Shishir Asthana Moneycontrol Research
At a broader level, the Gujarat elections had a message for all political parties. The carrot used by the Congress party was a loan waiver for the farmers if they came to power. In the run-up to the Gujarat elections, almost all parties had used loan waiver as part of their manifesto to woo rural voters.
Maharashtra, Rajasthan and Madhya Pradesh governments, all ruled by BJP, had also announced loan waivers though these states did not have elections. A farmer agitation, which later resulted in some farmers being killed in police shooting, led the Madhya Pradesh government to announce loan waiver to curtail growing anger. As the agitation spread to Rajasthan, the state government there too announced a loan waiver. Same was the case in Maharashtra where the government was brought on its knees by the farmer agitation.
Ironically, all these states received normal rainfall, which theoretically should have meant prosperity for the farming community. However, good rains resulted in higher production, causing prices of the products to crash. As a result, farmers were unable to recover their cost.
State governments are in a dilemma as farmers now needed to be supported in times of feast as well as famine. Reluctance to do so would mean ceding political capital to rival parties. And yet, state governments know that loan waiver is disastrous both for the economy as well as the farmer, since banks would be reluctant to loan them further.
Thankfully, Madhya Pradesh seems to have found a practical solution to the problem. Immediately after announcing the previous loan waiver scheme, Shivraj Singh Chouhan government in Madhya Pradesh announced the Bhavantar Bhugtan Yojana (BBY). In BBY, Bhavantar means the difference in price and Bhugtan stands for compensation.
BBY seeks to compensate the farmer in cases where the price of the product is lower than the Minimum Support Price (MSP) set by the government. In the previous year prices of most of the commodities fell below the MSP as a result farmers could not even break even.
A report says the central government is considering adopting this scheme where the state government can be incentivized to step in when prices fall below the MSP. Many states, including non-BJP ones, have shown interest in replicating the BBY.
If successful, the move to a large extent will take care of the issue of loan waivers. Rather than compensating the farmers through the loan waivers government can buy the goods from the farmers at MSP and sell it with a markup.
Prima facie it seems that the government has found a solution to the agriculture problem. As in the case of Madhya Pradesh, the Aadhaar linkage is used to identify the eligible farmer and transfer the difference money in his account. So the scope for leakages in the scheme will be minimal.
There are, however, three loose ends that the government will need to work on. First is the issue of marketing. If prices of a product are low and the government buys it at MSP, finding a buyer at a markup cost will be difficult. Further, government machinery is not in place to sell these products.
Second is the issue of streamlining procurement and making immediate payment. The reason farmers do not prefer selling it to government is because of the delay in payment. Unless government smoothens the process and authorizes local authorities to transfer money immediately, there will always be willing traders masquerading as farmers who would exploit the situation. Further, government will need to work out a model for pricing different qualities of the same product.
Third is the issue of products that can be brought under the MSP. Pictures of farmers wasting away milk and other vegetables on the road show the enormity of the problem. By announcing MSP for grains and pulses government has covered a lot of ground. Yet, there is always a scope of vegetable growers taking to the street.
The bigger issue is that the state control on the agro-economy will increase. MSP would, as is the present case of grains like rice and wheat, become a tool in the hand to the ruling party who would like to woo the farmers by announcing higher rates, without even bothering to consider the impact on food inflation.
As for now, the BBY seems to be a workable solution provided the government tie to loose end. As for the question of food inflation, the can will be kicked forward post-2019 elections.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
