MSP – Panacea or Peril?

The farmers’ agitation has been brought to a close with the repeal of the farm laws, and an assurance of a wide-ranging minimum support price (MSP). But there are more dangers from such an MSP than benefits, and the government would do well to work it out wisely

The farmers’ agitation of more than a year has just ended. Farmers have warned that the agitation has just been deferred, subject to fulfilling of the commitments made by the government. The agitation had started after the enactment of the three farm laws by the government of India. These laws were in the interest of the majority of farmers, as they laid the foundation to increase the income of the farmers by opening private markets located anywhere in India, and even the export markets. Farmers were no longer constrained to sell their produce at government mandis, though the mandis continued to exist. Farmers, in fact, were given an additional option to sell their produce anywhere as per their liking in addition to selling to government agencies at the mandis.

Captive markets

The farmers of Punjab, Haryana and western UP did not like these laws as they presumed that gradually government mandis would close. These farmers believed in the captive market of government agencies rather than selling their produce anywhere and this caused the year-long agitation, which had virtually encircled Delhi. The repeated meetings by the government failed to convince the agitating farmers that the enacted farm laws were for their own good. To make peace with the agitating farmers these laws have now been repealed.

The agitating farmers, instead of terminating their agitation, added more to their demands, like legal guarantee of minimum support price (MSP) for their produce, compensation of Rs 5 lakh each to the kin of the agitating farmers who had died during the agitation, withdrawal of cases against farmers, regarding electricity bills, etc. The government has committed to accept most of their demands. Regarding MSP, a committee in which farmers will also be members will decide the issue of legal guarantee. The Prime Minister said that the farm laws were brought about for the good of the farmers, and that now they were being withdrawn in the interest of the country.

MSP danger

The most pertinent issue today, which has to be tackled by the government is the issue of MSP. The threat of reviving the agitation by farmers stands if their demand of legal guarantee of MSP is not met. The promise given is that the issue will receive utmost attention by the committee which will be formed and later the government will decide upon analysing the recommendations of the committee. The intervening time is very crucial not only for the government but for the country.

The demand of farmers on MSP is not acceptable and is against the interest of the country as a whole. It is true that farmers are very important and that they also constitute the biggest segment of the country’s population (roughly 50%). But, it is also true that roughly 86% of the farmers have less than two hectares of land and they do not produce marketable surplus to go to the government mandis to offer their produce for MSP. There are allied charges to be paid in the mandis, like commission to middlemen, mandi levies, weighing and segregation charges, transport charges, etc.

Only the rich benefit

MSP becomes an attractive proposition only for the rich farmers and that too for the farmers of Punjab who are conversant with the procurement technicalities. Only about 6% of the country’s total farming population lives in Punjab but is encashing 55% of the entire country’s budget meant for grain procurement. Of this 6%, 30% own 80% of the land, who are big farmers. These 30% are the ones who can exclusively sell to APMC (government mandis). Thus, the figure boils down to 1.8% who enjoy 55% of the budget meant for the country’s green procurement.

Punjab receives about Rs 12,000 crore subsidy from the Centre, mainly fertilizer subsidy. In addition, the state government also gives subsidy like electricity subsidy. The rough calculation shows that this 1.8% in Punjab get Rs 10,000 crore subsidy from the Centre, together with subsidies from the state. The guarantee on MSP will mean a guarantee to the 1.8% rich farmers of Punjab on the continued movement of the country’s resources to them. In addition to this vitiated advantage to a tiny segment of farmers, there are many other drawbacks of the guaranteed MSP.

"The most pertinent issue today, which has to be tackled by the government is the issue of MSP. The threat of reviving the agitation by farmers stands if their demand of legal guarantee of MSP is not met. The intervening time is very crucial not only for the government but for the country"

More stockpiling

First, the guaranteed MSP will lead to a huge procurement of agricultural produce by the government agencies when the country has no infrastructure to keep the increased stock. The stock purchased by the government will be open to rotting, pilferage, and eating by rodents. The country’s hard earned resources will thus be allowed to go down the drain. The country will be forced to purchase what it cannot keep. The system of MSP was initially started with the twin objective of having a grain stock to keep PDS scheme going and also help farmers in case of a sudden drop in prices of agricultural produce in the market. Warehouses were constructed for the limited needs of preserving stocks procured to meet the twin objectives.

Second, a legally guaranteed MSP will mean that the government will be spending roughly 17 lakh crore which is almost 50% of the Union Budget if all agricultural produce is covered. At present, 25 major crops are covered under MSP and the amount under MSP is determined as per the recommendations of the Commission for Agricultural Costs and Prices (CACP). It cannot be ruled out that farmers will demand more crops to be covered once their initial target of legal guarantee to MSP is achieved. If Rs 17 lakh crore belonging to the country goes for procurement of crops, then we will not have any money left for development or welfare measures or even necessary expenditure for defence, after paying for salary, pension and interest on the huge accumulated borrowings. Once the government concedes to giving legal MSP, then there may be another agitation after a pause to hike MSP after changing the norms of calculation by the CACP.

A tool – in whose hands?

Thirdly, W.T.O is against subsidy given to farmers and this may cause problems for exporting agricultural produce. Also, it may not be possible for the government to dispose of the huge pile of stock of grains in the export market as international price of grains remains lower than the price of our government procured stock. MSP has been a tool in the hands of the government to have more production of those items that are in short supply. To illustrate, the government gives higher MSP for pulses if the produce of pulses are less. If there is guaranteed MSP for all, then farmers will produce those crops where yields are more and production costs are less. This will lead to uneven agricultural produce and there can be price hikes of less produced crops.

Fourthly, the country will be flooded with substandard crop produce with guaranteed MSP. When everything has to be bought by the government, then why produce costly standard produce? An added reason for worry will be inflation. More money in the hands of farmers will give rise to rural inflation and in totality there will be a country-wide higher inflation due to costly food items.

Aggravate problems

Fifth, it may give rise to environmental problems. Already, ground water level in Punjab is dangerously low due to massive paddy production. With guaranteed MSP, there will be an increase of paddy production and so a further decrease in water level. We have been seeing choking air conditions in Delhi and in the surrounding areas due to burning of crop stubble in Punjab and in parts of Haryana and western UP. This will become worse due to uncontrolled agricultural production to earn more MSP as there will be more crop stubble to burn for quick preparation of land and for cyclic production.

As a taxpayer, I feel sad and I am not alone. Taxpayers pay taxes for the development of the country and not for the forceful procurement of crops. Procurement has to be as per the needs of the country and not for any other reason. The country comes first and all citizens are equally important. Each of the citizens, say a farmer, a doctor, an army man, a manufacturer, an engineer, an entrepreneur and so on, is equally important. If a farmer produces food for the country then a doctor saves our lives. A soldier gives his life to keep our country free. Even a taxpayer is very important as he gives money to run the country. The country should not be coerced by anyone to grab more than what is reasonable and logical.