Having steeply hiked the minimum support prices (MSP) of crops to levels covering at least 1.5 times their estimated production costs, the Narendra Modi government seems to be tying itself in knots to implement the decision. There is hardly a month to go for commencement of the kharif marketing season, but it is an ominous sign that most crops — from moong, urad and groundnut to bajra and jowar — are selling at below MSPs even before mandi arrivals are to peak. A move by the Devendra Fadnavis administration in Maharashtra forcing even private traders to buy at MSPs, or face a one-year jail term, has had to be withdrawn for its sheer imprudence. Now, the Union Cabinet has approved a new initiative called PM-AASHA. Short for Pradhan Mantri Annadata Aay Sanrakshan Abhiyan, it basically combines three schemes — one existing (Price Support Scheme, in which MSP-based procurement of pulses and oilseeds is done by central agencies such as Nafed), one tried out by Madhya Pradesh and Haryana with limited success (Price Deficiency Payment Scheme), and one new (Pilot of Private Procurement and Stockist Scheme, in which private players have also been enlisted for MSP operations).
While there’s no doubting the intention behind PM-AASHA or even the new 1.5-times-cost MSP formula, the question, however, is again with regard to implementability. When market prices today are consistently ruling below MSPs, it only means that the latter do not reflect supply-demand fundamentals. That being so, the responsibility for making purchases at MSP and incurring both sale as well as storage losses would be solely on government agencies. How much can these agencies buy and store? Moreover, how will they dispose of these stocks? Nafed is now struggling with the roughly 6.5 million tonnes of pulses and oilseeds it bought in 2017-18 — and which is currently being offloaded back into the market at below MSPs. Even if private corporates are entrusted with procuring on the government’s behalf, they will have to be compensated for losses and not merely paid a service charge of up to 15 per cent on the MSP. And how does the Modi government plan to put in place all these procurement mechanisms under PM-AASHA in the next one month?
If farmers are to be paid remunerative rates, the best way to do it is not through distorting but by liberating the markets. Let the farmer grow any crop based on market signals and sell anytime at the going price that traders are willing are pay. Simultaneously, introduce competition by allowing anybody from anywhere to buy from any mandi within India, while doing away with all storage and movement restrictions. A truly national market for agricultural produce, coupled with a flat per-acre government payment independent of the crop being grown, is the need of the hour.