Millennium Post (Kolkata)

Dealing with the distress

Innovative strategy is required to legalise MSP with comprehens­ive cost considerat­ions to address farmers’ genuine concerns around fair pricing without imposing a substantia­l burden on the exchequer

- ALOK RANJAN The writer is an ex-Chief Secretary, Govt of Uttar Pradesh. Views expressed are personal

After more than 2 years, the farmers are on the roads to Delhi, agitating for their demands to be met at the earliest. About three years ago, the farmers were protesting against the three new laws by the Government of India as part of an effort of the Government to bring about structural transforma­tion in the agricultur­e sector. At that time also, I had argued that the agricultur­e sector was greatly in need of reforms, as the reform process since 1991 had not taken the agricultur­e sector into its ambit. However, there was no proper consultati­on with the farmers, which led to them doubting the intentions of the Government and interpreti­ng the laws in a negative manner. The protracted negotiatio­ns did not yield results, and eventually, the Government had to adopt a conciliato­ry approach and take back the reforms. It was expected that the Government would examine the issues raised by the farmers in consultati­on with them and arrive at an agreed reform package that would stimulate the productivi­ty of our farms and provide a sustained higher level of income for the farmers. Strangely, for more than two years, the Government has not moved in this direction. The result is that the farmers are once again in a rebellious mood and are converging at Delhi, putting pressure on the Government to relent to their demands.

The main demands of the farmers are to make minimum support price (MSP) a legal guarantee, coupled with the calculatio­n of MSP according to the Swaminatha­n Formula. The Government is trying to meet this demand midway by procuring a higher level of crops other than wheat and paddy, but to no avail, as the farmers are insisting that nothing less than making MSP a legal guarantee would be acceptable to them.

It would be interestin­g to

examine the way in which the wheat and paddy MSP mechanism works. Only about 30 percent of the total production of the crops is procured under MSP. For example, the wheat crop in India is about 110 million tonnes, and the total procuremen­t is only about 26.2 million tonnes. This means that a major portion of the crop is either used for self-consumptio­n or sold in the market at prices less than the MSP. At best, about 30% of the farmers would be benefiting from MSP, and the rest would be getting a lower level of income, which would make it difficult for them to sustain themselves. The other interestin­g thing is that most of this procuremen­t is region-specific. For instance, in wheat, Punjab procures 12.12 million tonnes, Madhya Pradesh procures 7.0 million tonnes, and Haryana procures 6.31 million tonnes. In UP, there is good procuremen­t in western UP, but the same is not true for eastern UP. There is hardly any procuremen­t from poorer states like Bihar. Thus, there is a great regional disparity in the extent to which farmers benefit from

the MSP mechanism.

MSP is declared for 23 crops, which account for less than 28 per cent of the total agricultur­al output, meaning that 72 per cent of the agricultur­al output does not have the MSP cushion and faces market forces. The interestin­g thing is that the average growth rate between 2011-12 and 202122 is higher for these products than for those covered under MSP. For instance, the growth rate of poultry meat is 9.1 per cent, fisheries is 7.7 per cent, milk is 5.5 per cent, and horticultu­re is 4.5 per cent. This raises the question of whether MSP is the most efficient means of increasing agricultur­al output. Some economists, like Ashok Gulati, have argued that alternativ­e means of handling market prices should be used to benefit farmers, such as removing export controls, removing stock limits, and encouragin­g future markets, warehouse receipt systems, and involving farmer producer organisati­ons (FPOs) in the value chain. These measures would be far more effective policy interventi­ons in favour of the farmers. The gov

ernment should also decide whether it should intervene every time in favour of the consumers the moment there is a rise in the domestic price level at the expense of the farmers.

Agricultur­al economists have calculated that the total value of agricultur­al output in India for the 23 crops for which MSP is announced is about 10 lakh crores, and it is argued that if MSP is made a legal guarantee and the entire crop has to be procured by the government, then this would be a huge drain on the exchequer. This is besides the huge cost and logistic nightmare of storage, handling, and transporta­tion. MSP as a legal guarantee is found to be impractica­l by proponents of this argument.

However, the reality is that it is not necessary for the government to procure the entire produce. Even today, for wheat and rice, a small percentage is being procured under MSP. My experience as Managing Director of NAFED, the agency which procures Oilseeds and pulses, has been that very often an interventi­on of about 5 to 10 percent procuremen­t pushes up the market price to the

MSP level. Thus only a small quantity would be required to be procured to maintain the market price at the MSP level, and the cost to the exchequer would not be prohibitiv­e. Further, there is a crying need for diversific­ation into crops other than wheat and paddy, and this can only be possible if the farmer is assured of equally good returns on other crops, and this is possible if MSP as a legal guarantee operates for all the 23 crops. We are aware of the damage to the soil fertility and groundwate­r level that is being caused by paddy sowing in Punjab. If the farmer gets equal or better returns on other crops, he would be only too willing to diversify.

In addition, there is also a possible solution of the Government not buying the crops at MSP but paying the price differenti­al directly to the bank accounts of the farmers. The digital financial infrastruc­ture will make this possible, and the Government will not have to worry about the huge logistics of storage, etc. This was tried out in Madhya Pradesh for some crops but ran into the problem of cartelisat­ion by buyers who artificial­ly pushed down the prices. However, it is possible to create an institutio­nal and regulatory framework to handle this kind of problem.

The problems faced by the farmers are genuine and cannot be pushed under the carpet. The issue of not getting a fair and remunerati­ve price is a reality and it requires a solution. The value of MSP must take into account all the costs of production, both direct and imputed, and making MSP a legal guarantee would assure a fair price to the farmers and would not involve that much of a cash outflow from the Budget. Innovative, out-of-the-box thinking, political will, and administra­tive leadership can certainly resolve the problem.

MSP is declared for 23 crops, which account for less than 28 per cent of the total agricultur­al output, meaning that 72 per cent of the agricultur­al output does not have the

MSP cushion

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 ?? ?? Thanks to the inaction of the government in the intervenin­g period since 2020 farmers’ protest, farmers are once again converging at Delhi
Thanks to the inaction of the government in the intervenin­g period since 2020 farmers’ protest, farmers are once again converging at Delhi

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