Peasants, largely from Punjab, have been protesting on Delhi borders with several demands. We need compassion and rationality to look at their demands, and sit down with them to solve this as soon as possible.
Their demands range from making minimum support prices (MSPs) legally binding, and MSPs to be fixed per the so-called Swaminathan formula. It suggested 50% profit over comprehensive cost, often referred to as Cost C2. This cost concept includes not only all the paid-out costs of farmers and the imputed value of family labour (Cost A2+FL), but also imputed rent on owned land and imputed interest on owned capital. The difference between Cost A2+FL and Cost C2 is roughly 25-30% for most crops. The current MSP formula that the Modi government has accepted is minimum 50% margin over Cost A2+FL. So, if this is replaced by Cost C2+50% margin, in most crops covered under MSP regime, the MSPs will go up by 25-30%.
The protesting peasants have other demands too. Some of these like loan waivers, pension for farmers and agricultural labourers, minimum wage rate of `700 a day and allowing MGNREGA workers to work on farmers’ fields, etc. will have significant economic implications. If all these demands are accepted, including the MSP demand, it will surely put severe pressure on the fisc, and also raise food inflation, having economy-wide repercussions. So, any decision on farmers demands needs cool-headed thinking, keeping emotions and politics out of the negotiations. Keep in mind that it is election time, and everyone tries to put pressure to get the best possible deals for their economic well-being.
Also Read Building Bridges: PM Modi’s UAE Visit and the Inauguration of the BAPS Hindu Temple Manufacturing, tech, and India: The Indian economy must shift to manufacturing and should leverage tech to do so New scheme for solar rooftops Fifth column by Tavleen Singh: Listen to the farmers One thing that must be understood by policymakers negotiating with farmers is that the real issue behind these economic demands is that farmers basically want significantly higher incomes. There is nothing wrong in that as most of us also want higher and higher incomes with least uncertainty. The question is whether the government has the wherewithal to pay without wrecking the economy. Although it is difficult to get an exact number on the fiscal cost of this package, which will depend upon how much of the 23 commodities the government will have to buy at enhanced MSP, the level the market prices are at, and the amount of loan waiver and pensions. However, it is clear that in today’s budget, this is going to be large, and can throw a big spanner in the fisc calculations of the Centre.
So, what would be the best way to increase farmers’ incomes? Before I respond to this basic question, a few things must be noted. The 23 crops under current MSP regime constitute only 28% of the value of agriculture and allied produce. If the government agrees to raise the MSP of these 23 crops based on Cost C2+50% margin, and make it legally binding on all buyers, why should this formula not be applicable to other agri-products? It would be interesting to note that the biggest agricultural produce of India is milk, and its value exceeds the value of paddy, wheat, pulses, and sugarcane combined. Why should milk producers, or for that matter, any livestock producer, or even any horticulture producer not get the same treatment as the 23 MSP crops of today? So, the demand for higher MSP will not stay only to 23 crops. Livestock and horticulture together constitute more than 50% of agri-produce, and they have been growing without any MSP. In fact, their growth is much higher (5-8%) than the growth in cereals (1.8%) over the last two decades. There is a lesson here. The future of Indian agriculture’s potential and farmers’ incomes lies more in livestock, fisheries, and horticulture. These commodities need a well-integrated value chain approach, much like the Amul model in milk or the vertically integrated poultry sector, which is actually growing at the fastest pace. The market risk is thereby taken by the integrators.
In the 23 crops under MSP regime, the best way to augment farmers’ incomes is to raise their productivity in a sustainable manner and enable them to access the best markets not only in India but across the world. While augmenting productivity requires lot of investments in agri-R&D, irrigation, etc., which takes time, the issue of access to best markets can be achieved in a relatively shorter time.
The first and foremost policy action that is needed is to remove all bans on agri-exports, stocking limits on private trade, and stop unloading wheat and rice in the open market at below economic cost of Food Corporation of India (FCI). These are all anti-farmer policies to favour consumers. The fundamental problem of todays’ agri-food policies is that it is highly titled towards consumers at the cost of farmers. This mindset needs to change, especially when government claims that poverty is reduced to just 11% of the population.
If one looks at the Central budget, out of roughly `47 trillion, subsidies in agri-food space account for about `5 trillion, of which 80% are geared towards consumers to keep food prices low. The food subsidy of `2.12 trillion, and even the fertiliser subsidy of `1.88 trillion (RE of FY24) is a pass-on to consumers as it keeps the costs and thus the MSP prices low. This entire gamut of subsidy policies needs a re-visit and reorientation where 75% of it could be geared towards producers in the form of price stabilisation fund or PM-Kisan, etc and only 25% goes to well-targeted vulnerable consumers. It is time to stop revdis, and get on to real rational policy making. Policymakers have a big job at hand, but believe me, it can be achieved, if they have the will to do so. I sympathise with policymakers calibrating to balance the interests of producers and consumers.
The author is a distinguished professor, ICRIER. Views expressed are personal.
Peasants, largely from Punjab, have been protesting on Delhi borders with several demands. We need compassion and rationality to look at their demands, and sit down with them to solve this as soon as possible.
Their demands range from making minimum support prices (MSPs) legally binding, and MSPs to be fixed per the so-called Swaminathan formula. It suggested 50% profit over comprehensive cost, often referred to as Cost C2. This cost concept includes not only all the paid-out costs of farmers and the imputed value of family labour (Cost A2+FL), but also imputed rent on owned land and imputed interest on owned capital. The difference between Cost A2+FL and Cost C2 is roughly 25-30% for most crops. The current MSP formula that the Modi government has accepted is minimum 50% margin over Cost A2+FL. So, if this is replaced by Cost C2+50% margin, in most crops covered under MSP regime, the MSPs will go up by 25-30%.
The protesting peasants have other demands too. Some of these like loan waivers, pension for farmers and agricultural labourers, minimum wage rate of `700 a day and allowing MGNREGA workers to work on farmers’ fields, etc. will have significant economic implications. If all these demands are accepted, including the MSP demand, it will surely put severe pressure on the fisc, and also raise food inflation, having economy-wide repercussions. So, any decision on farmers demands needs cool-headed thinking, keeping emotions and politics out of the negotiations. Keep in mind that it is election time, and everyone tries to put pressure to get the best possible deals for their economic well-being.
One thing that must be understood by policymakers negotiating with farmers is that the real issue behind these economic demands is that farmers basically want significantly higher incomes. There is nothing wrong in that as most of us also want higher and higher incomes with least uncertainty. The question is whether the government has the wherewithal to pay without wrecking the economy. Although it is difficult to get an exact number on the fiscal cost of this package, which will depend upon how much of the 23 commodities the government will have to buy at enhanced MSP, the level the market prices are at, and the amount of loan waiver and pensions. However, it is clear that in today’s budget, this is going to be large, and can throw a big spanner in the fisc calculations of the Centre.
So, what would be the best way to increase farmers’ incomes? Before I respond to this basic question, a few things must be noted. The 23 crops under current MSP regime constitute only 28% of the value of agriculture and allied produce. If the government agrees to raise the MSP of these 23 crops based on Cost C2+50% margin, and make it legally binding on all buyers, why should this formula not be applicable to other agri-products? It would be interesting to note that the biggest agricultural produce of India is milk, and its value exceeds the value of paddy, wheat, pulses, and sugarcane combined. Why should milk producers, or for that matter, any livestock producer, or even any horticulture producer not get the same treatment as the 23 MSP crops of today? So, the demand for higher MSP will not stay only to 23 crops. Livestock and horticulture together constitute more than 50% of agri-produce, and they have been growing without any MSP. In fact, their growth is much higher (5-8%) than the growth in cereals (1.8%) over the last two decades. There is a lesson here. The future of Indian agriculture’s potential and farmers’ incomes lies more in livestock, fisheries, and horticulture. These commodities need a well-integrated value chain approach, much like the Amul model in milk or the vertically integrated poultry sector, which is actually growing at the fastest pace. The market risk is thereby taken by the integrators.
In the 23 crops under MSP regime, the best way to augment farmers’ incomes is to raise their productivity in a sustainable manner and enable them to access the best markets not only in India but across the world. While augmenting productivity requires lot of investments in agri-R&D, irrigation, etc., which takes time, the issue of access to best markets can be achieved in a relatively shorter time.
The first and foremost policy action that is needed is to remove all bans on agri-exports, stocking limits on private trade, and stop unloading wheat and rice in the open market at below economic cost of Food Corporation of India (FCI). These are all anti-farmer policies to favour consumers. The fundamental problem of todays’ agri-food policies is that it is highly titled towards consumers at the cost of farmers. This mindset needs to change, especially when government claims that poverty is reduced to just 11% of the population.
If one looks at the Central budget, out of roughly `47 trillion, subsidies in agri-food space account for about `5 trillion, of which 80% are geared towards consumers to keep food prices low. The food subsidy of `2.12 trillion, and even the fertiliser subsidy of `1.88 trillion (RE of FY24) is a pass-on to consumers as it keeps the costs and thus the MSP prices low. This entire gamut of subsidy policies needs a re-visit and reorientation where 75% of it could be geared towards producers in the form of price stabilisation fund or PM-Kisan, etc and only 25% goes to well-targeted vulnerable consumers. It is time to stop revdis, and get on to real rational policy making. Policymakers have a big job at hand, but believe me, it can be achieved, if they have the will to do so. I sympathise with policymakers calibrating to balance the interests of producers and consumers.
The author is a distinguished professor, ICRIER. Views expressed are personal.
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