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Photo: Raj K. Raj/Hindustan Times
Photo: Raj K. Raj/Hindustan Times

A grim Diwali for farmers as new MSP policy fails to cheer them

Even in poll-bound MP and Rajasthan, farmers are selling pulses, oilseeds at rates 10-40% lower than MSPs

New Delhi: The June of 2017 marked an inflection point in Indian agriculture. Following consecutive years of drought in 2014 and 2015, farmers reaped a bountiful harvest in the 2016-17 crop year, a historic record till then, buoyed by ample rains. Food production reached a high of 275 million tonnes growing 9.5% year-on-year, and agriculture gross domestic product (GDP) growth rate surged to 6.3%.

Yet, farmers across states erupted in protests as wholesale prices of pulses, oilseeds and coarse grains plunged sharply.

In Madhya Pradesh’s Mandsaur district, for instance, protests led to arson. At least five farmers died in police firing on 6 June. Ever since, the protests have only grown in size with troops of farmers marching to Mumbai and Delhi, demanding higher prices and loan waivers.

To address the long-standing demand of farmer organizations to fix minimum support prices (MSPs) at 50% over cost of production, and address the anger brewing in India’s hinterland, the centre in the budget presented in February announced two major policy decisions. Firstly, it promised that henceforth MSPs will be fixed to ensure at least 50% returns on production cost to farmers and secondly, it pledged to ensure effective price support-based procurement of pulses and oilseeds, going beyond the usual rice and wheat purchased by the government for the subsidized public distribution system.

The new MSP policy, on the positive side, tries to address farm distress ahead of state elections—agrarian states including Madhya Pradesh and Maharashtra go to polls in less than a month, and the general elections are likely by May 2019—despite the fiscal burden it may entail.

In line with its budget promise, the centre announced a steep hike in MSP of kharif crops—at least 50% more than the cultivation costs—in July. In September, it followed up with an ambitious scheme named Pradhan Mantri Annadata Aay Sanrakshan Abhiyan, or PM-AASHA, to ensure those growing pulses and oilseeds benefit from higher MSPs announced by the government.

The new scheme is a mix of sub-schemes, which will involve direct procurement from farmers (price support scheme or PSS), paying them for losses incurred when wholesale market prices are lower than the announced MSPs (price deficiency payment scheme or PDPS), and procurement by private traders at MSP as a pilot. Towards this, the centre allocated 15,000 crore, and raised the bank guarantee of state procurement agencies to 45,550 to help them make payments to farmers.

Farmer organizations have criticized the new policy on two fronts. First, they say, the government went back on its promise by using a cost matrix for calculating MSPs which does not include rental value of land owned by farmers, thereby depressing support prices. Secondly, higher MSPs have failed to show results on ground.

For instance, on 2 November the weighted average price of urad (black gram) in Madhya Pradesh’s Mandsaur mandi was 4,250 per quintal, 24% lower than the promised MSP of 5,600 per quintal. On the same day, farmers in Rajasthan’s Ajmer sold moong (green gram) at 4,700 per quintal, 33% lower than the MSP of 6,975 per quintal. In comparison to the promised 50% returns over costs, moong growers actually made just 50 a quintal (govt estimated cost of production is 4,650 per quintal), or a return of 1% over costs.

“The very fact that the market prices of most kharif crops are well below (10% to 40%) their respective MSPs show that PM-AASHA is becoming farmers’ nirasha (hopelessness)," said Ashok Gulati, agriculture chair professor at Indian Council for Research in International Economic Relations, Delhi.

According to Gulati, the MSP route to raising farmer incomes has severe limitations when MSPs are announced at levels that are higher than market equilibrium prices or international reference prices. “The best way is to move towards an income policy in a systematic manner that will replace all input subsidies, loan waivers, high MSPs, etc. It will be less distorting, more efficient (least leakages), and more equitable. The earlier policymakers and their advisors learn this lesson, better will it be for the farmers as well as the country."

Merely raising MSP or even stepping up procurement does not guarantee better market prices. Last year (2017-18), central agencies procured over 30,000 crore worth of pulses and oilseeds, but wholesale prices of most crops hovered substantially lower than support prices. What’s more, government agencies are now offloading their procured stocks at lower than MSP to make space for fresh purchases, which is further depressing market prices for farmers.

“The state government promised to begin procurement by 20 October, but it is yet to open centres...it will be another grim Diwali for small farmers who grew pulses and are selling their harvest at a loss," said Kedar Sirohi, a farmer leader and Madhya Pradesh state president of the Congress party’s farmers’ wing. “If the government begins procurement by mid November it will benefit traders and large farmers who held on to stocks."

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