With any state government free to follow the Madhya Pradesh model, in the same way that the UP farm loan waivers are now spreading to other states, India is now at a stage where input prices—for traders—are fixed
From the right to education, to CSR, and now, Madhya Pradesh’s minimum purchase price, the government seems to be following the same formula, of getting the private sector to paper over the gaps in both central and state government policy. When government schools failed to deliver, the UPA government came out with its Right to Education law that mandated private schools reserve a fourth of their seats for students based on a criterion that was to be notified. And when, despite hefty doses of taxation, the government found a gap in various types of social services, the previous dispensation mandated that firms set aside 2% of their net profits for Corporate Social Responsibility (CSR) projects. And now, when the Madhya Pradesh government was confronted with farmers violently agitating for higher prices for their produce—not wheat which is already bought by state government on behalf of the Centre—and the government was not able to do this, chief minister Shivraj Singh Chouhan declared that anyone buying produce from farmers at below the minimum support price (MSP) would be charged as indulging in a criminal act.
MSP, by definition, is an obligation taken on by the government, to buy a farmers produce if its price falls below a certain level, but Chouhan has converted this into an obligation for the private sector—it would be interesting to see what changes the CM makes in the law since it will be challenged in court. Elementary economics will tell you this is a bad idea and that prices are determined by markets after taking into account several factors. Those buying grain in Madhya Pradesh will, for instance, keep in mind how long the grain has to be stored for before it can be sold, the cost of transporting this to major markets and so on—if the government’s MSP does not take any of this into account, it is because FCI is not run on commercial lines. If the trade is to follow Chouhan’s diktat, it will probably incur losses—in which case, purchases will slow and the farmers will be the ultimate losers. The other possibility is that this is ignored, in which case Chouhan is guilty of taking farmers for a ride.
Chouhan, to be fair, is not alone in his anti-market philosophy. Various central governments almost routinely impose bans on exports of farm products when prices go up, and the current dispensation has been particularly aggressive in imposing stocking limits when farm prices rise. Ironically, along with all manner of restrictions on moving agricultural produce from one market to another across the country, it is this that has prevented a genuine market for agriculture goods from developing. While the central government is now working on an e-mandi connecting various markets across the country, as this newspaper has pointed out, it is a long way from developing due to various design defects.
With any state government free to follow the Madhya Pradesh model, in the same way that the UP farm loan waivers are now spreading to other states, India is now at a stage where input prices—for traders—are fixed and the centre is, in any case, already keeping in informal check on output prices. This virulent form of socialism, of course, will also need an army of bureaucrats to enforce it, to keep tabs on which trader is not paying farmers the ‘right’ price—this form of price-police is already present in the pharmaceuticals sector, and the GST Council has extended this to most manufacturing and services through what is called the anti-profiteering law.