Farmers have protested against the recently enacted farm laws by converging on Delhi’s highways connected to neighbouring states. The agitation is primarily led by Punjab farmers, although some other groups have also joined. I believe every citizen has the right to protest peacefully. But blocking highways reveals their intention is to create chaos and disruption, which may go out of hand.
Here, let me also say that I feel there is a gross communication failure on the part of the central government to explain to farmers what these laws are, and how they are intended to benefit them. This communication gap was fully exploited by some political parties and social activists, who themselves are facing an existentialist threat and believe that the Narendra Modi government can do no good for this country. A massive misinformation campaign was launched, saying that these laws are a sell-out to corporate houses, will abolish the MSP system, dismantle APMC mandis, and even capture farmers’ lands. Nothing can be further from the truth.
Neither do the laws say anything about it, nor is the MSP/APMC system going to disappear with these laws. Yes, what would certainly come under pressure is the high commission of arhtias, mandi fees and cess that states collect, which account for as much as 8.5 per cent over the MSP in Punjab, amounting to roughly Rs 4,500 to 5,000 crore each year. A substantial chunk of this is never audited by the Comptroller and Auditor General (CAG) of India.
What are the policy options now that the farmers have dug in their heels? Punjab farmer leaders, including two major political parties, demand repeal of these laws. I don’t think that would be in the larger interest of the country’s peasantry, as repealing would mean bringing back controls, licence raj and the resultant rent-seeking. Remember milk, poultry, fishery, etc. don’t go through the mandi system and their growth rates are 3 to 5 times higher than that of wheat and rice. Overall, almost 90 per cent of the agri-produce is sold to the private sector.
Another demand is making the MSP statutory and legally binding even on the private sector, implying that anyone buying below MSP could face prison. Let me say that it is not the first time that such a demand has been raised. It came up several times even during the time of the UPA government in 2004-13, and it was rejected every time. I consider this impractical as there are 23 commodities for which MSPs are announced, but in actual practice only wheat and rice enjoy MSPs in any meaningful manner, and that too only in 6-7 states. Punjab is the biggest gainer as its 95-98 per cent of market arrivals of wheat and paddy are procured at MSP by state agencies on behalf of the Food Corporation of India (FCI). The FCI is overloaded with grain stocks that are more than 2.5 times the buffer stock norms, indicating massive economic inefficiency in the grain management system, costing the tax-payers thousands of crores without serving any purpose, and that, too, at a time when the country desperately needs funds to tackle COVID-19 at home and China on its borders. I consider this policy option impractical because if the government cannot cope up with excess production of just wheat and rice in any meaningful way, think of how it will handle 23 commodities under MSP.
In case of excess production, the private sector will not come forward to buy at MSP, and the government will not have the wherewithal to buy all and stock them without any viable outlet. It will massively distort markets, make Indian agriculture non-competitive and stocking of these will be financially unsustainable. And then, why only 23 commodities, why not 40? This type of state socialism is a sure path to financial disaster.
The third policy option is to use the Price Stabilisation Scheme to give a lift to market prices by pro-actively buying a part of the surplus whenever market prices crash, say more than 20 per cent below MSP. It can be done directly by NAFED-type agencies that are already active in the case of pulses and oilseeds, or use Commodity Derivatives Exchanges where farmers can buy “put options” at MSP before they even sow their crops, and if the market prices at the time of harvest turn out to be below MSP, government can compensate them partly for lower market prices. I consider it a feasible option, and it can kick in immediately.
The fourth option is to totally decentralise the MSP, procurement, stocking, and public distribution system (PDS). Since many states and activists are saying that agricultural marketing is a state subject and, through these laws, the Centre is trampling over their jurisdiction, then why even have a central MSP? Since MSP and procurement exist basically to support farmers for supplying grains to the FCI to feed into the PDS, let the whole money on so-called food subsidy be allocated to states on the basis of their share in all-India poverty/proportion of vulnerable population, all-India wheat and rice production, all-India procurement of wheat and rice, etc.
A well thought-out formula is needed to allocate, say, Rs 1,00,000 crore of food subsidy. And then let the states decide what should be the state MSP and let them handle procurement and stocking costs. The deficit states can invite tenders for supplying them required quantities or, even better, they may introduce cash transfers in the PDS system. I would go a step further and include another Rs 1,00,000 crore of fertiliser subsidy and free up fertiliser prices from any controls. Still further, even include another Rs 1,00,000, say, of MNREGA. Let the Finance Commission work out a formula for distribution of this Rs 3,00,000 crore amongst states based on some tangible performance indicators. And the Centre should get off from MSP, PDS, fertiliser subsidy, and MNREGA.
This would be true decentralisation, and can be accomplished provided enough ground work is done well in advance. But will this be acceptable to farmer leaders/opposing states/activists? Only time will tell.
This article first appeared in the print edition on December 2, 2020 under the title ‘Answering farmers’ knock’. Gulati is Infosys Chair professor for agriculture
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