Government Has To Stoop To Conquer, But MSP Extension Will Be The Road To Disaster

R Jagannathan

Dec 07, 2020, 02:09 PM | Updated 02:09 PM IST

Prime Minister Narendra Modi, right, and Union Agriculture Minister Narendra Singh Tomar. 
Prime Minister Narendra Modi, right, and Union Agriculture Minister Narendra Singh Tomar. 
  • MSPs, by creating a one-size-fits-all solution to improving farm incomes, actually ensure that fiscal resources are misused and wasted.
  • They ensure that none of the long-term changes required in Indian agriculture will happen.
  • It is difficult to see how the Centre can come out of the current confrontation with rich farmers without loss of face or political capital. The farmers who came with Yes/No placards for talks on Saturday clearly did not come with any idea of finding a viable compromise that addresses their real concerns. They knew that they hold the high cards for now — the power to blackmail the government into making concessions by holding Delhi to ransom. They want nothing less than surrender on the government’s part.

    After the Shaheen Bagh anti-CAA (Citizenship Amendment Act) pilot project almost succeeded in paralysing the government into inaction – Covid and the Delhi riots prevented a surrender — it is now clear to every organisation that the way to defeat the government is to immobilise and intimidate Delhi into inaction by occupying parts of the city.

    As the world watches and gives these so-called “peaceful protests” huge amounts of media oxygen, the government has little elbow room for a genuine dialogue with the protesters, where a fair compromise can be reached. This is exactly what the farmers are doing.

    In such a situation, the government has to stoop to conquer. It needs to rethink strategy, for this can now be used by vested interests with telling effect over any grievance, real or imagined.

    For example, what is to stop the labour unions from jamming Delhi next and making citizens suffer, with the world media applauding such “democratic” forms of protest? If the government does anything to reduce the inconvenience to citizens — a lathi-charge here or a teargas there — it will be seen as an unreasonable use of force by a global media that already believes its own falsehoods about the Narendra Modi government’s “fascist” nature.

    What could stoop to conquer mean in practical terms in the context of the farmer protests, where a Bharat Bandh has been called tomorrow (8 December)?

    First, it can put the three (or at least one) of the farm laws in abeyance for three months through an ordinance. This should be done with the explicit understanding that the farmers now blocking entry points to Delhi will pull back and agree to a composite dialogue on how their interests can be protected.

    This dialogue should be completed by early February or by the end of the budget session in March, after which an amended law can be passed.

    Second, the dialogue this time must involve all states, and most political parties, and not just the rich farmer states of Punjab and Haryana. It should also include consumer advocates, for they are the ones whose interests will be short-changed if any unilateral concession is made to keep minimum support prices (MSPs) rising forever, and the scheme is extended to cover more and more agricultural output.

    The way to get states on board is to say that all current food and fertiliser subsidies will be fully transferred to states, and they can notify their own MSPs in their states as they deem fit. The Centre can also guarantee a small annual increase in outlays based on broad inflationary trends.

    The whole problem with the current MSP scheme is that it is lopsided, and even states that lose out in the bargain are unable to fight for their real interests as all protests tend to obtain the support of farmers, including small and marginal ones. The big farmers use the flight of the small farmers to demand huge MSP increases, but which only they benefit from disproportionately.

    Third, once this money is devolved, the battle will be between states and not Centre versus states. The Centre can always run a more limited procurement scheme in the interests of food security and buffer-stocking, and to run short-term price-stabilisation schemes in specific crops at the request of states.

    Fourth, the Centre must bust the myth that an MSP system that is expanded to cover more and more farmers is somehow beneficial to them. Currently, MSPs cover less than 10 per cent of total output.

    The Shanta Kumar committee appointed by the Modi government to look at farm reforms noted that MSP benefits only 6 per cent of elite farmers. This idea is now being used by farmers to suggest that MSPs must be extended to more farmers.

    The truth is greyer. Even though actual procurement at MSP rates may cover only 6 per cent of farmers, 100 per cent of them benefit from PM Kisan payouts (Rs 6,000 annually), which will cover for any shortfall in crops sold below MSP to private traders. Cash payouts are better for small farmers with limited marketable output. MSPs suit the large farmers with larger surpluses.

    Farmers are willing to sell below MSPs not because they are unaware of the best prices they can get, but because they know the time cost of money. A marginal discount over MSP gives them cash today, and closer to home, whereas if they were to drive to the mandi there are costs to the effort.

    In the case of non-MSP crops, if many farmers arrive with their produce on the same day, traders will anyway force prices down. The farmer is actually being smart by selling below MSP in order to accept the lesser of two evils. Contract farming and the creation of private mandis will make it easier for farmers to hedge their bets, and also take some of the risks out of market price volatility.

    The suggestion to extend MSPs to more crops and to more farmers will also destroy whatever national market there is for agri-produce. Traders are willing to buy only because they know they can sell at a profit; if this margin is gone as MSPs are made mandatory, which is one demand of the farmers, nobody in his right mind will buy from farmers in bulk. Especially if traders can be prosecuted for buying below MSP under the law.

    The other possibility with the extension of MSPs will be the return of high food inflation. During the UPA (United Progressive Alliance) era, high food inflation was the result of hefty increases in MSPs, especially before the 2009 elections. High food inflation will create urban unrest, which is where most of the rural poor congregate to find jobs and livelihoods.

    With many of our MSPs much higher than global prices, and with our granaries full of food stocks for the last few years, India is heading towards an unsustainable fiscal and inflationary crisis — thanks largely to ever-rising MSPs. At some point, MSPs will no longer be affordable, and farmers will have to let go of them.

    No government can rob the rest of the citizenry to keep farmers in good health. Last year, the government had to provide a subsidy of over Rs 6,200 crore to export surplus sugar. What extending the MSP endlessly will mean is that not only will we be subsidising our farmers, but consumers in other countries too. A poor country will be subsidising the rich.

    The fifth problem with MSPs is that they simply encourage farmers to use subsidised inputs (like urea) excessively. They will keep building grain mountains that no one wants to consume.

    MSPs, by creating a one-size-fits-all solution to improving farm incomes, actually ensure that fiscal resources are misused and wasted. We are growing enormous quantities of rice, which consumes a lot of water, and exporting it, from a water-scarce country.

    The farm problem is different in different states; in some states, the problem is land degradation (Punjab, Haryana and parts of Uttar Pradesh); in others, it is low productivity and small land sizes.

    In yet others, it is about growing the wrong kind of crops (rice and wheat instead of coarse grains which use less water and are more nutritious); in yet others, where farming is not very viable, the need is to create jobs in manufacturing and services instead of enabling poor quality farming on poor land with low water resources. Many states would be better off importing food and shifting to horticulture and cash crops.

    MSP ensures that none of these long-term changes required in Indian agriculture will happen. Nor will the huge private investments needed in the supply chain materialise if a cash-strapped government has to keep funding farmers to remain on the land.

    What MSP has become is a disguised MGNREGA scheme to keep millions of people attached to the land under the guise of being farmers or farm labour. India needs to get people out of agriculture, and not ensure that more of them stay there by subsidising their livelihoods beyond a point.

    The farmers now protesting against the reforms of the Modi government are essentially making a bonfire of their own future prospects. And the opposition parties supporting them just to embarrass the government are going to reap the whirlwind if they ever come to power in future.

    Jagannathan is Editorial Director, Swarajya. He tweets at @TheJaggi.

    Get Swarajya in your inbox.