The recent protest about farmers demanding the legalisation of the Minimum Support Price (MSP) for all crops as per the recommendations of the Swaminathan Committee (2006) seems unrealistic and will definitely affect the fiscal prudence of the country badly.
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The NDA-led Union government set an ambitious goal of doubling farmer income by 2022 in the 2016-17 annual Budget. The reality, however, is dismal at best, with real farmer household incomes from crop cultivation declining by 1.5 per cent between 2013 and 2019, and a real growth of 2.8 per cent is shown only upon including the non-farm income.
The data from NSS shows that the income from cultivation has declined rapidly from about 50 per cent of the total farmer household income in 2012-23 to under 38 per cent in 2018-19. Meanwhile, the wage component has risen from about 32 per cent to 40 per cent during the same period, suggesting that our ‘annadatas’ are extensively relying on wage labour to earn a living.
India’s agriculture sector has been depressed for decades now, majorly due to the policies and regulations that defy economic logic. No amount of Direct Benefit Transfers, MSP hikes or crop loan waivers can end the looming agrarian crisis. The government tried to take a step in the right direction with the three Farm Bills in 2020, but repealed it in November 2021 after a severe backlash from certain sections of farmers groups.
However, a panel appointed by the Supreme Court to study the proposed laws submitted a report that was against the repeal of the laws and said it will benefit farmers, and that a silent majority were in support of the reform. Here is how some of the fundamental problems plaguing our agriculture sector were addressed by the now-repealed farm laws, and why they must be brought back.
There is a severe shortage of mandis across the country, with each APMC on an average serving an area of about 496 sq km. This increases the logistics cost and increases wastage of crops with low shelf life. Consequently, India’s food loss accounts for 4.5 per cent of the total production.
The Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, sought to end the monopoly of APMC system as the sole market for farmers to sell their produce by allowing trade outside mandis for a better price discovery, minimising middlemen commissions and, more importantly, filling the gaps in the APMC infrastructure.
India produces about 311 million metric tonnes of grains every year, but we only have enough infrastructure to store about 145 million metric tonnes, which is a shortfall of 47 per cent.
As a consequence, food grains account for 22 per cent of the total food wastage in India. Besides, lack of proper storage has led to price volatility and shortages even in surplus crops. Farmers are often compelled to sell their produce at dirt cheap rates as they do not have the required infrastructure to store and sell later. There is a critical under investment in storage infrastructure.
The Essential Commodities Act, 1955, discourages private investment into warehousing and cold storage units as it criminalises storage of the notified commodities above a limit. This law was introduced against the backdrop of a food scarcity situation in the 1950s to curb hoarding, price gouging and black-marketing essential goods that were once scarce, which includes edible oil, pulses, cereals, oilseeds, seeds of fruits and vegetables, fertilisers and petroleum products.
However, it continues till date despite the fact that we are net exporters of the aforementioned crops. The Essential Commodities (Amendment) Act, 2020, sought to end this draconian law, which would have opened up a crucial influx of private investment into agricultural warehousing and cold storage infrastructure.
The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020, sought to create a legal framework allowing farmers to enter into direct contract with a buyer to sell the produce at a predetermined price like in a futures contract.
Such an arrangement would have reduced price risk and minimised post-harvest loss as the farmer would know exactly the quantity demanded.
The recent protest about farmers demanding the legalisation of the Minimum Support Price (MSP) for all crops as per the recommendations of the Swaminathan Committee (2006) seems unrealistic and will definitely affect the fiscal prudence of the country badly.
MSP will tend to distort the allocative efficiency of the market by overcompensating for surplus crops and disincentivizing farmers to cultivate crops that are heavily demanded in the global markets. MSP covers about 23 crops (which includes seven cereals, five pulses, seven oilseeds and four commercial crops). In spite of this, only about a third of the total production of rice (24.7 per cent) and wheat (20.8 per cent) is procured at this price by the government, causing the ill-maintained FCI granaries to overflow.
If all crops are legalised under the MSP, it will not be prudent for the government in terms of storage as well, as certain perishable crops such as tomatoes, leafy vegetables, etc will tend to have problems with respect to storage, distribution and cost of procurement.
The government spent about Rs 2.3 lakh crore under this scheme in 2022-23, which could have been instead used to fund long-term solutions for the agrarian crisis by investing in expanding storage units, increasing agriculture R&D spending among other things.
The government must instead focus on bringing policy interventions to promote demand-driven production of crops by adopting agri-tech solutions that leverage AI, IoT, and real time data.
It must improve the reach of AgriStack to provide a one-stop platform for all the information needed by farmers, including but not limited to soil profile reports, crop specifics, government schemes and data on logistics and storage.
The government must facilitate a sound price discovery and demand projection mechanism and enhance transparency by increasing penetration of eNAM.
There is a need for improving agricultural productivity/yield, livelihood diversification, better access to market and infrastructure development along with proper warehousing and storage, which can be long-term solutions for all the adversities faced by farmers.
Therefore, there is a need to introduce better laws which will focus on the sustainability of farmers and farming instead of legalising the MSP.
(Subhashree is an assistant professor, Christ (Deemed to be University), Bengaluru; Jaiganesh is a student at the university)