To raise the income of farmers, successive Indian governments have been raising minimum support prices (MSP) and ramping up government procurement. Yet, farmers are not happy as profit margins from farming have been declining, even though the government subsidies on chemical fertilisers, electricity and bank credit have steadily risen. On the other hand, steadily rising floor prices of farm produce aid food inflation and create macroeconomic complications that stifle GDP growth.
Against this backdrop, a crop-neutral income support programme will incentivise farmers to cultivate crops based on market demand and local climatic conditions, leading to optimal use of inputs, irrigation water and chemical fertilisers thereby reducing the subsidy burden for the government. Therefore, it is worth embracing.
To deal with increasing uncertainties due to unpredictable weather changes and increased marketing risks that lower return on investments, farmers have been demanding a legal guarantee to minimum support prices for all 23 crops. However, unless it is backed by an effective procurement infrastructure, legal backing would be meaningless. As of now, minimum support prices (MSP)-based procurement is working for mainly rice, wheat, and sugarcane.
Inequitable Procurement
Besides, such arrangements are more likely to benefit a small minority of large farmers. Shanta Kumar committee (2015) has found out that only six percent of the Indian farmers, mostly those with large landholdings, have benefitted from MSP and assured government procurement. This is also the segment which appropriates most of the benefits of subsidised inputs such as irrigation water and chemical fertilisers, or farm loans.
Moreover, the environmental consequences of the current regime of MSP, assured procurement, and input subsidies especially those on electricity and chemical fertilisers which strongly influence cropping patterns, can’t be overlooked. Because of the access to near-free electricity and the absence of marketing or price risks associated with growing paddy, the share of this water-guzzler crop in Punjab’s total cultivated area has steadily gone up from 5 percent in 1960 to 40 percent in 2020, while that of pulses has declined from 19.1 percent to 0.5 percent in this period.
Again in Maharashtra, a water-deficit state, even though sugarcane is grown in four percent of the state’s total cultivated area, it consumes as much as 71 percent of the state’s limited irrigation water. Similarly, Telangana is increasingly producing water-intensive crops such as cotton and paddy, while Tamil Nadu is cultivating sugarcane that is not sustainable.
A Better Alternative
To deal with the above distortions, India needs to adopt a comprehensive crop-neutral income support scheme under which a fixed sum of money is given to farmers irrespective of what crops are grown by farmers. As of now, six Indian states including Odisha and Telangana have adopted an income support programme. Besides, there is a national programme called PM-Kisan Samman Nidhi.
The Centre’s PM-Kisan scheme provides Rs 6,000 to each farming household, which may sound equitable, but it does not consider the size of their land holding or the number of crops they grow. Furthermore, it excludes tenants and sharecroppers. Odisha’s KALIA scheme is more inclusive because it covers everyone, including landless labourers, tenants and sharecroppers. However, both central and state-specific programmes share a common flaw - the cash transfer amount is insufficient to significantly impact farmers’ crop choices. Poor land records and frauds add to the complications.
These income support programmes are currently just handouts that run alongside the existing price and procurement support systems. As a result, they have failed to bring any visible changes in the country’s cropping patterns and have added to the country’s subsidy burden.
The Way Forward
A crop-neutral cash transfer scheme – based on the size of land holdings, number of crops grown and any other relevant criteria to be decided by a government-appointed expert committee – needs to gradually replace the market-distorting system of price and procurement support as the latter cannot be extended to all crops especially perishable horticultural products, and protein foods, the demand for which is growing at faster rates than those for cereals.
However, any such attempt is bound to invite opposition from vested interests i.e., the beneficiaries of the existing system, similar to the protests against the farm reform bills in 2020. To deal with the opposition, either the design and implementation of the income support should be left to individual states so that they could factor in local peculiarities, or the central government can consider implementing a comprehensive income support programme in a phased manner, initially starting with those states which are not benefitting much from the existing MSP-based procurement facilities.
To sum up, crop-neutral income support, which is also compatible with India’s WTO obligation, can influence the country’s cropping pattern towards a more sustainable future and is worth considering.
Prerna Sharma Singh is a director on the board of Indonomics Consulting Private Limited, a policy research and advisory startup, and heads its agriculture, food and retail practice. She tweets at @AgriFoodRetail. Views are personal, and do not represent the stand of this publication.
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