- Roads leading to Delhi after a gap of 3 years on the eve of Lok Sabha Elections 2024 are again witnessing huge crowds of farmers. Though the list of farmers demand is many, the prime and non-negotiable demand is confined to legal guarantee of Minimum Support Price (MSP). Battles are drawn. While the ruling party is trying to engage the farmers in various negotiations but not ready to extend legal guarantee of MSP, the opposition parties, are fanning the farmers movement and trying to corner the central ruling government on this issue and trying to brand Central Government as Anti-Farmer.
- However, the core issue as to how farmers are going to be benefitted has simply lost sight of and agitation and its counter has become political and a show of strength between Central Ruling Government and the Opposition parties. There is no doubt that farming sector is in stress and it needs government support. Throughout the world, agriculture is subsidized and quantum of subsidy goes up with the development index of the country. In developed countries the agriculture is highly subsidized and living condition of farmers in those countries are not inferior to people working in other sectors. In India, for most of the farmers, the agriculture is at subsistence level and is under great distress and thus governmental intervention is required. But what should be the type of intervention, which will be adequate, which will be fruitful and which is easy to implement and not prone to abuses.
Is MSP workable for every farmer - The MSP can result in income for a handful of rich farmers, who has got surplus production, which is available for sale. In India maximum number of farmers are growing the crop for their own consumption and they do not have any surplus to be sold. According to National Sample Survey data, only 6% of farmers in India can sell their crops at MSP. Further despite MSP, the actual percentage of crops being sold under MSP out of total crops produced in India remains low. Therefore, irrespective of the price fixed under MSP, it is not going to change the lives of farmers doing cultivation in subsistence level for their own consumption. It is not going to affect the life of agricultural workers engaged in farming activity. It will affect life of only those farmers who have got surplus production.
Can government guarantee procurement under MSP - At present government procurement under MSP is less than 10% of total agricultural production in the country, as per estimates it is in the range of 6-8%. Maximum procurement of government is for the Food grains which is distributed through PDS. In spite of low procurement under MSP, Food Corporation of India (FCI) is maintaining its stock, which is nearly twice of its strategic/buffer stock position. This simply means that under pressure to procure more, FCI is procuring more than its requirement and maintaining excess stock. As a result of which, there are loss and damage to the stock. We keep on getting news of rats destroying the FCI Stock or stock lying in open and getting wrenched in rains. Therefore, any further enhancement of procurement at MSP for the purposes of distribution for the PDS system is ruled out. If government starts procuring everything at MSP, it requires huge storage facilities which do not exists today. But above all, the real question is how it is going to dispose of that extra stock.
- If government starts selling that excess stock outside the PDS System at price equal to procurement cost + handling charges, the price for consumers in India will definitely go up compared to prices prevailing today, which will lead to inflation of food prices. Then there will be struggle and resistance and protest from other segments of society such as Labour Class, Lower Middle Class and Middle Class. Government cannot afford this. If government starts disposing this excess stock at a Subsidized price lower than MSP, the government subsidy Bill will increase many folds. As per some estimates, the fund outlay to procure all crops at MSP shall be equal to Total Union Budget, leaving no money for other sector at all. Secondly, this will give birth to a whole chain of corrupt practices, where stocks purchased at subsidized prices, through various intermediaries shall be sold again at MSP to government. So, this will start a vicious circle leading to loss of government fund in the form of subsidy and enrichment of various groups at the cost of public exchequer and at the same time providing no relief to farmers/agricultural labors doing cultivation at subsistence level. Therefore, government cannot procure entire surplus production at MSP at all.
Is legal guarantee of MSP workable - Many farmers associations are suggesting that they are not insisting for guaranteed procurement by government, rather they are just seeking a legal guarantee where purchase of crops at a price lower than MSP is offence, be it a purchase by a private party or by government sector. If this is done, this will bring more harm than good to farmers. After giving this legal guarantee government may reduce its own procurement under MSP and may not maintain its excess stock, which will increase the supply of crops for the private market. At present, whatever could not be sold at MSP, is being sold in private/open market based on the prevailing supply and demand at prices determined by market forces, which may be higher or lower than the MSP fixed by the government. Since, it is not an offence to purchase and sell at a price lower than MSP, this is being done openly and is not being objected by any government agency.
- The moment sale/purchase at prices lower than MSP are declared as an offence, the transactions in crop will become similar to purchase of foreign currency in pre 1991 era, where government fixed exchange rate was different compared to market determined exchange rate leading to a lot of smuggling activities and illegal transactions. Let us understand this with an example. Let us say, MSP for a particular crop is Rs. 2200 per quintal and today market prevailing price is Rs. 1900 per quintal. If this law is brought government cannot compel any particular buyer to buy compulsorily. Under the law, if any one chooses to buy, he must buy at a price equal to or higher than MSP. The existing buyer who was ready to buy at Rs.1900 per quintal, may not buy at MSP because economics of his business may not permit it. He shall be hesitant to buy, even if farmer is ready to sell the crop at Rs. 1900 per quintal, because he has to cover up the transaction for Rs. 2200 per quintal. Further buyer and seller both are at risks for getting booked as an offender under MSP Guarantee law. The farmer who has got saleable stock of crop, who is in need of fund for his various needs, and who is not able to sell it to government, shall be desperate in selling the crop at prevailing market price not withstanding the MSP fixed by government. Farmers do not have holding capacity for long and need to sell for his immediate needs. This situation may be exploited by the purchaser that since he is undertaking a lot of risks in purchasing the crop below MSP, therefore to compensate his risk, he will reduce the price further and the farmer may end up selling his crop at Rs. 1600 per quintal. Thus, a guaranteed MSP law may actually reduce the prevailing market price in the grey market.
- Further, every new law and the offences spelt therein, we know is a new potent weapon at the hand of law enforcing agencies. Therefore, going by the Indian experience, the law enforcing agencies will scrutinize every major crop transaction with an allegation that actual purchase and sell price is below MSP and parties are fraudulently showing it at a price higher than the MSP leading to further, torture and extortion of money from purchasing and selling parties. Even the genuine transactions taking place above MSP are not immune from this investigation. Therefore, the current free market with respect to purchase and sell of crop, shall not be free and shall be under cloud of corruption, harassment and torture by the Government authorities, which may significantly reduce the actual realizable price by the farmers.
- Therefore, a MSP Guarantee Law is neither feasible for a 100% procurement by government nor it is feasible for procurement by private sector, nor it is going to address the problems of everybody engaged in the farming sector. Further, it is definitely going to increase the prices of food commodities for common man. Therefore, this cannot be the solution to relieve the farming sector from stress.
Is loan waiver a solution - The loan waiver schemes of past have set a wrong precedent and they promote inactivity over activity and do not extend any relief for the farming sector in real sense Let us understand it with an example. Three farmers A, B & C; all took loan of Rs. 50,000/- each.
- Farmer A did cultivation with lot of sincerity, added good yield to the national production of India and returned the loan.
- Farmer B did not do the cultivation with sincerity (or there was crop failure on account of natural calamities) and could not contribute anything to the National Production, even though he consumed Rs. 50,000/- for cultivation. He did not return loan as he was not in a position to return the borrowed amount.
- Farmer C utilized Rs. 50,000 loans for his personal needs/luxuries such as clothing, liquor requirement, tourism and did not do any cultivation and did not pay the loan.
- When some government waives the loan, farmer C is the happiest man on Earth because government has essentially funded his personal needs/luxuries, which has nothing to do with agriculture. Farmer B will be less happy because, though he is not required to re-pay, none of his personal needs are satisfied in spite of being engaged in Cultivation. Farmer A will be the most aggrieved with the scheme, because he is not going to get any funding from Government in spite of being sincerely engaged in agriculture, and in spite of adding to the National production and Food Security. Thus, loan waiver schemes discourages/punishes the most promising farmers like A and rewards the persons like C. Loan waiver schemes are promoting inactivity instead of positive agricultural activity and therefore this is not desirable at all. Governments are burning money for their short-term populist goals and they are not solving farmers problems. On account of repeated waiver of farm loans, many farmers have simply stopped repaying loans with a hope that someday some government will come and waive the loan. This situation is not good for an economy.
Then what is the solution: Fix area, crop and location of cultivation based support - Having analyzed the MSP and Loan Waiver Scheme, let us discuss what is the way forward. The way forward must focus, promote and reward positive agricultural activity. Therefore, for different crops, government may fix a per acre support (area, crop and location of cultivation based) to be given to cultivator of the land. So, anybody who is not sowing the crop and is not getting engaged in the agriculture shall not get the support at all. Since, crops are going to stay in the field for a period of 4 months to 12 months and every field can be geo-tagged, it will be difficult to do fraud and to get support without getting engaged in actual agriculture. Whether, the field was actually cultivated or not can be seen over a period of time through the satellite imagery available today.
- Under the MSP Scheme, it is not that only farmers are selling the crop at MSP. MSP Purchase centers are not located next to every farmer of every village. Many people have become intermediaries and aggregator who are actually procuring the crop at a price much lower than MSP, transporting it to the MSP Centers and selling it at MSP. Every farmer is not in a position to take the produce at MSP Purchase Centre; giving scope for intermediaries. Under the Area of cultivation based Support System, for the actual cultivation, all these demerits shall be removed and benefits shall be extended to farmers and farmers alone.
- What should be level of support for a particular crop can be decided, by government by keeping in mind (i) Affordability and Availability of Funds, (ii) Desirability of a particular crop, (iii) Cost Involved in the cultivation etc. For example, if government wants to encourage millet production, then it can set a higher support for millet cultivation. If it wants to discourage, let us say sugarcane production, it may set a lower support or no support at all. Thus, this will also help government in a balanced planning of different crops. If government wants to promote sugarcane production, in a water rich area, but it wants to discourage its production in an arid area, it can give different levels of support in different areas. It can set a higher support for deserts or hilly area and lesser support for naturally fertile areas.
Conclusion - The Pradhan Mantri Samman Nidhi of Rs. 6000/- per annum, being given today is also not linked with actual cultivation and area of cultivation. Though it is extending some reliefs to farmers, it is not addressing the issue in a holistic way and therefore, is not an appropriate scheme. Therefore, a support scheme based on actual area of cultivation is the most appropriate scheme as it will promote a positive activity of agriculture. It will extend help to every farmer including the farmer doing cultivation at subsistence level for self-consumption and the scheme shall be less prone to abuses.
- In this way, farmer will have two revenue streams, one from selling of crop at market prevailing prices and second from the support given by government based on area of cultivation. In case of crop failures, which affects the yield, it can be addressed through the crop insurance scheme. At present the coverage of Crop insurance is very less. In case coverage of crop insurance is extended to every kind of cultivation, the farmers realization can be stabilized, which shall be some total of area of cultivation based Support obtained from government, sale proceeds of yield and insurance claims if any.
- The government should ensure that basic infrastructure needs for the agriculture sector like irrigation facilities and electricity are accessible to the every piece of cultivable land at market prices. The government should remove all the subsidies on agricultural inputs and just ensure area of cultivation based support and easy credit facilities for farmers. This will eliminate the corruption related with diversion of subsidized items.
- Further to increase the revenue of farmers from sale of farm produce, government needs to focus on agro based industry so that farm yields are converted into value added products to attract better prices. There needs to be greater cooperation and coordination between industry and farm sector based on trust. Three farm laws introduced in 2020 were a good step, but were brought without proper discussion with farmer bodies and thus were crucified by agitations. In my next article I shall elaborate as to how the farm laws could have ensured better price for farmers.
By: Pramod Kumar Rai -
February 27, 2024
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