Making MSP legal: A surest way to bridge the great Indian economic divide

Ever since the three contentious farm laws were repealed, and the focus shifted to protesting farmers demand for granting a legal status to Minimum Support Price (MSP), a heated debate has erupted on who will pay for guaranteeing an assured price. While all kinds of inflated figures are being tossed around, the hollering over the blow it will strike to the economy appears to be primarily aimed at creating a fear psychosis.

Mainline media has been screaming flashing repeatedly an imaginative figure of Rs 17-lakh crore as the burden the exchequer will have to bear if a legal sanctity to MSP is accorded. The argument is that the total financial outgo on MSP is so large that it will gobble up nearly half the annual budget. Some free market apologists on TV panels have even gone to the extent of quoting a still higher figure of Rs 21-lakh crore as the annual burden. With some electronic media not even caring to look into the veracity of these inflated claims, the contemptuous bias that a dominant section of the elite as well as a leading section of the media carries against farmers comes out crystal clear.

Why I am saying this is because as per a detailed analysis in Indian Express, the total value of all the 23 notified crops, if all of it was procured, comes to Rs 11.9-lakh crore as per the data available for the 2020-21 marketing season. This clearly shows that even if the entire farm production was to be procured by the state agencies, the imaginative figure of Rs 17-lakh crore that TV Channels are ad nauseam using is higher by roughly Rs 6-lakh crore than the actual amount required to procure the total harvest. But not all of it is procured, as we all know. After all, a sizeable proportion of the grains produced is consumed by the farming households, is also used as feed and saved for seed purposes.

Computing all these statistics, the report further states that a little less than Rs 9-lakh crore of produce is sold by farmers, which means the MSP value of the marketable surplus is approximately half the horrendous figure the TV Channels, barring a few, are quoting. The same news analysis finally concludes that what eventually would be required to procure the entire produce (given that Rs 3.8-lakh-crore worth of produce is already being procured) would be less than Rs 5-lakh crore a year. So when newspaper editorials say that granting a legal sanctity to MSP would be disastrous they are actually voicing the concern of the agribusiness industry which will have to pay a higher price for the raw material if MSP is made a legal right.

Another fear is that the entire produce will have to be stored thereby requiring massive investments in storage. This is not true. Farmers are not demanding that the entire produce to be procured. All they are saying is that no trading be allowed below the MSP benchmark. In fact, making it obligatory for the trade to buy at MSP prices or above will automatically shift the focus from intensive wheat and paddy crop rotation to crop diversification thereby reducing the excess grain surplus. This will also reduce the ecological damage in the form of groundwater depletion and stubble burning when farmers shift from water guzzling paddy to other alternative crops in Punjab. It is only possible by an appropriate policy intervention rather than hoping that the private sector will rectify the ecological balance. Private companies work for profit, and nowhere in the world have they demonstrated their ability to move towards agro-ecological transformation.

Unlike in the developed countries, the producer is also a consumer in India. Given that nearly 70 per cent of the country's rural households are directly or indirectly engaged with agriculture, the rise in income through an assured MSP will mean more purchasing power in the hands of the farming population, which in the process will reinvigorate the rural economy. With markets having failed to increase farm incomes even in the rich developed countries where farming is heavily subsidised, providing a guaranteed price to India farmers makes economic sense. Whether the income increase comes through an assured MSP or direct income support or deficiency payments or a combination of the three approaches, is certainly a question of delivery but first and foremost is the need to recognise that low farm incomes over the decades actually is what has aggravated the agrarian crisis.

Meanwhile, another interesting compilation by Swaraj Abhiyan shows how in reality the cost of guaranteeing an assured MSP is far less than what is generally perceived. Using the marketing surplus ratio estimates from the Agricultural Statistics at a Glance 2019; the average market prices as published in the CACP Price Policy reports; the latest production statistics as well the latest MSP figures; how much would MSP guarantee eventually cost the government has been worked out. For 16 major crops for which data is available (of the 23 crops for which MSP is announced every year) the compilation shows an annual additional expenditure of only Rs 36,105-crore. It will be interesting to have a similar computation for the remaining 7 crops, which are not covered in the current compilation, probably for which the official market surplus ratio data is not available.

While this additional annual expenditure too will raise eyebrows, the amount is far less than Rs 46,382-crore of corporate bad loans that have written-off in the first six months of the financial year 2021-22. Corporate bad loan write-off has become a biannual exercise, and does not attract any media scrutiny. Nor do the mainline media react to when the government recaps the nationalised banks to cover up the losses arising from massive write-offs over the years, and 80 to 90 per cent haircuts being often undertaken by banks under insolvency and bankruptcy proceedings. In the past eight years, banks have written-off more than Rs 10-lakh crore of corporate loan defaults.

Let us also not forget when the 7th Pay Commission recommendations came, it was projected as a 'booster dose' for the economy, since the higher income to employees would eventually flow into markets thereby creating demand. What is not being understood is that the economic gain from providing a higher income for farmers, comprising roughly 50 per cent of the population, by way of an assured high price will on the other hand be humungous. After all, a higher income for farmers reeling under a terrible agrarian distress, will not only move towards making farming economically viable, but will also result in creating a huge rural demand that will fast forward the wheels of development.

It is therefore time to appreciate that whether by providing a legal sanctity to MSP or by using mechanisms like direct income support, guaranteeing farmers of an assured and profitable price is the surest way to move from disparity to parity, and to bridge the huge economic divide. That's the reform agriculture desperately needs.

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)