States have generally shown more sensitivity and imagination than the Centre in dealing with agricultural issues, including responding to the crisis from falling crop realisations. Thus, we have the Madhya Pradesh (MP) government’s Bhavantar Bhugtan Yojana, a scheme that pays farmers the difference between the official minimum support price (MSP) and the average modal or most-quoted rate in markets for any crop. In this kharif marketing season alone, the Shivraj Singh Chauhan-led BJP administration expects to pay around Rs 2,000 crore of price difference on 25 lakh tonnes of oilseeds and pulses, which would exceed the total nationwide procurement of these crops under the Centre’s price support scheme. And unlike physical procurement, which entails additional costs of handling and storage, Bhavantar money is directed credited into farmers’ bank accounts. It enables covering more number of farmers even without a single tonne being bought by government agencies.
The Congress government in Karnataka under Siddaramaiah has, likewise, been giving a Rs 5-per-litre incentive to milk farmers over and above the rate that dairies are paying — which is again transferred separately to their accounts. The scheme has partially helped insulated Karnataka’s producers from the current crash in milk prices, which has hit their counterparts in Maharashtra and other states more hard. Both MP and Karnataka are essentially operating price deficiency payment programmes, wherein government support to producers does not involve direct market intervention. The market is, instead, allowed to set prices based on normal supply and demand forces. To the extent the government simply pays the difference between the MSP and the market-determined price, such schemes are less market-distorting, while also more economical and equitable than programmes requiring physical purchases and stocking.
But the Karnataka and MP schemes are not without flaws. The Siddaramaiah government has used the Rs 5/litre incentive to reward not just producers, but also keep prices of milk for consumers in Karnataka lower than in other states (which was certainly not the original objective). Worse, Karnataka cooperative dairies are in a position today to pay lower prices to farmers — who are anyway being independently compensated — and produce milk powder and other commodities at a cheaper rate. That, in turn, is ending up depressing market prices and forcing dairies in other states to slash procurement rates paid to their farmers. There are similar reports of traders in MP bringing down prices of soyabean and urad following Bhavantar. In this case, too, the sufferers are mainly farmers outside MP; they have seen their crop prices fall without the possibility of receiving deficiency payment support either. For all the risks of price manipulation by market players — which, just as in stocks, isn’t beyond regulation — there is no doubt, though, that deficiency payments are the way forward.