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Monitor schemes to see MSP succeed

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It’s that time of the election cycle again, when farmers become the focus of government solicitude. After years of acute distress and farmers’ agitations, the agricultural sector is now getting the TLC or tender loving care it deserves. Better four years late than never, minimum support prices (MSP) for kharif crops have increased sharply, but this in itself is not enough to address the issue of stagnating farm incomes.

The government had promised to increase MSP to 50 per cent over the cost of production and it has kept that promise. But this benefits only a small section of farmers, who can generate adequate surpluses. Barely six per cent of farmers sell their produce to procurement agencies. Farmers of Punjab, Haryana, Andhra and Chhattisgarh will benefit far more from the MSP hike than their counterparts in, say, Eastern UP or Bihar.

Supportive policy measures are required if benefits from higher MSPs are to accrue to all farmers. One such scheme is the Bhavantar Bhugtan Yojana, or Price Deficiency Payment, introduced as a pilot project in Madhya Pradesh last winter. When open market prices fall below MSP, farmers can sell their produce to private traders, but claim the difference from the state government. On paper, the scheme has a dual advantage: it gives the farmers income support and spares the government from the headache of procuring and storing produce.


The costs of procurement did fall significantly, by almost 18 per cent, but implementation issues – such as the need to register for the scheme online – prevented the bulk of farmers from benefitting. Not so the private traders and mandi functionaries, who made a killing by underpaying farmers. The poor farmer then faced enormous trouble in getting his dues from the government. So, private traders benefitted at the cost of the ex chequer.

The centre is keen on extending price deficiency payments across the country, but unless these teething troubles are eased, it will end up becoming just another arbitrage opportunity for private players.

The method of computing MSP is also questionable. The current formula takes into account the cost of inputs, family labour and the interest on borrowings and fixes the MSP at 50 per cent over the total. To be really fair, MSP should also include the rental value of land and interest on the capital invested by the farmer.

Further, policy makers need to keep in mind that MSP is a safety net and not a benchmark price for foodgrains. If open market prices are ruling higher, the government should not insist on procuring at MSP. The Food Corporation of India (FCI) can easily offer market rates rather than MSP, if the former is higher. Otherwise, it may face a repeat of 2007, when buffer stocks fell to the point that wheat had to be imported, at very high prices.

The one scheme that has attracted kudos from agricultural economists is Telengana’s farm subsidy. The state offers an annual payout of Rs 8,000 per acre to all farmers, big or small, irrespective of crops. It is intended to cover the farmer’s input costs, but does not demand any proof of utilisation. The farmer is free to spend the money as he pleases. As power to the agricultural sector is free, it will ensure that the farmer is not cash-starved, or dependent on money-lenders, at the beginning of the crop season. The subsidy is given in the form of a cheque, rather than through direct benefit transfer (DBT).

Launched from May, 2018, the Rythu Bandhu scheme covers the entire state and is expected to cost around Rs 12,000 crore. Inevitably, there have been multiple problems, like tens of thousands of cheques being issued in the name of dead people. Lakhs of cheques have piled up, as the state administration is unable to distribute them. Most importantly, tenant farmers – of which there are a large but undetermined number in the state – have not been taken into account.

A promising project that has floundered is the National Agricultural Market (e-NAM), which is intended to link mandis across the country and serve as an online trading platform. E-auctions would be the default price discovery mechanism, thus ensuring that farmers get the best price for their produce.

Almost 600 mandis across the country are registered on e-NAM to trade in some 90 commodities, but it hasn’t taken off because of infrastructure issues. Apart from legislative improvements, like dumping restrictions on trading of produce, states need to ensure that mandis are provided with equipment: seamless internet connectivity, computers/printers, sorting/grading and quality testing machines, etc.

The NDA’s 2014 promise of doubling farmers’ incomes is eminently doable. There are no lack of ideas and schemes aimed at boosting farm prosperity. The problem, as always, lies in implementation. To this end, grassroots farmers organisations in every tehsil, district and state must be closely associated in the formulation, execution and monitoring of schemes. Only then are they likely to succeed.

Bhavdeep Kang is a senior journalist with 35 years of experience in working with major newspapers and magazines. She is now an independent writer and author.