If you are not willing to risk the unusual, you will have to settle for the ordinary. – Jim Rohn
Prime Minister Narendra Modi is indeed the greatest change-maker in post-Independence India, transforming the country using contemporary logic, brick by brick, so that the fruits of development are shared by those who need them the most.
Coming to India’s agrarian story, a lot has been done in the last six-and-a-half years. In the last three decades, global milk production has increased by more than from 59%, from 530 million tonnes in 1988 to 843 million tonnes in 2018. India is the world’s largest milk producer, with a 22% share of the global production, followed by the United States and China. India has over 80 million dairy farms that produce more milk than the entire European Union. Under the milk revolution, which gathered huge momentum under the Modi government, milk production in India today is 50% higher than that in the US and almost 300% higher than that in China. Milk has never been a part of the MSP, so that should tell a lot about the relevance of MSP!
Be that as it may, the Modi government in 2018 increased the MSP at 1.5 times the production cost, which is the chief determinant of MSP today. This is based on the recommendations of the Swaminathan Commission and National Commission of Farmers, 2006, which the Congress clearly failed to implement for eight long years between 2006 and 2014, before it was ousted. Shanta Kumar recently said, when asked about the new farm legislation and MSP, “On MSP, the Modi government has clarified that it will stay, but the question we (the committee) have raised is that MSP only relates to 6% of big, elite farmers who sell their crop in mandis. Over 86% are small farmers who don’t go to the mandi to sell their produce, and the new bills will give them the strength to sell outside the mandi at better prices.”
The total value of all agricultural output was around Rs 40 lakh crore in FY20, while the total value of MSP operations was around Rs 2.5 lakh crore, corroborating the argument by Shanta Kumar, that if only 6.25% of the agri produce is MSP-driven, then why this hue and cry about MSP? Clearly, the entire MSP-related controversy is a needless one, that is, in large measure, a manufactured controversy by an electorally debilitated Opposition that is running out of issues to fret and fume about. Prime Minister Narendra Modi has categorically assured farmers that his government will continue with the MSP. Hence, any apprehensions on this front are not required. The hard reality is that MSP matters only to a small number of farmers in states like Haryana and Punjab.
Indeed, the MSP has skewed the agrarian economy towards a handful of crops and wreaked havoc on farm productivity and soil quality. Higher prices for wheat and rice have resulted in farmers in states like Haryana and Punjab growing water-intensive crops that have immensely depleted the water table. Nearly 80% of the land in Punjab is over-exploited and the number is around 50% in the case of Haryana. The open-ended system of procurement by FCI ensures that it has Rs 1.5 lakh crore worth of extra food grains in its godowns, which often gets wasted if there is a bumper crop but not enough matching demand. This wastage will get curtailed significantly under the new agrarian structure once new farm legislation brought in by the Modi government is put to work.
Truth be told—while 46% of India’s farm output is not crops—it comprises milk, fishing, forestry, and fruit and vegetables (F&V). In fact, the production of F&V is greater than that of cereals, but F&V as a segment gets no MSP support, nor does milk production. Hence, the flawed argument that MSP is the solution to every agri problem is absolutely wrong. Despite no MSP support, the total value of annual milk production in India is anywhere between two to three times higher than that of paddy, wheat and sugarcane production, all put together. MSP was started in 1965, when India was a food-deficit nation, but today, India is a food-surplus nation.
The agitation against the three farm bills brought in by the Modi government is being driven increasingly by vested interests. With 3% mandi taxes, Punjab collected Rs 1,750 crores by way of mandi taxes in FY20 and a similar amount by way of a rural development cess. Interestingly, arhatiyas or middlemen earned a commission of over Rs 1,600 crores in FY20! If the government’s APMC reforms result in alternative markets being created and farmers are able to sell directly to buyers, the arhatiya commissions will get impacted, and that is precisely why middlemen in the guise of farmers are trying to blockade India’s national capital.
While the Congress is against the farm bills today, in its 2019 manifesto, it had promised to abolish APMCs. Bhupinder Singh Hooda wanted APMCs to be dismantled when he was the chief minister of Haryana in 2013, and that is precisely what Sharad Pawar had wanted too when he was the Union Agriculture Minister under a Congress-led regime in 2010. The hypocrisy of the Congress is further established by the fact that while it is opposing the Modi government’s farm bills pertaining to contract farming today, it had no problems with it back in 2006 in Maharashtra, when Vilasrao Deshmukh of Congress had been the chief minister. Again, in 2003, when Digvijay Singh of the Congress was the chief minister of Madhya Pradesh, contract farming had been permitted. The biggest testimony that the farmers’ protests are being politicised is the fact that, while some groups have a problem with contract farming under the new farm laws, these groups have never bothered to raise even their little finger against the practice being prevalent in the farming of maize, barley, sunflower and some varieties of wheat, and that has been in vogue in the Congress-ruled Punjab for the last few years.
MSPs are not being phased out despite various challenges, because the Modi government believes in consensus building and wants to stand in solidarity with our farmers, and rightfully so, given its commitment to double farmers’ income by 2022. That said, about 70% of Punjab’s wheat output is procured by government agencies and this number is about 85% for paddy. Contrast this with the fact that just around 10% of UP’s wheat is procured at MSP, while UP produces double the wheat Punjab does. While mandi prices are typically 20-50% below the MSP for most crops, the farmers from Punjab are almost completely insulated from any market-risk and, hence, farmers from Punjab have no reasons to complain whatsoever.
A related point worth keeping in mind is that even with the MSP-based procurement intact, Punjab›s agri-GDP is rapidly slowing. Agri-GDP grew by 5.7% a year between 1971-72 and 1985-86 versus India’s 2.3%. Between 1986-87 and 2004-05, Punjab’s agri-GDP grew at less than 3% and post-2005, Punjab›s agri-GDP fell even further to just 1.9%, versus India’s average of over 3.5%. The reason for this is that MSPs are often already higher than global prices for wheat and rice. Hence, market prices or MSPs cannot rise beyond a point for these two crops. Other cash crops and livestock that yield significantly higher returns are not being cultivated by farmers in Punjab, while farmers in other states are doing so, thereby, dragging down Punjab›s agri-GDP number.
Even today, each farming household in Punjab gets Rs 1.2 lakhs worth of subsidies related to water, electricity, fertilizers, interest subvention and the like. The farm bills promise farmers the freedom to sell wherever and to whomever they please. This corrects the restrictive trade and marketing policies followed so far. The economic rationale of all these bills is to provide greater choice and freedom to farmers to sell their produce and buyers to buy and store, thereby, creating competition in agricultural marketing. This competition is expected to help build more efficient value chains in agriculture by reducing marketing costs, enabling better price discovery, improving price realisation for farmers, yet reducing the price paid by consumers. It will also encourage private investment in storage and thus reduce wastages and help contain seasonal price volatility.
The Modi government has also been simultaneously engaging in direct cash transfers to farmers, as is evident from the Rs 6,000 per year that is paid to over 14 crore farmers under the PM Kisan scheme. Over Rs 94,000 crore have been paid via PM Kisan since its inception two years back, with over Rs 22,000 crore paid during the last six months of the pandemic alone. Talking of infrastructure, the Modi government, in August this year, launched a new Agriculture Infrastructure Fund (AIF) worth Rs 1 lakh crore, meant for setting up storage and processing facilities, which will help farmers get higher prices for their crops. In September this year, the government launched the Pradhan Mantri Matsya Sampada Yojana—a flagship scheme for focused development of the fisheries sector in the country with an estimated investment of Rs 20,050 crore during a period of five years as part of the Atmanirbhar Bharat package. In June this year, the Modi government announced a Rs 15,000 crore Animal Husbandry Infrastructure Development Fund with an interest subsidy scheme to promote investment by private players in dairy, meat processing and animal feed plants, a move which is expected to create 35 lakh jobs. So the government has been working at strengthening farm infrastructure. This, along with the new farm bills, will boost the productivity of the agrarian sector to areas beyond just growing traditional crops like paddy or wheat.
The case for MSP should not be overstated. The MSP is an indicative price and does not necessarily lead to farmers being better off all the time, as the final price is still driven by the market. MSP has always been an administrative mechanism and never a legislative one. How will MSP be ensured in private transactions? Well, private trade will be above the rate of MSP. That is the whole point. The farmer will obviously engage with private traders only when he gets rates that are better than MSP. If the farmer gets less than the MSP in private trade, the farmer can always opt for selling his produce in the APMC mandi and pocket the difference between the market price and MSP.
Has the Modi government strengthened MSP? Of course, it has. The numbers speak for themselves. The Congress-led UPA, between 2009 and 2014, had purchased only a measly 1.52 lakh metric tonnes (LMT) of pulses at MSP. Meanwhile, the BJP-led NDA, between 2014 and 2019, purchased 76.85 LMT of pulses at MSP. For oilseeds, the numbers are 3.65 LMT under the UPA and 30.17 LMT by the BJP-led Modi government. It needs to be mentioned here that while the MSP is applicable to 23 crops (7 cereals, 6 pulses, 7 oilseeds and 4 commercial crops), in most states in India, over 50% of the MSP is cornered by just two crops, namely, paddy and wheat.
One of the most important farm reforms, apart from those discussed above, are the amendments to the Essential Commodities Act of 1955, which takes cereals, pulses, oilseeds, edible oils, onion and potatoes out of the list of essential commodities. It thus removes stockholding limits on these items except under “extraordinary circumstances”, such as war and natural calamities. The amended law will attract corporate and foreign investment in the food supply chain, for instance, for cold storage and warehouses, by addressing fears of excessive regulatory interference, thereby bringing price stability.
“I cannot say whether things will get better if we change; what I can say is they must change if they are to get better.”This powerful quote by Georg C. Lichtenberg best explains how PM Modi is leading the landmark decision to change India’s rural landscape through a series of epoch-defining and transformative measures.
The author is an economist, national spokesperson for the BJP and the bestselling author of ‘Truth & Dare: The Modi Dynamic’. The views expressed are personal.
