In Mandsaur, Rahul Gandhi hopes to raise demand for MSP at farmers' rally, but agrarian distress is systemic

To protest against Prime Minister Narendra Modi's 'anti-farmer policies', Congress chief Rahul Gandhi is in Madhya Pradesh's Mandsaur to participate in the ongoing farmer agitation. In a tweet on 2 May, Rahul wrote about the Centre's failure to address farmer’s concerns. Rahul hopes to make the most of the momentum generated by the Mandsaur agitation as the Congress eyes a comeback in the Assembly elections scheduled for this December. The Rashtriya Kisan Mazdoor Mahasangh, a coalition of more than 100 farmer unions, has called for a gaon bandh agitation in the state from 1-10 June. With political leaders planning to hold protest rallies across party lines, farmer issues are taking centre-stage before the December 2018 elections.

A prominent demand of the agitators has been the implementation of the Minimum Support Price (MSP) conditions mooted in the Swaminathan Commission Report of 2006. This issue, however, is neither exclusive to the agitations in Mandasur, nor has it gained prominence for the first time in the country. In fact, it was addressed by Union Finance Minister Arun Jaitley in his 2018 budget speech. The dramatic price collapse of agricultural products and the ensuing nationwide protests by farmers in the months leading to the presentation of the Budget had forced the government to present a farmer-centric budget in February. Given that this was its last full budget, the government was hard-pressed to sell it as a silver bullet to agrarian distress. In light of the protests in Mandsaur, however, aspersions have been cast on government claims surrounding MSP guarantees.

In addition to keeping these protests in mind, before India goes to polls in 2019, a reasonable voter will also look back at BJP’s 2014 manifesto (ensuring at least ‘50 percent profits over the cost of production’ for farmers, and ‘cheaper agricultural credit’) and the claims made by the prime minister, to determine whether these promises have been kept.

In light of this, the current MSP structure and the government's progress in ensuring a fair price to the farmers must be scrutinised.

MSP promises in light of the Budget speech

Representational image. Reuters

Representational image. Reuters

The current MSP framework, as unveiled by Jaitley on 1 February is to set the MSP for agricultural produce at 1.5 times the ‘cost’ of production, thus guaranteeing farmers a profit margin of 50 percent on their produce. However, there was no clarity as to what constitutes ‘cost’. According to the Commission for Agricultural Costs and Prices (CACP), there are three definitions of production costs: A2, A2+FL, and C2, all of which vary based on the different agricultural inputs that each definition takes into account. Since the MSP has been set at 1.5 times the ‘cost’, the final value of the MSP will significantly vary based on which of these 3 metrics is chosen to determine production cost.

Of these three metrics, C2 is the highest, which means that using it will lead to a higher MSP than using the other 2 metrics. C2 is also the most comprehensive and beneficial for farmers, as it takes into account rentals or interest foregone on owned land and fixed capital assets etc., over and above basic input costs, and unpaid family labour. This was also the metric recommended by the National Commission on Farmers, chaired by Professor MS Swaminathan.

But Jaitley was not referring to C2, as the MSPs that have been declared are far lower than C2+ 50 percent values, and according to government sources, using C2 as the metric is likely to distort the entire market by hiking prices. This means that ‘cost’, for the purposes of MSP, necessarily refers to A2+FL. This conclusion is confirmed by a subsequent statement made by Jaitley in the Rajya Sabha. But using the A2+FL approach makes the MSP aspect of the budget completely redundant, as the MSP has been well above 1.5 times A2+FL for a long time, without having any positive effect on the farmers’ condition. In fact, even in 2014, the MSP was already above A2+FL + 50 percent. This implies that the promise of a 50 percent net profit in the BJP manifesto could have only referred to C2, and not A2+FL. This means that claims of MSP fulfillment made by the Government are misleading at the very least, and farmers have not shied away from recognising the same. The President of the Bharatiya Kisan Union has called it a ‘stab in the back for farmers’.

Unfortunately, the problems are not limited to a suitable metric for cost. As is always the case with MSP based policies, the gap between setting the MSP, and ensuring that the farmers actually receive the benefits of this price, need to be bridged by a solid implementation scheme, which focus on factors like allocation of funds, mobilisation of procurement agencies, and co-operation between states. In the present case, even if the announcement on MSP is taken at face value, there is no such implementation scheme in place.

With respect to funds, conservative estimates have placed the cost of procurement at MSP anywhere between Rs 40,000 crore and Rs 80,000 crore. However, the budget itself does not indicate any credible allocation in this regard. Furthermore, there has been no mechanism put in place to ensure that the procurement agencies, like the Food Corporation of India, actually guarantee the MSP to the farmers by purchasing from them at that price. In many instances, due to lack of access to the fixed MSP, farmers have been forced to sell their crops at the prevailing low market price, due to sheer inaction on the part of these agencies.

In fact, the only step taken towards implementation of the MSP policy is a statement that NITI Aayog will hold consultations with various States in order to set up a framework for implementation. Such empty sentiments reflect no resolve to alleviate the worsening conditions of the farmers. As such, this part of the budget is clearly an empty promise, if it can be called a ‘promise’ at all.

Implementation of MSP

The MSP was intended as a mechanism which would shield, especially the small cultivators, from the volatilities of the market and environment. Various studies have proven that MSP can be effective in raising farmer incomes. The problem however, arises from the fact that only 7 percent of the Indian farmers sell at the MSP. Understanding the prices at which farmers sell instead is key to designing policy which can alleviate chronic farmer distress.

Presently, a farmer accesses MSP by taking his produce to the closest mandi. These mandis are regulated by the Agricultural Produce Market Committee (APMC) Act. Presently, the coverage of mandis is abysmal at best because one mandi services an area of 462 km2 as against the APMC Act stipulated one mandi for every 5 km2. The absence of government machinery means that farmers often receive unfair prices for their produce.

Representational image. Reuters

Representational image. Reuters

A study done in 2015 by CUTS International on wheat farmers in Chittorgarh, Rajasthan came up with two telling findings. 65 percent of the farmers surveyed sold their produce to local middlemen and 55 percent of the farmers who sold in such open markets received price which was lesser than the MSP. Unless the farmer had storage capacity to take advantage of the higher prices in times of lean supply, he was at the mercy of local middlemen who gave the lowest possible prices to the farmer.

Often a significant share of the crop is also sold in a distress sale directly to the moneylenders to pay off their debts. Such scenarios see severely depressed prices, to the extent that sometimes farmers have to destroy their crops. Thus, not only is the low MSP a problem but the access of the farmer to the government set price is also a pressing concern.

Initiatives by the Union Government

It is against this context that the Center proposed the model legislation, The Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017. It must be kept in mind that agriculture is a state subject and states are free to decide on whether they want to comply with the the Centre's policy recommendations. Notwithstanding this, a key recommendation of the model law , was the proposition to link all APMC mandis with the electronic National Agricultural Market (e-NAM). The drive here was to institutionalise a unified state and nation-wide market in which buyers and sellers from across the nation can interact freely to trade on a price which has been discovered by the balance of supply and demand, and not the whims of local traders.

It also seeks to expand farmer access to agricultural markets by designating warehouses and cold storages as market sub-yards and connecting them with the e-NAM. To the extent that the legislation seeks to expand the role of markets in a scientific price discovery of agricultural products, it must be seen positively.

Implementation of the model law, however, has been tepid at best. Increased push for the adoption of the legislation, including a call by Modi, has met with lacklustre effort on part of the states. Only 18 percent of the existing markets have been integrated with the e-NAM platform. The price realised by the e-NAM platform, therefore, is in no way representative of the formal design of the e-NAM framework.

States must accept that in addition to ensuring a fair price to the farmers, they need to increase access to this price. Steps must be taken to unshackle the farmers from the local traders and moneylenders who perpetuate a cycle of depressed prices and indebtedness. In the absence of feasible mechanisms directed towards implementation, farmers will continue to express their displeasure with the Government as they remain trapped in a systemic cycle of distress.


Updated Date: Jun 06, 2018 17:52 PM

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