Farmers Movement Archive

Guaranteed MSP? Both farmers and govt need to look at three key points

Farmers’ organisations continue to demand guaranteed minimum support prices (MSPs) before they withdraw their agitation, even after the government has announced a repeal of the three farm laws. How justified is this demand?It is clearly a non-starter if farmers are demanding that the government procure the entire output of all 23 crops (17 in the monsoon and six in the winter season) for which it currently announces MSPs. However, this is unlikely to be the case. Even for rice and wheat, which is the mainstay of MSP-based procurement in India, just about one-third of the total production is bought by the government.There can be no argument that a higher guaranteed MSP would mean a spike in inflation, but it still makes sense to ask some pertinent questions about the way in which the support price policy is implemented in India.Can the Orwellian framework of MSP operations go on forever?The crux of the problem with MSP procurement in India is best captured by paraphrasing George Orwell. All farmers are equal, but some farmers are more equal than others.The bulk of MSP procurement happens in the traditional green revolution regions of Punjab, Haryana and western Uttar Pradesh. Data from the Food Corporation of India shows this clearly. 33% of paddy and 60% wheat procurement in the past 10 years has been done from the states of Punjab and Haryana. When seen against the share of these two states in total rice and wheat production in the country, it exposes a huge bias.Favouritism in MSP-based procurements is not just a function of states. The latest data from the National Sample Survey shows that farmers with larger landholdings are more likely to enjoy the gains of MSP-based procurement. This is yet another regressive element in the present form of MSP-based operations.MSP operations are funded by the central government’s revenues, which is raised from all states. States with a disproportionate share in MSP procurement receive an exogenous boost to their farm incomes and hence GSDP. India’s Constitution provides for a rule-based distribution of central revenues under the framework of the finance commission, which is constituted every five years.Why should we not have a formula-based procurement of foodgrain from every state? Political parties have always shied away from this question due to electoral concerns. Maybe it is an opportune time to pose this question to the farmers’ organisations, which claim to represent the farmers of the entire country and not just a few states.The churn in Indian agriculture: From won’t sell to the state to will only sell to the stateFarmers’ organisations demanding that the state offers guaranteed MSPs and back it up with procurement is a radical change in the political economy of agriculture in post-Independence India.In the first couple of decades after Independence, when India was a food-deficient economy, the Indian state was keen to procure foodgrains but farmers were unwilling to sell, as they stood to make greater profits in private markets.Francine Frankel’s classic work, India’s Political Economy 1947-2004: The Gradual Revolution, talks about this contradiction. “The Prime Minister (Jawaharlal Nehru in 1958) argued that additional deficit financing could be absorbed and the Plan maintained at ₹4,500 crores if the states accepted the approach of the Planning Commission to mobilise rural resources for increased agricultural production through an acceleration of the cooperative movement; and ·also acted to stabilize the general price level by a program of state trading in foodgrains...The members of the National Development Council appeared to accept Nehru’s lead...Simultaneously, the NDC endorsed the immediate introduction of state trading in foodgrains, beginning with wheat and rice,” the book says. The policy faced attacks even within the Congress party. “During the months that followed Nagpur (Congress session which endorsed these policies), the press gave wide currency to the charge that “Sino-socialist minded planners” were plotting to collectivize Indian agriculture. There were bitter attacks against cooperative farming within the Congress Party,” Frankel wrote.This historical digression makes a simple point. India’s farmers are demanding guaranteed MSPs to protect them from price volatility rather than a sudden desire for handing over their business to the state. Indian agriculture today is significantly more commercialised than it has ever been. This holds true for both international and domestic markets. For many commercially driven crops, prices often go higher than MSP values. Of course, they are sometimes lower than MSPs for a long period. Data from the reports of Commission on Agricultural Costs and Prices (CACP) shows this. While MSP-based operations were, and continue to be, a useful tool to achieve food self-sufficiency, their efficacy in ironing out income volatility is limited.Rich farmers might not like the after-effects of an expanded MSP-PDS regimeMSP operations are only sustainable if the government is able to sell or distribute the grains it buys. The traditional way of doing this has been through the public distribution system (PDS).The story of the PDS in post-reform India is marked by flip-flops. In 1997, a universal PDS was changed into a targeted one with the introduction of above and below poverty lines (APL and BPL) categories; issue prices were significantly higher for the APL category. This change was more than undone when the United Progressive Alliance (UPA) government brought in the National Food Security Act (NFSA) in 2013, which entitles more than two-thirds of India’s population to heavily subsidised grains.If the government was to widen and expand the MSP-PDS regime, which would entail more government purchase of wheat and rice along with other crops, it will also require a concomitant expansion in PDS entitlements. This will significantly reduce the food-spending burden of PDS beneficiaries. Spending on food accounts for more than half of total spending for the bottom 50% of all households in India.It might be a good development from the perspective of poverty reduction. In 2013, Abhijit Sen and Himanshu wrote a two-part paper in the Economic and Political Weekly to show that in-kind food transfers from the PDS and midday meal schemes contributed significantly to poverty reduction in India.However, such pro-poor policies are also likely to lead to an increase in reservation wages – the minimum wage at which a person is willing to work – for the rural and urban blue-collar workforce. Indeed, the period after implementation of MGNREGS – the programme offered guaranteed work for 100 days and thus, an income cushion to the rural poor – saw a sharp spike in rural wages. This is bound to squeeze the political and economic clout of large farmers in rural areas, who might have to share a larger part of their surplus with the erstwhile have-nots.The reluctance of food producers in India to engage with the predicament of the majority of food consumers, who still cannot afford a proper meal, is what gives the Indian state the moral high ground in squeezing farm incomes through price interventions.

Hindustan Times

23-11-2021

India