Why India needs innovative ideas to resolve guaranteed MSP

Successive governments have provided huge subsidies for agro inputs such as fertilizer, electricity, water etc. Income tax on agriculture is also exempted. Bank credits at cheaper rates are provided on priority basis. At times, the loans are also waived. In addition, cash assistance is given through Prime Minister Kissan Samman Nidhi scheme.

In FY-2020, under minimum support prices (MSP), the government had procured 23 eligible crops barely 26 percent by value. This might be below 15 percent of all crops. Despite this, unsold stock with FCI is about 32.0 million tons and 24.0 million tons with States. The debt of FCI has also exceeded Rs. 4.0 lakh crores incurring huge interest and storage cost. Hence, it is financially not feasible for the government to purchase entire foodgrains at MSP except for the PDS scheme, as being done now.

Farmers in distress

Despite all such assistance, there is perennial distress among farmers causing suicides and agitations. The key impediments are “low sale price of food grain” at farm gate due to surplus production and the exports are not so competitive every time except few years.

Unlike industrial products, the production cycle of foodgrains take a long time. The oor farmers don’t have financial resources and storage capacity and have to wait for remunerative prices. A majority of food grains are sold at distress prices which is much lower than the MSP. Hence, farmers are demanding that the entire produce is sold at a guaranteed MSP. Their demand is genuine.

Private trade channels will not purchase at MSP during crop arrival season. They have to store the stock and incur cost of storage and interest. Surplus production does not ensure profits unless exports are liberally permitted. And exports are not very competitive unless export incentives are available. The cost of logistics, capital, energy and other basic inputs in India are too high compared to peer nations.

Out of box scheme need of hour

Considering the complexity, India needs an “out of box”scheme“. By this, the farmers will get MSP and the fiscal and debt burden on the government and FCI will reduce. It should be a profitable proposition for the private channel. For this, FCI has to play a vital role and the government should incur capital expenditure in building storage and logistics infrastructure for FCI from budgetary resources without burdening it with the repayment of capital costs.

Export incentives needed for FCI

The government should extend export incentives to FCI and private channel including processing industries. The fiscal burden due to export incentives will be gradually compensated by cutting down the farm input subsidy which, in fact, is not retained with farmers but passed on to consumers.

FCI must assist farmers with sale of foodgrains

FCI must assist farmers for selling food grains through auction to private channels under its supervision. The floor price must be kept about 93-95 percent of MSP.

FCI should fix quality standards and provide testing facility to avoid any arbitrary deduction by purchaser on the quality ground. Unsold stocks must be essentially stored by FCI and cheap loans be extended to farmers up to 90 percent of stock value at MSP price. It can be refinanced by banks to FCI at SLR rate. In absence of such a stocking facility, the farmer is compelled to sell his produce at distress prices to trade channels.

A “Goods receipt” (GR) may be issued to farmer against stocks mentioning the quantity, quality and loan amount. The validity period of such GR may be 5-6 months. The GR must be tradable in the open market, e-NAM and Commodity exchange.

FCI must assist and charge nominal fee of 0.5 percent of sale value. Interest and storage charges may be levied at 9.0 percent per annum on the stock value. That may be recovered from the ultimate buyer during delivery of goods. The balance money may be remitted to farmers. This will eliminate interest and storage cost of FCI.

Generally, the price of foodgrains increase still the next crop arrives.Thus, farmers will get better price after availing pf storage facility, as normally done by trade channels.

With prior consent of farmers, FCI may also purchase stock at MSP as per the needs of the PDS scheme. By this, FCI will not need separate buffer stock, as being done now.Thus, the debt burden on FCI shall substantially reduce.

If the stock is not sold by farmers within the validity period of GR, they will lose selling rights and it shall be deemed sale to FCI at MSP. After expiry of validity of GR, FCI can remit balance money after adjusting debt, interest and storage charges.

With above arrangements,the farmers might get about 95 percent of MSP. Hence, in due course, MSP may be increased by 5-7 percent. After stabilizing the system, there are fair chances for farmers to get a higher price. FCI will also be benefited since its debt burden and storage costs will reduce. Rather, it might earn gross profits in future years from service fee and storage charges.

FCI should increase storage capacity and build marketing infrastructure. It must disseminate market information to farmers. In this process, the stock with FCI might increase due to excess production or poor market demand. In such situation, FCI must quickly export directly or through trade channels.

The government must encourage exports and be liberal in giving export incentives to compensate the loss of FCI and trade channels and processing industries. By doing this, the FCI debit will reduce and the storage capacity will be available for fresh arrival of crops. The trade channel should also be motivated to participate.

India must promote foodgrain processing industries and trade channel near to FCI godownd and share the logistic infrastructure for exports and onward marketing. A team spirit between FCI, government, processing industries, traders, exporters and farmers will certainly deliver desired outcome. States should also join this team. Farmers may be also pursued for crop diversion; that will reduce agro-imports and enhance farmer’s income. A composite plan will certainly resolve crisis and fetch rural prosperity and reduce urban migration.

(R P Gupta is economist and an author)

Published on: Tuesday, April 19, 2022, 10:43 AM IST