It may seem strange that the Commission for Agricultural Costs and Prices (CACP) has sought an enquiry into the “anti-competitive market behaviour” of state agencies in procurement of rice and wheat. The CACP’s mandate, after all, is to recommend minimum support prices (MSP) for crops to ensure reasonable returns to farmers. The Centre’s responsibility is to see that farmers receive the MSPs based on the CACP’s recommendations. Since public procurement is one way of achieving this objective, it may well be asked: on what basis can the CACP complain about state “monopsony” and even recommend a Competition Commission of India probe?

Well, the CACP’s reasoning conflicts with neither its mandate nor the idea of MSP. There is nothing wrong, in principle, with the Centre guaranteeing a minimum price for crops sold by farmers. The problem is with the mechanism through which this is enforced. Instead of entering as a ‘buyer of last resort’, the Centre has virtually driven out the private trade from the grain market. State agencies procured roughly three-fourths of the marketable surplus of wheat in Punjab, Haryana and Madhya Pradesh last year; the proportion for the entire country stood at nearly 45 per cent. This is a result of all-round populism — the Centre’s reckless MSP hikes and the State governments’ topping them with bonuses. The BJP-ruled States have ‘led’ in this regard: Madhya Pradesh paid farmers an extra Rs 150 over the Centre’s MSP of Rs 1,350 per quintal for the 2012-13 wheat crop. Similarly, Chhattisgarh declared a Rs 270 bonus on top of the MSP of 1,250 for common paddy. Not to be outdone, the Congress manifesto for the upcoming Chhattisgarh assembly elections has promised a procurement price of Rs 2,000 per quintal!

What such competitive populism — procurement at MSP-plus prices and then offloading at super-subsidised rates through ration shops — has done is to make it impossible for private traders or millers to do any business. The Centre’s job, as the CACP Chairman Ashok Gulati rightly put it, is to “ensure MSP and not strangulate the market”. In this case, the state agencies have clearly abused their dominant buyer power, which is ultimately even damaging for farmers; their interests are better served through vibrant competitive markets. Guaranteeing MSP through physical grain procurement is an old idea. Today, technology exists to credit the difference between the MSP and open market price directly into farmers’ bank accounts. It only requires Aadhaar-enabled bank accounts and proof of how much has been sold and at what price. A robust IT infrastructure that connects all mandis and tracks transactions electronically isn’t difficult to build. All it needs is political will.

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