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Monday, March 01, 2021

Price of reform

FCI’s overflowing granaries and rising costs — with farmers’ agitation as backdrop — are unsustainable.

By: Editorial |
Updated: February 17, 2021 9:29:01 am
farmers protests, agricultural reform laws, Modi government, MSP, minimum support price, Indian express newsThere are clear political pressures driving the massive buying. The Modi government wants to dispel any apprehensions that its reform laws are aimed at ending the existing regime of MSP-based procurement through state-regulated mandis.

The nearly three-month-long farmers’ protests continue, even as the Narendra Modi government isn’t conceding to their demand to repeal its three agricultural reform laws. But the impact of the stir — which has also acquired political colour, with parties such as the Congress and Rashtriya Lok Dal holding kisan mahapanchayat rallies — is already being felt. Government agencies, last year, procured a record 52 million tonnes (mt) of milled rice and 39 mt of wheat, whose combined minimum support price (MSP) value was Rs 2,16,988 crore. Those all-time-highs are set to be surpassed this year. Rice purchases in the 2020-21 kharif marketing season (October-September) have so far been 15.4 per cent higher than for the same period last year. This story is likely to be repeated in wheat, where the new crop — which looks yet another bumper one, on the back of excellent rains and favourable winter temperatures — will start arriving in the mandis from late-March.

There are clear political pressures driving the massive buying. The Modi government wants to dispel any apprehensions that its reform laws are aimed at ending the existing regime of MSP-based procurement through state-regulated mandis. Finance Minister Nirmala Sitharaman’s latest Union Budget speech had a section detailing the significant increase in official purchases of not just cereals, but even pulses and cotton, under the present government. PM Modi himself has repeatedly emphasised that “MSP was there, is there and will remain in future”. Also, the biggest jump in rice procurement this time — from 10.9 mt to 13.6 mt — has taken place in Punjab, where the protests against the farm laws have been the loudest.

But this apparent bending-over-backwards effort to pacify angry farmers isn’t going to be costless. At 82.2 mt on February 1, total public stocks of rice and wheat were above the 75.2 mt level a year ago and could cross 100 mt by June. The COVID-19 lockdown afforded an opportunity last year to give out large quantities of grain from the Food Corporation of India’s warehouses free of cost, in addition to the regular subsidised sales at Rs 2-3/kg under the National Food Security Act. Such liquidation options aren’t available this year, save in the event of drought or a fresh pandemic. The FCI’s granaries will, then, overflow further, even as its economic cost of procuring, storing and distributing wheat and rice is projected to touch Rs 30 and Rs 43 per kg, respectively. This is unsustainable. It raises a related point: Has the Modi government expended too much political capital on the farm laws, wherein any movement now on capping MSP purchases and replacing price with income support for farmers is ruled out? These reforms, along with deregulating urea prices or phasing out distortionary subsidies on water and electricity, may well be put on the backburner.

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