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Punjab needs a package to help it diversify output, overcome MSP trap

Can the Centre and the Punjab government join hands to find a sustainable solution to farmers’ incomes and also save depleting water, soil, and air? Only then can they make Punjab great again.

Written by Ashok Gulati |
Updated: December 7, 2020 8:52:32 am
Farmers at the Singhu border

Punjab’s farmers have been agitating over farm laws, braving cold nights on Delhi borders. They fear that these new laws will hit their incomes adversely. There is nothing wrong in that — every citizen not only wants to protect what s/he is earning but aspires to earn more on a sustainable basis. How do we do that is the moot question, beyond the current impasse. So far talks have remained inconclusive. Hoping that the protests remain peaceful, and a solution is found amicably, let us focus on Punjab farmers’ incomes — an issue that will stay relevant even after the protests are over.

Punjab’s stellar role in ushering the Green Revolution in the country in the late 1960s through the mid-1980s is well-known. India was desperately short of grains in 1965, and heavily dependent on PL 480 imports from the US to the tune of almost 10 million metric tonnes (MMT) against rupee payments, as the country did not have enough foreign exchange to buy wheat at global markets. The entire foreign exchange reserves of the country at the time could not help it purchase more than 7 MMT of grains. It is against this backdrop that the minimum support price (MSP) system was devised in 1965.

The situation today is vastly different. Today, the Food Corporation of India (FCI) is saddled with huge stocks of grains — it touched 97 MMT in June this year against a buffer stock norm of 41.2 MMT. The economic cost of that excess grain, beyond the buffer stock norm, was more than Rs 1,80,000 crore, a dead capital locked in without much purpose. That’s the situation of the current grain management system based on MSP and open ended procurement.

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On the foreign exchange front, India has more than $575 billion — way more than comfort levels. When situations change, societies too need to change in ways that can lead to higher levels of development, else they stagnate and remain stuck in a low-level equilibrium trap. Schumpeter’s process of “creative destruction” of the old and inefficient is a fundamental law behind the development of countries around the world. India is no exception.

It is also worth noting that in 1966, when Haryana was carved out of it and a part of its territory was transferred to Himachal, Punjab had the highest per capita income. It remained a frontrunner in that respect till almost the early 2000s. But, thereafter, Punjab started sliding down very fast in the overall ranking of major states of India — if smaller states are included in the ranking, Punjab’s position fell to 13th in 2018-19. There are several reasons behind this deterioration, ranging from lack of industrialisation to not catching up even with respect to the modern services sector like IT, financial services. But I focus here on agriculture and suggest how Punjab can regain its top position.

Punjab’s agriculture is blessed with almost 99 per cent irrigation against an all-India average of little less than 50 per cent — Maharashtra’s irrigation cover, in fact, is just 20 per cent. The average landholding in Punjab is 3.62 hectare (ha) as against an all-India average of 1.08 ha — in Bihar, this figure is just 0.4 ha. Punjab’s fertiliser consumption per ha is about 212 kg vis-à-vis an all-India level of 135 kg/ha. No wonder the productivity levels of wheat and rice in Punjab stand at 5 tonnes/ha and 4 tonnes/ha respectively, against an all-India average of 3.5t/ha and 2.6t/ha.

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In Punjab, the total farm families are just 1.09 million, a fraction of the all-India total of 146.45 million. The subsidy provision to Punjab farmers through free power by the state government (2020-21 budget) amounts to Rs 8,275 crore. The fertiliser subsidy —through the central government — to Punjab was about Rs 5,000 crore in 2019-20. The overall subsidy, from just power and fertilisers, therefore, would amount to roughly Rs 13,275 crores. That means each farm household in Punjab got a subsidy of about Rs 1.22 lakh in 2019-20. This is the highest subsidy for a farm household in India. Let’s not forget that the average income of the Punjab farm household is the highest in India — in fact, almost two-and-a-half times that of an average farm household in the country.

But to assess the real contribution of farmers/states to agriculture and incomes, the metric is the agri-GDP per ha of gross cropped area of the state in question. This is an important catch-all indicator, as it captures the impact of productivity, diversification, prices of outputs and inputs and subsidies. On that indicator, unfortunately, Punjab has the 11th rank amongst major agri-states.

States in south India like Andhra Pradesh, Tamil Nadu and Kerala have a much more diversified crop pattern tending towards high-value crops/livestock — poultry, dairy, fruits, vegetables, spices, fisheries. Even West Bengal and Himachal Pradesh score over Punjab in this respect. The writing on the wall is clear: If Punjab farmers want to increase their incomes significantly, double or even triple, they need to gradually move away from MSP-based wheat and rice to high-value crops and livestock, the demand for which is increasing at three to five times that of cereals.

Punjab needs a package to diversify its agriculture — say a Rs 10,000 crore package spread over five years. The Centre and the state can pitch in, on a 60:40 ratio. That will be a win-win situation for all. Once farmers diversify their farm output and double their incomes, they will not be stuck in the MSP trap. Can the Centre and the Punjab government join hands to find a sustainable solution to farmers’ incomes and also save depleting water, soil, and air? Only then can they make Punjab great again.

This article first appeared in the print edition on December 7, 2020 under the title ‘Make Punjab great again’. Gulati is Infosys Chair Professor for Agriculture at ICRIER

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