohan Singh-led UPA government won the polls with a decision to increase the MSP during the poll year. However, in 2013-14, despite MNREGA and higher MSP prices, the UPA was booted out of offce. If history repeats itself, then the NDA government should take its cue from the UPA’s experience. Short-term gimmicks may be electorally expedient but in the long run, without a sincere commitment to the farmers’ plight, they may well turn out to be a farce.