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Comment - Why Modi’s MSP promise to farmers is tough to fulfill

While the benefits to the farming community are obvious, there are a few critical issues that need to be ironed out, or rather steamrolled through

March 27, 2018 / 11:56 AM IST
National Fertilizers | The sale of sulphur based fertilizers of company - Bentonite Sulphur has registered a growth of 237 percent and SSP has registered growth of 133 percent over the CPLY in April-October 2020 YoY. (Image: Reuters)

National Fertilizers | The sale of sulphur based fertilizers of company - Bentonite Sulphur has registered a growth of 237 percent and SSP has registered growth of 133 percent over the CPLY in April-October 2020 YoY. (Image: Reuters)

It is now an open secret that farm distress is at the top of the government’s mind. The latest Budget focused on reviving the agriculture sector, and a key announcement from finance minister Arun Jaitley pegged the minimum support price (MSP) for crops at 1.5 times cost.

Prime Minister Narendra Modi in his latest ‘Mann ki Baat’ address raised the MSP issue. His address was more detailed, clearly defining ‘cost’. Modi said that the MSP take into account labour cost of workers employed, expenses incurred on own animals and cost of animals and machinery taken on rent, cost of seeds, cost of each type of fertilizer used, irrigation cost, land revenue paid to the state government, interest paid on working capital, ground rent in case of leased land, and the cost of labour of the farmer himself or any other person of his family who contributes his or her labour in agricultural work. This definition takes into account all operational costs that a farmer incurs. Importantly the farmers’ own time is now being assigned a cost. There are critics who say that a notional rental of owned land should also be included along with interest on fixed capital. But that is clearly being too greedy.

The announcement is an important one as far as farmers and the rural economy are concerned. Higher and assured MSP will give a big boost to the agri-economy and make it more bankable. Banks will now be less reluctant to lend as the price risk of the final produce will be taken care of.

While the benefits to the farming community are obvious, there are a few critical issues that need to be ironed out, or rather steamrolled through.

Unlike bank loan waivers, where the loan amount and the borrower data is easy to access and disbursement is simple, at least in theory, giving MSP rates will be a nightmare. Bureaucrats and banks have even botched up disbursement of loan waivers despite having a clear trail of whom the money was given to and how much. It takes them nearly two years to settle an issue. Expecting them to smoothly disburse MSP amount is like asking for the moon.

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The amount of information needed for MSP calculation and disbursement will be huge: It will require, for instance, a separate calculation sheet for each farmer. The government will have to come out with a template for calculation of the cost involved and then arrive at the MSP.

It will have to take into account the various types of crop and the quality of each. For example, quality of paddy alone changes from one district to another, if not from one taluka to the next. Water and soil quality plus various others factor play a role in deciding the quality of the crop. A complex mechanism will have to be devised to differentiate between generic and premium quality.

There will be problems associated with a template formula as some farmers might be tempted to fleece the government by claiming more family members worked on the farm. There will also be the temptation to store crops when the price is down and sell it to the government at MSP.

In order to stop pilferage in the scheme, a robust mechanism needs to be in place at the ground level.

While the government has taken important steps like implementing direct benefit transfer (DBT) and in the recent budget re-classifying ‘tenant farmers’ as ‘farmers’, much more will be needed for a smooth roll-out.

Perhaps the government is aware of the challenges ahead and has thus taken a step to make the farmer sell in the market directly rather than to the government through the MSP mechanism.

The government is making it easier for farmers to be part of the Agricultural Produce Market Committee (APMC), and the electronic National Agriculture Market (e-NAM) platform will make it easier for farmers to sell to the final buyer directly. It has also upgraded 22,000 rural markets with the required infrastructure. But vested interests have so far discouraged farmers from using the technology, and the benefits have been limited.

Though the model Agriculture Produce and Livestock Marketing (APLM) Act has been in existence for a year, not all states have come forward and implemented it. Realising the challenges, Modi, in a letter to various chief ministers on March 9, asked for the swift implementation of market reforms.

But since most agriculture markets are controlled by politicians of all parties, including the ruling BJP government, not many are keen on implementing the measures which will starve their cash cows. Most APMCs are politically controlled; lowering the barriers for farmers to enter these is not popular among netas on the ground.

As the election approaches political parties are going to face farmer distress and evolve ways of handling it. The recent rally in Maharashtra resulted in the government meeting most of the farmers’ demands; at the other end of the spectrum a farmers’ protest in Kerala was forcefully put down by the state government. Modi’s effort to push MSP before the next election will not only be difficult operationally but will also be politically opposed. A failure to deliver on a key promise may actually be worse than not making that promise at all.
Shishir Asthana
first published: Mar 27, 2018 11:54 am

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