On September 12, the Centre announced enhanced crop price support for oilseeds, pulses, wheat & paddy, through the Pradhan Mantri Annadata Aay Sanrakshan Abhiyan—a tongue-twister, so it’s called AASHA. This was seen by political commentators as a sop in the run-up to election time. Since the terms of trade have been moving against agriculture, this may be so, but there is solid economic case for funding a price-support programme. The government announced a price deficiency support scheme, and the question is: Will it reverse the tide in terms of trade?
Official sources claimed earlier this year that “MSP would be 50% higher than the cost of production.” The increase was respectable—the increase in cereal crops, with some exceptions, was 15-20% higher than last year; oilseeds were 13.42% and cotton 23.97% higher; jowar, castor and sugarcane MSPs were marginally lower than last year. These are all good prices, taking into account that the government has, for more than a decade, given bonuses on CACP recommendations. The novelty this year was the claim that a 50% increase in MSP has been provided over the cost of production. This claim should not have been made because it leads to controversy on an otherwise laudable objective.
The increase in MSP over cost of production—measured as all paid-out expenses (A2) plus family labour (A2+FL)—was above 50% for each kharif crop. NITI Aayog’s top officials—Rajiv Kumar and Ramesh Chand—were correct when they said MSP was “50% higher than paid-out costs.” But MS Swaminathan was correct, too, when he initially reportedly said the increase was below what was recommended. A committee I had chaired went into the details of the cost of production, as currently applied and all costs are covered. All costs include the imputed values of owned land, imputed interest on own capital, imputed value of family labour and imputed remuneration for the management function of the farmer. Specific difficulties arise and questions are raised on the imputation of the values of farmers’ own resources. NITI Aayog economists argue that rental and interest imputations on capital costs should not be incorporated in MSP, as was recommended by the Swaminathan Committee. But this leaves much to be desired. Rental incomes, it is correctly argued, are unearned incomes as defined in Ricardian economic theory. But we don’t follow these principles in setting tax or tariff policies for non-agricultural goods.
Price fixing rules provide that, according to existing practice, DES applies a normative rate of interest at 12.5% on working capital and 10% on fixed capital. Considering that a large proportion of farmers resort to non-institutional loans from sources like moneylenders, a higher rate of interest should be provided. The 150% business is a no-brainer and is taking away policy focus from more important areas of infrastructure and credit provision. Policy coordination is always easy in a textbook, but normal persons don’t like to give up power. Only the exceptional become more powerful by shedding power and coordinating for the larger good. Another reason could be a fear of rule-based systems. For then you are not seen as the benefactor and this can be important in pre-election periods. These are real problems.
AASHA has three parts. The first is old-style physical procurement by NAFED and so on. This has never been successful and AASHA recognises this. In March, the NITI Aayog suggested farmers could be compensated for the difference between MSP and actual price, subject to a ceiling of 25% of MSP. New prices announced suggest the government has given up on such sensible advice, which could, if approved, have been the basis for realistic actions, like the MSP experience with the Bhavantar Bhugtan Yojana in MP, which is now a model price deficiency payment scheme. On account of leakages in prices of crops like urad, tuwar, maize and some oilseeds, purchases were way below market prices in UP. Field reports suggest traders brought crops at lower prices from farmers. Small and marginal farmers, in any case, were generally not registered for price deficiency payment scheme. Ultimately, traders benefited, according to field reports. AASHA provides for that—it is called PPS (private procurement and stockists). Increased allocations, as also more cover for NAFED, are good, but won’t go far. The rural trader has great clout in the present political set-up. The other component is the e-market scheme and, in most cases, it is also used by traders rather than farmers or their organisations.
We still have a long way to go in creating a structure and policies to reverse the adverse terms of trade of the Indian farmer. Till then, we can only hope that when the NSS results come, tenant labourers and small farmers will be much better off than in the 2012-13 survey.