While protesting farmers are demanding MSP to be made a legal right, fears are being expressed that any such move will lead to an economic crisis.
By Devinder Sharma
After the sudden withdrawal of the three contentious farm laws last week, the debate has now shifted to whether there is a need to provide farmers with an assured Minimum Support Price (MSP) or leave them to face the vagaries of the markets. While protesting farmers are demanding MSP to be made a legal right, fears are being expressed that any such move will lead to an economic crisis.
In the heated deliberations that have followed in the media, what is lost is the need to come to grips with the severity of the continuing farm distress that has prevailed over the past few decades. Looking beyond statistical figures, what is not being appreciated is that these are not just numbers; it is human lives that we are talking about. With or without the proposed farm laws (which have now been withdrawn) the challenge is how to pull these millions out of abject poverty and hunger. Take for instance the report of the Economic Survey 2016 which had shown the average annual income of a farmer in 17 States of India, which means roughly half the country, at a paltry Rs 20,000. In other words, farmers in half the country were somehow surviving on less than Rs 1,700 a month.
More recently, the report of the Situational Assessment Survey 2019, released in September, points to a severely distressed agriculture. Accordingly, the average income of a farmer from crop cultivation alone (not adding non-farm income) comes to a meagre Rs 27 per day. This is at a time when the country harvests a record 308 million tonnes of foodgrains and another 325 million tonnes of fruits and vegetables. According to the FAO, in a report released in Mar 2021, the gross value of food production in India stands at $ 400,722, 025 million. With farmers producing so much of economic wealth for the country, what remains unexplained is why the annadata is living in misery.
Using the outdated market principles, mainline economists would shift the blame on low crop productivity, and the absence of market dynamics that does not allow for price discovery. Let’s first take a look at the productivity dimension. In Punjab, the food bowl of the country, the total crop productivity (of wheat and paddy crop rotation in a year) exceeds 11 tonnes per hectare, which is amongst the highest in the world. And yet, Punjab has turned into a hotbed of farmer suicides. Every third farmer in Punjab is living below the poverty line, and had a record 16,600 farmers and farm workers committing suicide in the 15 year period, between 2000 and 2015. This only shows that despite high productivity levels, farm crisis persists.
If you are still not convinced, let’s look at America. At the risk of sounding repetitive, it needs to be known that despite high productivity levels across crops and regions, and the prevalence of free markets in agriculture for over a century, US farming is fast heading towards extinction. In 2020 alone, farmers were saddled with a bankruptcy of $425 billion, and the median farm income had remained in the negative for more than a decade. The rate of suicide in rural America is 45 per cent higher than urban centres. A report in Down to Earth magazine shows that almost 40 per cent of the farm income is coming from federal subsidies.
In these trying circumstances, when markets have failed everywhere to increase farm incomes, the belief that markets would do wonder for Indian agriculture is utterly misplaced. Another argument that I often hear is that given the small landholdings in India (86 per cent holdings are less than 5 acres) farmers will be unable to get a higher price given the lack of bargaining power. Well, if that is so I fail to understand why in Australia, where the average arm size exceeds 12,000 acres, have 25 per cent farms closed down in the past 30 years. The rate of suicide among male farmers in Australia is twice that of other sections of the society. In France, in early March, farmers had hung suicide dolls on trees outside Parliament to draw attention to the severe agrarian distress that farmers were faced with.
Given the distressing experience of markets failing to buttress farming in the developed countries, the demand for making MSP a legal right for Indian farmers makes great economic sense. What the farmers are asking is not for the government to purchase the entire produce, but to ensure that no trading takes below the MSP announced. This is what even the Commission for Agricultural Costs and Prices (CACP) had suggested in one of its recent policy reports. It is not a welfare measure as some economists are suggesting, but is the real reform that agriculture is crying for. Studies have shown that the additional economic burden will not exceed Rs 1.5-lakh crore to Rs 2.5-lakh crore per year. But more importantly, the surge it will provide to country’s economy is something that has not been talked about.
Considering that nearly 50 per cent of the workforce is employed in agriculture, a vibrant agriculture will certainly lead to higher economic growth. Since only six per cent farmers get the benefit of MSP, and remaining 94 per cent farmers are dependent on markets, making it obligatory for the trade to buy at the price announced will mean higher returns for the farmers. If the 7th Pay Commission, which benefitted the government employees, could be seen as a booster dose for the economy, higher income in the hands of the farming population will create a huge rural demand, thereby acting as a rocket dose for the economy. With more purchasing power, the industry would also stand to benefit. At the same time, a guaranteed price to farmers will help bridge the growing inequality that the country is witnessing.
A guaranteed price has the potential to provide stable income for farmers, and help restore dignity in farming. That’s the freedom Indian farmers desperately need. Reducing the pressure to create more employment opportunities in the cities, making MSP a legal right is the only pathway to rebuild agriculture and thereby achieve the Prime Minister’s vision of Sabka Saath Sabka Vikas.
(The article is written by Food Policy Analyst and Author Devinder Sharma. Views expressed are personal.)