The Centre could Devolve its spending on PDS, MSP Procurement, MGNREGA, & Fertiliser subsidy to the states through a formula prescribed by the finance commission
Farmers Are protesting against the recently enacted farm laws by laying siege to Delhi’s highways connecting the national capital to neighbouring states. The agitation is primarily led by Punjab farmers, although some other groups have also joined. I believe every citizen has the right to protest peacefully. But, blocking highways reveals their intention is to create chaos and disruption, which may go out of hand.
Here, let me also say that I feel there is a gross communication failure on the part of the Centre, on explaining to farmers what these laws are and how they are intended to benefit them. This communication gap was fully exploited by some political parties and social activists, who are facing an existential threat and believe that the Modi government can do no good to this country. A massive misinformation campaign was launched saying that these laws are a sell-out to corporate houses, will abolish the MSP system, dismantle APMC mandis, and even capture farmers’ lands. Nothing can be farther from the truth. Neither do the laws say anything about the MSP system nor is the MSP/APMC system going to disappear with these laws. Yes, what would come under pressure is the high commissions of arthiyas, mandi fees and cess that states collect, which account for as much as 8.5% over MSP in Punjab, amounting to Rs 4,500-5,000 crore each year. A substantial chunk of this is never audited by the Comptroller and Auditor General (CAG) of India. No wonder some smell a rat in the farmers’ protests.
In any case, what are the policy options now that farmers have dug in their heels? Punjab farmer-leaders, including two major political parties, are demanding the repeal of these laws. I don’t think that would be in the larger interest of the country’s peasantry, as repealing would mean bringing back controls, licence raj, and resulting rent-seeking. Remember milk, poultry, fishery, etc, don’t go through the mandi system, and their growth rates are 3-5 times higher than that of wheat and rice. Overall, almost 90% of agri-produce is sold to the private sector.
Another demand is to make the MSP legally- binding, even on the private sector—implying that anyone buying below MSP could face prison. Let me say that this is not the first time such a demand has been raised. It came up several times even during the UPA era (2004-13), and every time, it was rejected. I consider this impractical as there are 23 commodities for which MSPs are announced, but in practice, only wheat and rice enjoy MSP-enforcement in any meaningful manner, and that too only in six-seven states. Punjab is the biggest gainer as 95-98% of market arrivals of wheat and paddy are procured at MSP by state agencies on behalf of Food Corporation of India (FCI). FCI is overloaded with grain stocks, at over 2.5 times the buffer stock norms, indicating massive economic inefficiency in the grain management system with a cost of thousands of crores of rupees to the taxpayer without serving any purpose. That too at a time when the country desperately needs funds to tackle Covid-19 at home and the Chinese at its borders. I consider this policy option impractical because even when the government cannot cope up with excess production of just wheat and rice in any meaningful way, think of how it will handle 23 commodities for which MSP is prescribed. In the case of excess production, the private sector will not come forward to buy at MSP, and the government will not have the wherewithal to buy all the stock and store this without any viable outlet. It will massively distort the markets, make Indian agriculture non-competitive, and stocking of these will be financially unsustainable. And, why only 23 commodities, why not say 40? This type of socialism is a sure path to financial disaster.
The third policy option is to use the Price Stabilisation Scheme to give a lift to market prices by proactively buying a part of the surplus whenever market prices crash, say more than 20% below MSP. It can be done directly, through NAFED and other such agencies already active in case of pulses and oilseeds, or by using Commodity Derivate Exchanges where farmers can buy ‘put options’ at MSP before they even sow their crops, and if the market prices at the time of harvest turn out to be below MSP, the government can compensate them partly for the lower market prices. I consider it a feasible option, and this can be kicked off immediately.
The fourth option is to totally decentralise MSP, procurement, stocking, and the public distribution system (PDS). Since many states and activists are saying that agricultural marketing is a state subject and, through these laws, the Centre is trampling over their jurisdiction, then why even have a central MSP? Since MSP and procurement exist basically to support farmers for supplying grains to FCI to feed into PDS, the money for the so-called food subsidy should be allocated to states on the basis of their share in the country’s poverty/economically vulnerable population, its wheat and rice production, its procurement of wheat and rice, etc. A well thought out formula needs to be worked to allocate, say, Rs 100,000 crore of food subsidy. And, then let states decide what should be the state MSP and let them handle procurement and stocking costs. The deficit-states can invite tenders for supplying these in required quantities or, even better, they may introduce cash transfers in the PDS system. I would go a step further and include another `100,000 crore of fertiliser subsidy and free up fertiliser prices from controls. And, beyond that, even include another Rs 100,000 crore, say, of MGNREGA. Let Finance Commission work out a formula for distribution of this Rs 300,000 crore amongst states based on some tangible performance indicators. And, the Centre should shed its MSP, PDS, fertiliser subsidy, and MGNREGA responsibilities. This would be true decentralisation and can be accomplished, provided enough groundwork is done in advance. Will this be acceptable to farmer-leaders/opposing states/ activists? Only time will tell.
The author is Infosys chair professor for agriculture, ICRIER. Views are personal