A confused and confusing government

The Devendra Fadnavis Government seems to be totally clueless about the way to implement the Centre’s promise to pay farmers 1.5 times the cost of their produce. Defying the straightforward law of demand and supply, the above promise can be implemented only if the State agencies are ready to buy whatever quantities of grains the farmers produce at the stipulated minimum support price for each crop. For, if the prevailing price in the open market is lower than the MSP, no private trader will be ready to buy it. Coercing them to pay the MSP will be unacceptable, unless the Government is ready to pay the difference between the actual market price and the MSP.

Widespread fears that the Maharashtra Government will penalise traders for buying food grains at below the MSP had caused panic in the agricultural mandis in the State, forcing some to draw down shutters. Following strong criticism, the Government has now clarified that it had no intention to coerce the traders. The point is simple. If the Government wants to pay MSP 1.5 times higher than the input cost of a crop, the onus is on it rather than on the traders to pay it. Why create unnecessary panic in the agricultural mandis by allowing all kinds of rumours about arrests and fines on traders buying grains at below the MSP but at the prevailing market prices? The laws of demand and supply are not easy to defy and the prevailing market prices reflect this rather well. There are other ways which need to be considered for implementing the promise of the prime minister.

One is of course that the traders buy the produce at the prevailing market prices and, if the MSP is higher, the Government makes good the difference. The other is for the government agencies to procure all the produce at the MSP directly from the farmers in case the ruling market prices are below MSP. This would pose problems of storage, financial burden, including interests costs, on the procuring agencies. The government after warehousing adequate quantities of agricultural commodities for emergency situations or to stabilise prices or to meet contingency demand in case of a bad crop, can have no use for excessive buffer of perishable commodities. Admittedly, the tendency of farmers to sow a particular crop which, in the preceding season, had attracted high prices invariably ends up causing a glut in the next season and consequently a sharp drop in prices. Lack of awareness of farmers and the failure of state agencies to guide them about the correct crop mix contributes to this cycle of glut and shortages.

However, in recent years the Government has been able to insulate the consumers against sharp increases in prices of farm produce by building up more than adequate reserves for intervention in the market . Besides, farm produce has increased immensely, deterring the fear of shortages of mass consumed food grains. Ideally, the market forces ought to be allowed a free hand, but given the large number of marginal farmers with small holdings and poor irrigation, the need for the State to protect them is undeniable. To do this, two distinct models present themselves. One is the Madhya Pradesh model wherein farmers are paid the difference between the market price and the MSP through direct benefit transfer. The second is even simpler. It is the Telangana model. In every crop season, the Telangana Government pays a lump sum of Rs4,000 per acre to the farmers whose holdings are below a stipulated acreage. This could be the template for the rest of the country with the caveat that only those farmers whose holdings are not above, say, eight or ten acres would be entitled to such a subsidy. Gentlemen farmers, who essentially own agricultural land on paper to launder black money, should be strictly kept out of the scheme. Meanwhile, the Fadnavis Government would do well to reassure the agricultural mandis to return to normalcy without fearing any intimidation and coercion while it concretises a scheme to pay farmers MSP at the promised 1.5 times the input costs.

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