The farmers and the government both want the former’s income to double in a short period of time. Farmers believe that maintenance of the Minimum Support Price (MSP) is the way forward. They will get assured high prices, increase production and obtain high incomes. However, the government feels that the MSP leads to excess production, which becomes a burden on the economy as a whole and that, in turn, also leads to a reduction of incomes for all, including the farmers.
It must be noted though that the farmers’ approach assures them of high incomes, the government’s approach does not help improve the incomes of the farmers. Therefore, the farmers are justified in demanding legislative protection for MSP.
Let us understand the government’s point of view. The MSP distorts the production pattern. The farmers produce more of wheat and paddy because they are assured of high prices. The increased production will lead to the lowering of increased supply in the market if there were no MSP. That would lead to lower prices and the farmers would reduce the production of these crops in the next year.
In this manner, the demand and supply of wheat and paddy would get balanced out. Prices would rise and the farmers would increase production if there were less production. Conversely, the prices would fall and the farmers would reduce production if there were more production. This self-correction mechanism does not work once the MSP is in place.
Lure of high MSP
Farmers continue to increase production even when we already have excess stocks because they are lured by the high MSP. The increased production does not lead to lower prices because the MSP is fixed. The result is that this excess production has to be exported at a very low price.
At the end of the day, the government buys these crops at a higher price and exports them at a lower price, leading to a financial burden and that burden encumbers all, including farmers. The government is justified in removing the MSP because of this problem. But it has no solution as to how the income of the farmers can be increased in such a situation. However, solutions are, available.
The first solution is that the government should try to move farmers from low-value MSP-supported crops like wheat and paddy, to high-value crops. Our farmers produce pepper in Kerala, silk and areca in Karnataka, mango in Maharashtra and Uttar Pradesh, palm in Andhra and ‘paan’ in Bihar. Farmers producing these high-value crops generally do not agitate for MSP. They are already getting good income from these crops.
Tulip route to plenty?
The situation at the global level is even more dramatic. Tunisia produces olives, France produces grapes, the Netherlands produces tulips, the United States produces walnuts, Saudi Arabia produces dates. These countries sell these crops at a high price in the global market. A farm worker in the Netherlands earns about Rs 10,000 per day in the production of tulips. We should be able to pay our farm workers daily wages of Rs 10,000 if we could also produce tulips.
Our special advantage is that we have available a variety of climates from Kashmir to Kanyakumari. We could produce tulips during winter in the south and summer in the north. We can supply specialised agricultural produce to the entire world at a very high price throughout the year—something that France and the Netherlands cannot do. They would not be inclined to spend their time demanding MSP if they could make money from tulips, like the pepper farmers of Kerala.
Cash transfers over subsidies
The second solution is to increase the level of cash transfers already being done. There exist about three crore farmer families in the country. The government could transfer Rs 1,00,000 per family per year and assure them of a basic minimum income. Having done this, the government could dismantle the MSP and also scrap the fertiliser, electricity, water, foodgrain and export subsidies. The price of wheat and paddy in the market would then reduce and the farmers would produce more mango and ‘paan’. Farmers would have no reason to complain because their minimum incomes are assured by cash transfers.
In my reckoning, the centre and state governments would save about Rs 6,00,000 crore if they scrap the MSP and all the subsidies. One half of this, or Rs 3,00,000 crore could be given to the farmers in the form of direct cash transfers of Rs one lakh per family per year. Then the farmers would have no argument to agitate because their basic incomes would be assured.
Wasteland of research
The difficulty in implementing these solutions is that the research bureaucracy of Indian Council of Agricultural Research laboratories and our universities is just not interested in undertaking any research. Their salaries are secure. They continue to draw their salaries regardless of whether they do any research or not. They embellish their resumes by publishing cut-and-paste academic papers in fake journals. Therefore, the government should dismantle this entire research bureaucracy and give research contracts to these government laboratories, as well as private institutions, to undertake mission-based research and produce specialised crops that can provide high income in every part of the country.
The second difficulty in implementing this solution is that the bureaucracies of the Food Corporation and the public distribution system thrive on the purchase, storing, transport and sale of foodgrain. They will get no income if the government dismantles the MSP. Therefore, they do not allow the politicians to implement these solutions.
A problem in this solution is that the production of specific crops can oscillate. There may be excess production of wheat and paddy in some years and a shortage in other years. The solution is that the government should convert the Food Corporation of India into a ‘Food Trading Corporation’. This corporation should make future contracts for supplies of various crops so that the price stability is maintained within reasonable limits. This corporation can also import and export as the situation may warrant. In this manner, we can ensure a secure supply of foodgrain without having to wastefully subsidise fertilisers, electricity, water, foodgrain and exports.
The writer is former professor of economics, IIM Bengaluru, and can be reached at 85278-29777