In a brazen attempt to control markets, the state has imposed a prison term for anyone that buys below the MSP.
The BJP-ruled Maharashtra government has come up with what it feels is a sure-shot plan to implement the central government’s promise to procure crops from farmers at 1.5 times their A2+FL costs or to make deficiency payments in case it is not able to do so. If the government is not able to procure at MSP, Maharashtra’s solution is to get private traders to buy at these prices. While prices for most crops, in most states, tend to fall to 15-20% below MSP, the state’s cabinet has cleared a law that imposes a Rs 50,000 fine and a one-year jail sentence for anyone buying below-MSP. Though the normal tendency of traders faced with such an artificial price-floor would be to stay away from the market, the state is banking on the fact that boycotting markets will kill their business and so they will, at some point, start paying the MSP rates.
It remains to be seen if other states and the Central government come up with similar laws, but this is not the first time the Centre has sought to bypass the market laws of demand and supply. In the pharmaceuticals sector, most Central governments share an unfortunate history of imposing price caps—while these have crimped both supply and R&D in the sector, the political class remains convinced the electoral benefits outweigh the costs. The Modi government, of course, took this battle for optics a step further and imposed price caps on even items like stents and now, in what is supposed to be a reform measure, Niti Aayog has suggested price caps be replaced by caps on profit margins!
It was the Modi government, similarly, that put price caps on Bt cotton seeds licenced by Monsanto a couple of years ago even though farmers weren’t really protesting; indeed, they are paying 50-100% more for illegal Bt seeds which offer the next generation of Bt technology. Indeed, for a while, the government even flirted with the idea of putting a cap on royalties charged by firms like Monsanto. While no other government has directly used price caps in agriculture, all have done so in practice. In the past, whenever farm prices rose beyond a point, exports were stopped of items like potatoes, onions, dairy, wheat, rice, etc. The commerce ministry is reportedly trying to stop this informal price cap via exports, but it too wants to keep the freedom to do so for a few crops like wheat and rice. All of this makes a mockery of the “we’re pro-market because we’re pro-poor” slogan that junior minister of aviation, Jayant Sinha, came up with as each such action affects both future supplies as well as investment.
Maharashtra has tried to couch its anti-market stance by modifying its APMC Act to allow free movement of crops across the state, so farmers can sell in any mandi they like. The problem, however, is that since all mandis are cartelised, and the state has not tried to bust the cartels—or provided land for new non-cartelised mandis—the new freedom doesn’t really help much.