An MSP scheme to transform Indian agriculture

The ongoing struggle of the farmers is not for political power. It is a struggle to transform Indian agriculture and the livelihood of the majority of farmers who have been ruined in most parts of the country. The compulsion of our times is to give a new direction to the peaceful mass movement to create momentum in small farmer agriculture, which in turn can give real content to our democracy. Putting aside the false promises made by the government of doubling farmers’ income or pretending that market-friendly reforms will do the trick, we propose a different way of designing the Minimum Support Price (MSP).

background

The widespread solidarity (despite deeply divisive social defects) seen in the recent peasant movement has already shaken the Himalayan arrogance of the government. Maintaining that solidarity is essential, which means that MSPs should specifically address the needs of farmers and the landless. MSP can, in theory, serve three purposes – price stabilization in the food grain market, income support to farmers, and also as a mechanism to tackle farmers’ indebtedness.

The price stabilization policy for food grains in India evolved over time, first with the Essential Commodities Act in 1955 to counter speculative private trade and then in the 1960s to counter price increases due to MSP. A buffer stock policy with public storage of foodgrains was developed for market intervention over time to include a variety of mechanisms including: setting a cost-based minimum purchase price; to pay the difference between the purchase price and the market price; To store the surplus purchased for sale through the Public Distribution System (PDS) at the issue price, and intervene in the market to stabilize the price, if deemed necessary. This prompted the farmers to shift to the cropping pattern of higher yielding varieties during the Green Revolution while ensuring food security for the citizens. This task requires more centralized investment and control of each of these functions to combine procurement, warehousing and distribution.

partial coverage

Procurement and PDS from the Green Revolution period provided assured price incentives for rice, wheat and sugar (flagships of the Green Revolution), but left some 20 crops now under discussion for MSPs, including millets, coarse cereals, pulses and oilseeds. Gave. Consequently, this partial MSP coverage skewed the cropping pattern against many coarse cereals and millets, especially in rainfed areas. The area under rice and wheat has recently increased from 30 million hectares to 44 million hectares and nine million hectares to 31 million hectares respectively since the time of the Green Revolution, while the area under coarse cereals fell from 37 million hectares to 25 million hectares. . hectare. Although part of the diet of many people across the country, these remaining crops (mostly grown in rainfed conditions) were not made available in ration shops. About 68% of Indian agriculture is rainfed and the crops grown in these regions are generally more drought resistant, nutritious and staple in the diet of poor subsistence farmers. This has been a particularly sensitive point of our food security system; The greater coverage of all 23 crops under the MSP is one way to improve both food security and income support to the poorest farmers in rainfed areas.

economic cost

The centralized mechanism to ensure distribution of the procured stock of rice and wheat at MSP involves bringing the procured grains to the Centralized Food Corporation godowns. Here they are milled, prepared for consumption and sent back to each district/province, and from there to villages/slums for distribution through fair price (ration) shops at the issue price fixed by the government. It is sent to hamlets/wards which are below the market price to make it affordable for poor families.

The total economic cost of subsidized selling below market value including purchase costs, delivery costs of freight, handling, storage, interest and administrative charges as well as costs borne on account of transit and warehousing losses is approximately 3 lakhs crore would be Rs. Sugarcane falls in a separate category as it is all conducted through private sugar mills and often suffers from delays.

If the price is charged in a range according to crop conditions, the total economic cost will vary within a price “band”.

as a band

MSP should be envisioned as a list of some 23 crops with more flexible arrangements. The price of each crop (i.e. higher price in a bad crop and lower price in a good crop year in general) will be fixed in a band of maximum and minimum prices depending on the condition of the crop. In order to encourage their production in rainfed areas, the price of some selected coarse cereals may be fixed at the upper end of its band. Thus, the objectives of income support to farmers, price stabilization and food security and inducing more climate-resilient cropping patterns can be combined to an extent. Comprehensive coverage of MSP through income support to farmers will generate positive economic externality on a large scale through increasing industrial demand especially for the unorganized sector. It will help in increasing solidarity between farmers and non-farmers while creating a chain reaction of demand expansion through multipliers for the entire economy.

To estimate the additional cost of the comprehensive MSP; Some 45% 50% of the total grain produced is for farmers’ own consumption and the rest is marketed surplus. This marketing surplus sets an upper limit on the total purchase cost, from which the net revenue realized through PDS should be deducted (if all these crops are sold through ration shops). Our initial estimate puts it in the range of Rs 5 lakh crore, much lower than the Rs 17 lakh crore projected by the government. This is of the same magnitude as the total tax breaks announced in the budget for public sector employees (less than 5% of the population, and a handful of industrial houses (₹3 lakh-crore) and DA for income, not banks by a handful of borrowers. To speak of willful default of loans (well over ₹10 lakh-crore). This expenditure will directly benefit more than half the population and indirectly the other 20%-25% of the unorganized sector population – More than 70% citizens of India.

A real breakthrough in the recurring problem of agricultural credit can be achieved by linking the sale of food grains under MSP to the provision of bank credit especially for small farmers. Farmer can obtain certificate of selling food grains at MSP which will be credit points in proportion to the amount sold; This would entitle them to a bank loan as their entitlement, and check fluctuations between good and bad harvest years by storing certificates for later use. This mechanism will not only go a long way in removing the indebtedness among the farming community, but it also has the merit of great administrative simplicity in disbursement of bank loans.

It needs to be emphasized that how effectively such an MSP scheme can be implemented will largely depend on the decentralization of implementing agencies under the constitutionally mandated supervision of Panchayats. The miracle we have seen in organizing and uniting farmers’ movement on the basis of caste, class and gender through Panchayat and Maha-Panchayat system in Punjab, Haryana and West Uttar Pradesh is expected to turn their attention to MSP implementation mechanism. on decentralization. , The movement enabled large-scale and effective mobilization through these decentralized bodies. Therefore, they are able to do it again.

Amit Bhaduri has taught economics in various universities.

Kaustav Banerjee teaches at Dr. BR Ambedkar University Delhi