Apart from the fact that the widespread farm distress, and in an election year, has forced the prime minister’s hand, the central government was probably encouraged by the fact that Madhya Pradesh was running a similar scheme, Bhaavantar Bhugtan Yojana.
At the time the Union government was formulating its MSP-based deficiency payments scheme, this newspaper pointed out that the costs of this could be at least Rs 80,000 crore per year, and this was a low estimate since this did not include the impact of the new MSPs that will be 1.5 times the A2+FL input costs—if this happens, the MSP of paddy will need to be raised by around 11%, 18% in the case of cotton, 41% for jowar, etc. Apart from the fact that the widespread farm distress, and in an election year, has forced the prime minister’s hand, the central government was probably encouraged by the fact that Madhya Pradesh was running a similar scheme, Bhaavantar Bhugtan Yojana.
The problem, however, is that with any MSP-based deficiency payments scheme, there is always the possibility of manipulation of the market price on the basis of which the deficiency amount is calculated since, as is well known, agriculture markets in India are anything but free. In the case of Madhya Pradesh, for instance, its prices are always lower than those in nearby states. Urad prices in the state, in FY17, were 93% of those in Rajasthan and 65% of those in Uttar Pradesh. And once Bhaavantar was introduced, the prices in the state fell further. In FY18, urad prices in the state were 77% of those in Rajasthan and 57% of those in Uttar Pradesh, making it clear that rigging of markets in the state increased after the deficiency-payments scheme. As a result of this, while Madhya Pradesh spent Rs 1,950 crore on Bhaavantar in FY17, this newspaper estimated the costs would rise to over Rs 8,000 crore once the scheme was fully rolled out. In the MSP scheme, the state only had to pay for the crop that came into the market but once a blanket-Bhaavantar scheme was introduced, more farmers would claim benefits under it—market arrivals for urad rose more than four times after Bhaavantar and by 50% for both soyabean and maize.
While the Rs 8,000 crore cost was a theoretical construct, as FE reported on Monday, the sharp fall in prices—mandi rates for chana and masur are at more than 25% lower than the MSP right now—has forced the Madhya Pradesh government to stop Bhaavantar for chana, masur and mustard as this is unaffordable. Instead, the state has written to the Centre, asking it to procure about 3.5 million tonnes of these crops at the MSP rate. Based on the current shortfall, and current estimates of market arrivals, the cost for these three crops would be around Rs 5,000 crore. But while a Shivraj Singh Chouhan can dial a Narendra Modi to rescue him from his promise, who will a Modi call when the Centre’s deficiency-payments scheme also fails due to mounting costs?
While Modi probably has no option but to go ahead since this is an election year, but over the medium term, he has to convince state governments—the BJP rules or is part of the government in 20 of them—to undertake the necessary market reforms that are required for the farm sector to genuinely prosper. Also, if farmers are to be given generous deficiency payments, does he need to simultaneously run an expensive fertiliser subsidy programme? And, instead of running a scheme which is so prone to abuse since prices can be easily manipulated in a market as cartelised as agriculture, why not use this money to just make Aadhaar-based direct payments to the bank accounts of farmers based on the acreage they cultivate?