Can farmers be offered a guaranteed remunerative price for their products? The government, some economists and the media would have you believe that this is impossible, both logistically and financially. They are wrong. Either they don’t understand what the farmers are asking for or they haven’t calculated the costs; or they are deliberately misleading. If there has ever been a time to shatter this myth, it is now, when lakhs of farmers prepare to march to the capital on Republic Day.
Fortunately, we don’t have to start from scratch. The central government declares a minimum support price (MSP) for 23 crops each year. So, in principle, the government recognizes that farmers need and deserve a minimum price for their products. It has a mechanism, however defective and contested, for calculating and announcing this price. And it recognizes, but not in legal terms, its responsibility to âsupportâ farmers in terms of prices.
The problem is, it doesn’t do much to actually offer that support. In reality, less than a fifth of farmers benefit from this support, because the government only intervenes for two or three crops and this also in a few regions. For most farmers, this MSP remains a maximum securable price, almost a dream price. In the current season, the MSP of maize is Rs 1,850 per quintal, but farmers have had to sell it in the past three months for Rs 1,100 to Rs 1,350. Bajra has reached an average price of Rs 1,340 in January in Rajasthan, its largest producer, against the official MSP of Rs 2,150. Producers of legumes such as urad, moong and tur are faced with a similar situation. Farmers want and demand that the government make sure they get what the government itself admits to be the minimum. They demand a law that would oblige the government to make the necessary interventions to ensure PSM.
Is it possible? Let us first get rid of the mistaken notion of what such a medium could mean. The guaranteed MSP does not mean that the government should buy every quintal of every harvest. It would be impossible, unaffordable and unnecessary. Public procurement at the MSP can and should be expanded beyond current levels, but this is just one of many mechanisms that can be used to support farmers. Purchases for the public distribution system are expected to be expanded to include millets, pulses and oilseeds. It would also help meet the nutritional needs of millions of families. Providing 1 kg of pulses to each of the 750 million PDS beneficiaries would generate a demand of around 13 million tonnes of pulses, which would boost pulse production which currently stands at around 25 million tonnes.
The second mechanism could be a strong and timely intervention in the market whenever market prices fall below the MSP. This would mean expanding the operations of existing agencies like Markfed and Nafed with better financing, storage and marketing capacities. They only need to buy part of the crop, say 10-20%, and that would also increase the prices for farmers in the rest of the market. Such a system exists, but its funds need a quantum leap. If this fails, the government can use a third mechanism in the form of deficit payment. The government can compensate farmers for the difference between the MSP and the price they actually got. This was tried in Madhya Pradesh, like the Bhavantar scheme, but the experiment failed due to poor design. It should be redesigned and sufficient funds should be allocated for this purpose.
The fourth and final redress mechanism is to make it illegal to trade below the PSM. This is not a quick fix and can boomerang if not backed by the top three. Used sparingly, the penal provisions for offenders would act as a deterrent to ensure that market agents enforce the provisions.
A careful mix of these four methods can indeed ensure that no farmer receives a price lower than the official PSM.
Finally, is it affordable? Government spokespersons made this request laugh, saying that it would cost Rs 17 lakh crore, or more than half of the Union’s budget. He’s a mischievous character. This is what it would cost the government if the entire product of all crops were purchased by the government from MSP and then destroyed or dumped in the Indian Ocean. This calculation assigns a zero value to the purchased crop.
To get a realistic estimate, we calculated the difference between the MSP and the average real market price of the crop, using official data for 2017-18. This is what it would cost the government if it bought the crops for more than the market price or if it paid farmers a deficit. The average market price is derived from the average daily (modal) prices in markets across the country reported by AgMarknet throughout the season, weighting the modal prices with the amount of sales for each day.
For example, the MSP of maize that year was Rs 1,425 but the weighted average market price was only Rs 1,159. Using the estimate of excess production marketed that year of 25.29 million tonnes, the total price deficit suffered by corn producers is calculated at Rs 6,727 crore. In 10 of the 13 crops (paddy, maize, wheat, bajra, tur, urad, moong, chana, masur, soybean, peanut, mustard and cotton), the average market price is significantly lower than the MSP.
Thus, if the government were to bear the full cost of the price deficit suffered by farmers for 13 crops (out of the 23 for which PSM is declared) in 2017-18, the bill would have been Rs 47,764 crore. If you add the remaining 10 minor crops, the bill would have been around Rs 50,000 crore. This is less than the MGNREGA budget that year. Actual public spending would be lower since market intervention and legal provisions would increase the market price and reduce the amount payable by the government. A higher cost is presented if the government increases the MSP itself to 50% above the overall cost (C2), as recommended by the MS Swaminathan Commission. In this case, the maximum cost to the government would have increased to Rs 2,28,000 crore. This represents around 1.3% of GDP, around 8% of the Union budget. It’s rigid, but not impossible. The cost could be shared between central government and state governments.
Can the country afford it? Well, it depends on what you think of this country and the value of annadata. It is a question of political will. This is the question millions of farmers are asking themselves today.