And, while the grains are well below exportable quality, MSP also makes liquidation of stocks difficult as it triggers WTO violations.
As FE has argued previously, there is little value to the MSP system since it benefits a very small proportion of Indian farmers, with nearly all concentrated in just a few states.
One would have thought a government-appointed panel of agri-economy experts repeatedly recommending a review (read scrapping) of the open-ended rice and wheat procurement policy would have pushed the Centre to do this post-haste. The Commission for Agricultural Costs and Prices (CACP) has recommended this in all its price policy reports for kharif and rabi crops since March 2019, right till the latest one (in July). Of course, now, with farmers agitating against an ‘agri-reform laws mean MSP repeal’ bogey drummed up by opposition parties, a review seems politically fraught.
Had the Centre eased farmers in states like Punjab and Haryana into scaled-down procurement earlier, it is possible that these protests—clearly aimed at protecting the significant revenues states make from the regressive APMC-mandi system—would have had lower resonance with the farmers. On July 1, against the buffer stock requirement of 411.2 lakh metric tonnes (mt) of wheat and paddy, the central pool stock was 832.7 lakh mt—including the Food Corporation of India’s (FCI’s) 361.8 lakh mt. The economic cost of the excess grain stood at Rs 1.27 lakh crore. Indeed, the FCI was owed Rs 2.5 lakh crore by the Centre on March 31; the procurement agency has had to borrow just as much from the National Small Savings Fund since FY17.
Pandemic response, in the form of the Garib Kalyan Anna Yojana, has of course queered the pitch, but excessive grain holding by FCI—and grains rotting because of lack of adequate and safe storage—has been a routine phenomenon. MSP-led, open-ended public procurement has not only distorted the grains market and weighed down government finances, but also has affected crop diversification in states such as Punjab and Haryana, where nearly 75% of the marketable surplus of the grains, as per the CACP, is procured by the government. This has had devastating consequences for soil chemistry and groundwater, too.
While the CACP has also batted for private procurement to correct market inefficiencies, this is easier said than done as long as the MSP policy remains—kindling private players’ interest in procurement of the grains seems a Herculean task since the MSP is almost always higher than market prices. And, while the grains are well below exportable quality, MSP also makes liquidation of stocks difficult as it triggers WTO violations. As FE has argued previously, there is little value to the MSP system since it benefits a very small proportion of Indian farmers, with nearly all concentrated in just a few states.
Indeed, were the government to end/curtail the MSP-public procurement system—and move to DBT for the fertiliser subsidy—in favour of a larger (perhaps per-acre) DBT support than the fixed-amount PM Kisan Yojana one, it truly be benefiting farmers across the nation. With the lure of assured income from the grains gone, farmers could diversify into other commercially-important crops such as pulses, oilseeds, fruit and vegetables, etc; the right supply-chain and storage infrastructure could then ensure higher income for farmers. This would also ease the pressure on soil-chemistry and groundwater source.