Time to re-engineer agriculture subsidies

There is a simple solution available in case the Centre wishes to defuse the ongoing farmers’ agitation for a total repeal of the three laws it passed recently that promise to stand India’s traditional agricultural markets on their head. It can simply agree to the core demand of the farmers.

This is not such a disaster as the government would like to make out. Nor will it actually end up destroying the fisc, as the pro-reformists fear. There is a workaround, but there is a catch — it would require the ruling dispensation to be politically honest as to the real reason why it wants market forces to play a bigger role in India’s agricultural markets than hitherto.

Unfortunately, no political dispensation in the past has shown the willingness to burn that much political capital for the sake of reforms, and the BJP under Narendra Modi, with its single-minded focus on winning election after election and engineering an “opposition-mukt Bharat” (the Congress is pretty much dead anyway), promises to be no different.

Let me explain. The core demand of the farmers is really for a continuation of the status quo and not any reform or extraneous changes to agri markets as such. They want the existing system of procurement by Central agencies at the announced Minimum Support Price (MSP) for various crops to continue.

While the Centre has repeatedly assured that the new laws neither make any mention of the MSP, nor does it intend to do away with either the MSP or the system of foodgrain procurement, the huge trust deficit that this dispensation has with farmers (remember the anti-Land Acquisition Act stir by farmers during Modi 1.0?) means that any amount of assurances won’t be enough. The farmers want a constitutionally and legally binding guarantee. In other words, they want this assurance over MSP and procurement to be written into law.

Why not give it to them? Why not pass a law which says that the government will continue to announce an MSP every crop season, at which price it is committed to buy output that is offered. It can even go one step further and include a commitment to continue to procure the grain from farmers directly.

Defusing the agitation

This, at one go, should address the core demands of the farmers, defuse an agitation which is threatening to build up into a major confrontation which can, like a wild crop fire, spread from field to field — from the current Punjab-Haryana focus of the fight into a more generalised confrontation with farmers nationwide — as well as jump from crop to crop, that is, spread to other issues as well.

And it is not as retrograde a step as it might appear. After all, committing to continue the procurement is a no brainer. The government is already committed to do so under the National Food Security Act, where access to subsidised or free food has already been given as a rights-based entitlement to a potential beneficiary list numbering 80 crore people. Given that the Centre needs to buy the grains to distribute under the NFSA anyway, it makes sense to give a binding assurance on the procurement front.

Neither is writing an MSP assurance into the law. After all, the legal commitment will only be to buy what is offered at the MSP. The commitment is not to a particular MSP itself, which, of necessity, has to be revised from cropping season to cropping season.

So setting the limits on the financial commitment it will have to make towards procurement will still very much be within the administrative control of the government.

In a bad year — like the current one, for example where the pandemic has wreaked havoc with the Centre’s finances, it can simply announce a much lower MSP. Set it low enough and one can ensure that a bulk of the marketable surplus will end up going to the open market anyway. This will also allow the government to shift its agriculture subsidy programme away from price support — which contravenes WTO mandates and is only continuing under a special dispensation for food security — and towards direct income support to farmers, which virtually every major agricultural country in the world does.

The Centre can then procure at this low MSP from distressed farmers — while making up the deficit via direct income transfer. Since that falls under a different head, it will also have the collateral benefit of substantially lowering the outgo for the food security programme.

Over a longer term, this can have other benefits apart from helping to develop healthy alternative markets for farm produce and also put the farm subsidy programme on a more sustainable footing. It will change the crop distortions, particularly in Punjab and Haryana, which are agroclimatically least suited for paddy cultivation but end up growing the most paddy due to high MSPs and a well-oiled procurement programme which works, thereby ensuring a steady market.

Procurement politics

Of the 38 million tonnes or so of rice procured in 2017-18, for instance, over 16 million tonnes came from just Punjab and Haryana.

Without the MSP/procurement prop, this will come down sharply, helping to fight the long-term damage to soil in these two States caused by excess use of subsoil water, as well as take away the stubble which is currently being burnt in order to switch from summer rice to winter wheat, thereby reducing the pollution load on Delhi!

But this requires, like I said, considerable political will. It is easier to announce ever increasing MSPs as “support” for the farmer, without having to back it up with actual purchases. It also obviates the need to do income transfers to the poor, marginal and landless tenant farmer who actually needs the support, while also serving a whole range of other vested interests in agri markets space.

West Bengal, for instance, is the largest rice producing State in India, but the amount of paddy procured in West Bengal — not the current government’s favourite State — was less than one tenth of the quantity procured in Punjab!

If the government wanted to genuinely reform agri-markets, it might, therefore, do worse than to start by accepting the agitating farmers’ demands!

The writer is former Editor of BusinessLine