Farmer unions, especially from Punjab, are again restive after they forced the government to scrap three farm laws two years ago after a year-long agitation. Their tractors are headed for the borders of the capital after last-minute negotiations with ministers in Chandigarh hit a stalemate. With more than 200 farmers’ unions involved in the latest episode, The Delhi Police has imposed Section 144 across the national capital for a month. Their key demands are also similar to that of their earlier agitation, notably, a legal guarantee of minimum support prices for 23 crops, debt waivers, reintroduction of the land acquisition act of 2013 ensuring written consent from farmers and compensation at four times the collector rate, scrapping the Electricity Amendment Bill 2020, and compensation for farmers who died in the earlier agitation, among others.
While the Centre tried to meet them halfway with a consensus on some of the issues, there was no progress on the main demand for a legal guarantee for the MSP regime. The government’s offer to examine this issue through a committee did not find favour among them, with it considered a stalling tactic. The tenacity of farmers’ demands that the MSP regime be guaranteed in writing is a red line for any government regardless of its political complexion. There is no way that this demand can be conceded as it entails a huge fiscal cost. The problems with MSPs, which are a legacy of the green revolution since the late 1960s, are several.
They mainly benefit large surplus-producing farmers in the vanguard agrarian regions of Punjab, Haryana, and western Uttar Pradesh. They introduce a cost-plus determination to prices that is inflationary over the short-term. Such a regime also encourages cultivation of water-intensive crops like paddy in these regions which are facing ground water stress and the need is for crop diversification. Extending them to more crops besides wheat and rice also has serious implications for the exchequer if it’s backed by open-ended procurement. MSPs don’t insulate farmers from continuing market failures, volatility of prices, and sudden supply gluts, especially when bumper harvests are the new normal.
Farmers no doubt seek such legal guarantees to shore up their incomes as cultivation at the margin is getting increasingly unviable due to costlier inputs. There is a persisting narrative of agrarian distress as the average farmer is also now more of an agricultural labourer than cultivator, as the share of wages was as high as 40% in average household monthly income. Their income is also low compared to non-agricultural workers. On the wage front, the situation is grim as there has been only a sluggish annual real increase of 0.6% during the last nine years. To ameliorate this state of affairs, the Centre must continue to engage the protesting farmers and assure them that there are superior alternatives to a guaranteed MSP regime like deficiency payments that compensate them for the difference between the MSPs and the mandi price, if the latter rules at lower levels and does not entail physical procurement. Other non-distortionary options include direct income support like stepping up the instalments under the existing Pradhan Mantri Kisan Samman Nidhi scheme. Scaling such support will partake of a quasi-rural universal basic income scheme and ensure a guaranteed income in contrast to the MSP regime. The protesting farmers’ demands for a legal basis for MSPs in writing is a non-starter and must be buried once and for all.