Budget 2018: The problem with Arun Jaitley's MSP promise to farmers
There is no denying that the farm sector needs a serious boost. There is also no denying that farmers are a sizeable and powerful vote base, which can turn against flawed policies as was demonstrated in the recent Gujarat Assembly elections and Rajasthan by-polls today.
So, when finance minister Arun Jaitley's announced that the Minimum Support Price (MSP) for notified kharif crops would be 1.5 times of the cost incurred by farmers for production, it was not difficult to see what made agriculture the government's top priority in the Union Budget.
However, doubling farm income looks like a distant dream. With agricultural growth averaging around 2.5 per cent since the 1980s, probably even earlier, what exactly are we aiming for? Perhaps a sectoral growth of 12 per cent or 13 per cent year-on-year for the next half-a-dozen years. And, of yes, do not even think of failed crop because of natural disasters.
As far as increasing MSP is concerned, while the FM made the government's intention clear, his proposal did not include concrete measures for its implementation. Nor do we have any timeline.
Even though some states did provide for this cost price in addition to 50 per cent MSP for some crops, farm distress showed no signs of abating. Has the FM taken into account why such a "boost" did not work in the past? So, there is no guarantee that 1.5 times MSP over cost price will even become a reality.
The Budget, moreover, says that Niti Ayog in consultation with state governments will come up with a mechanism. Well, that may take a couple of years. While fast-tracking reforms in the agro market could have eased some distress, it is hanging fire for about two decades now.
The Centre had declared MSPs for around two dozen crops in 2016-17, but the bulk of procurement is effectively limited to rice and wheat - basically to meet National Food Security Act obligations. As far as other crops (for which MSP was declared) are concerned, while regular procurements do not happen, nor is there any mechanism to ensure that farmers get their MSP. And add to that the skewed focus on foodgrain. An FCI report of 2015 stated that around 5.8 per cent of the farmers end up selling their produce to the government. So where does that leave the rest?
States often do not have enough funds to procure crops at declared MSPs. There are aberrations and some states do provide a "bonus" on the set MSP, but such instances are few and far between. As states face fund crunch and MSP keeps on increasing almost annually, the issue of under procurement by states remains largely under the carpet. Sometimes to ensure that procurement is more equitable, states set a cap on procurement, overall and individually as well. But if there is a cap on procurement, then what is the point of MSP?
Some procurements are purely political (because of political or legal compulsions). States actually don't know what to do with them. For instance, take the case of onions, tomatoes. In the absence of a ready or open market, how are these states supposed to market these procurements? Often states do not have necessary storage facilities. In each and every scenario, a loss is incurred.
We need to understand that MSPs are not a "happily ever after" scenario. It is a government intervention or support for farmers when market prices see a slump and yet there are no buyers. The very idea of using this emergency mechanism to try and double farmers’ income is a flawed approach.
What the government needs to know is the need to get rid of the middlemen, the need to ensure a cold supply chain, the need to ensure that the farmer sells only to the consumer, the need to ensure irrigation and institutional credit. If all that is taken care of, the farmer won't be troubling the government for MSP anyway.