It is disappointing to see a distinguished agricultural economist damn the flagship demand of the country’s farmers as no less than a “folly”. And that too at a time when a farmer leader is on a fast unto death in support of this demand. No doubt, farmers and activists can commit follies. But so can economists, especially when driven by an ideology.
In arguing against the demand for legal guarantee for MSP, Ashok Gulati (‘It would be a folly’, IE, January 10) acknowledges that farmers deserve better prices and that they don’t get the MSP announced by the government, but vehemently opposes legal guarantee as the solution for it would distort agricultural markets and would not be “in line with the liberalisation of the economy”. Over the last few years, many commentators and economists have revised their scepticism about the demand for MSP entitlement, shifting the debate from why to how. The farmers’ movement too has nuanced its demand to meet initial objections. It is, therefore, particularly disappointing that Gulati has refused to move with the times.
There is a national hypocrisy on this issue: Everyone loves MSP as long as it is not implemented. No one argues that the government should not declare a fair “minimum price” or that it must not “support” farmers in realising this price. The trouble begins when farmers start expecting — worse, demanding — that this promise be made real, when a concrete proposal for assured realisation of this promissory note is put forward.
Gulati reflects the same moral ambivalence. He does not question the idea of an MSP — though he hints MSP may have become an outdated concept — and talks about ways to make it more “effective”. At the same time, he offers no concrete solution other than creating a price stabilisation fund for pulses and oilseeds. Freer markets — free of price distorting interventions in favour of the farmers or the consumers — seem to be his solution. He wants an end to the “inherent consumer bias in the agri-price policy” that results in price suppressing policies that penalise the farmers. But the eminent professor doesn’t seem to know what an ordinary farmer activist knows: In a poor country with electoral democracy, no government can afford to allow food prices to go up. While the government will be happy to use his expertise to avoid robust intervention to implement MSP, they would continue to interfere in markets and international trade against farmers, as they have done for 33 years post-liberalisation. So, this price-suppressing bias of the government will have to be counter-balanced with an assured price support mechanism for farmers. That is legally guaranteed MSP. Thus, the demand is not a plea for “compassion” as Gulati thinks; it is anchored in an unwritten social contract between the Indian state and farmers. Having breached its part of the contract, now the state wants to abrogate it, leaving the farmers to face climate change and unfair global competition.
Gulati conflates the demand for assured MSP with a demand for universal state procurement or for a legally punitive ban on trade below the MSP. Both these strawmen are easy to demolish: The former is impossible, the latter is counter-productive. He does not bother to notice that these two early formulations of the demand have given way to more sophisticated mechanisms for the assured realisation of MSP. In our article last week (‘MSP guarantee is feasible’, IE, January 7), we had proposed a bouquet of four interrelated policies to ensure that every farmer can realise at least the MSP. First, the government should widen the food basket in the Public Distribution System and expand its current levels of procurement at MSP. Second, there should be a well-funded and carefully-targeted market intervention scheme to prevent prices from falling below the MSP. Third, the import-export policy should be tweaked to ensure that it is not price suppressing for domestic markets. Finally, if all these measures fail to yield MSP (as would be the case in many crops, given the needs of poor consumers), the government should be legally mandated to compensate farmers by way of the Price Deficit Payment for the difference.
Gulati does not engage with this proposal, or a better formulation that he knows, in its entirety. His only response is to the price deficiency payment, which he rejects as a legally-mandated MSP would impede price discovery and promote collusion. Here again, he uses a convenient, weaker opponent in the failed “Bhavantar” experiment in Madhya Pradesh. Unfortunately, Harish Damodaran’s otherwise persuasive advocacy of MSP (‘Add a new layer to MSP: PDP’ IE, January 10) also relies on the MP model where the farmer gets compensated based on the receipt from the trader. This can lead to collusion between farmers and traders. We had suggested a different modality, drawing upon Haryana’s Bhavantar scheme for bajra, that does not ask farmers for a receipt of sale (Yadav wrote an article on Haryana’s Price Deficiency Payment Scheme in The Print, November 3, 2021). Farmers can be compensated on a pro-rata basis, depending upon official data on area sown, average productivity in the locality and the average price deficit. Gulati chooses not to engage with this more robust counter-proposal.
Strangely, Gulati chooses the example of rapid recent growth in fishery, meat, poultry, milk and horticulture to prove that “market-based systems have performed much better than the government-controlled MSP regime”. This fast growth is a result of changing consumer preferences or opening up of export markets, that has nothing to do with having or not having MSP. Between 2011-12 and 2022-23, the cumulative growth of MSP crops mustard (82 per cent) and green gram (113 per cent) outdoes horticulture crops (51 per cent) and milk (78 per cent). Besides, the example of milk illustrates that such a growth need not trickle down to growth in income for farmers in all kinds of markets — that it needs state intervention.
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Gulati also alludes to “several cost estimates” being floated by “some activists”, but dismisses it a priori. We have revised the estimate we offered last week (to include all 20 crops covered by MSP, except sugarcane, jute and copra for which independent mechanisms exist, and to correct for one computational error for mustard) based on state-wise, crop-wise calculation of price deficit for 2022-23. As per this calculation, the upper limit of government expenditure for guaranteed MSP price deficit payment that year would have been Rs 26,565 crore (0.6 per cent of budget and 0.1 per cent of GDP) going by present MSP or Rs 1,68,227 crore (4.26 per cent of budget and 0.62 per cent of GDP) if we go by the revised MSP (C2+50 per cent) demanded by the farmers. If the public sector banks could afford to write off Rs 2.08 lakh crore of debts and the government could waive Rs 1.09 lakh crore of corporate taxes in the same year (2022-23), why this unease about supporting farmers who feed the country?
Since Gulati seems to agree that MSP should be made “effective”, would he like to suggest an assured mechanism for that? Or is his opposition due to the unease of a die-hard free market ideologue?
Kuruganti is co-convenor of Alliance for Sustainable & Holistic Agriculture (ASHA), Vissa is co-founder of Rythu Swarajya Vedika, a farmers’ organisation in Telangana and AP, and Yadav is member, Swaraj India, and national convenor of Bharat Jodo Abhiyaan
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