Misdirected support

| Updated on February 19, 2018

The Centre is throwing good money after bad in relying on the flawed MSP mechanism to shore up farm incomes

The minimum support price mechanism for agri-produce came in for scathing criticism last year after farmers produced bumper crops of pulses and oilseeds based on declared MSPs, market prices collapsed due to excess supply, and government agencies failed to procure sufficient quantities to shore up sinking realisations. It is, therefore, surprising that the Modi government should continue to place such faith on the same mechanism this year as well. Last week, it announced procurement targets of 320 lakh tonnes of wheat and 55 lakh tonnes of paddy for the upcoming rabi marketing season — pegging these numbers higher than the mop-ups last year. This is on top of a budget promise to set MSPs at a 50 per cent mark-up over costs, a hike in food subsidy allocations, and hefty extra-budgetary support to the Food Corporation of India (FCI).

That splurging scarce resources on MSP and procurement operations doesn’t really help to alleviate farm distress has been pointed out time and again by agri-market watchers. MSP benefits, for one, are quite inequitably distributed. Though the Centre declares support prices for over two dozen crops, its actual market interventions are restricted to just three and even in those, the largesse is hogged by large farmers in four or five producing States. Out of the 320 lakh tonne wheat procurement target this year, for instance, 94 per cent is planned in Punjab, Haryana, Madhya Pradesh and Uttar Pradesh. FCI procurement also frequently fails to bolster market prices, leading to the Centre stepping in with trade barriers or sudden imports, later. Leakages in FCI’s storage infrastructure and PDS layer on additional costs over the MSP too. Ironically, despite a five-fold bloat in food subsidies in ten years (₹1.54 lakh crore in FY18), the FCI remains chronically under-funded to deliver on the MSP promise. Lately, the State governments have also joined this race of competitive populism, announcing bonuses over and above the central MSPs which remain mainly on paper for lack of funds. Farmers therefore, have turned sceptical about not just procurement targets, but also any MSP-related assurances.

It is not as if solutions to these problems are unclear. The Shanta Kumar committee on FCI overhaul had come up with wide-ranging recommendations — from the replacement of MSP with price deficiency payments, to decentralised procurement, to downsizing the FCI, in its 2015 report. While the NDA government has been sympathetic to these ideas in principle, political expediency appears to have come in the way of its attempting a drastic overhaul of the extant system. Rolling out a national electronic market for agri produce similarly holds great promise in ensuring timely price signalling to farmers and this can sharply reduce their dependence on MSPs. The lack of cooperation from State governments may have so far stymied such initiatives. But with 19 States now ruled by the NDA, the Centre can deploy its political muscle to build consensus on agri reforms.

Published on February 19, 2018

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