The idea to use MSP as a loan recovery tool is unfair

It doesn't happen only in international trade. Rigged Rules and Double Standards – as the 2002 Make Trade Fair campaign of the international charity, Oxfam, was titled – is something that Indian farmers continue to live with. Almost at every step, I find farmers being subjected to double standards, and made to face the wrath of rigged rules.

When I say rigged rules – dictionary meaning implies giving unfair advantage to one side of the conflict – the way economic policies are disproportionately designed to benefit industry, and at the same time tighten the noose around farmer's neck is becoming more of a norm. This essentially stems from a highly biased economic thinking that has always treated financial support to farmers as a 'subsidy' whereas economic stimulus and bailout packages along with production incentives to industry is counted as an 'incentive for growth'.

While subsidy is a demonised word, the fact is that 'incentives for growth' too are nothing but subsidies. Nevertheless, the clever demarcation between what constitutes a 'subsidy' and what is meant by 'incentive for growth' has already created a mental barrier against subsidies, which most believe are a wasteful expenditure. When I would say that industries thrive on massive subsidy support, equating 'incentive for growth' with subsidies, many co-panellists on TV debates would question my understanding of the development process. But, ever since the Prime Minister, in a public address, acknowledged that 'incentive for growth' is nothing but a subsidy, TV panellists have stopped casting any doubts.

We will talk more about it later, but what drew my attention to the latest incidence of a different set of rules that farmers are made to comply with, is actually a SMS message that farmers in Madhya Pradesh have received. With the wheat procurement season about to begin, as per newspaper reports farmers have received a curt message saying that if they intend to sell their produce at the Minimum Support Price (MSP) in a mandi, be warned that any unpaid amount pending against them for Kisan Credit Card (KCC) from the banks as well as non-payment of dues for seed-fertiliser purchase from cooperative will be deducted societies (to a maximum of 50 per cent) from the price they will be getting. This certainly is unfair. This is nothing short of a double standard - different rules for different set of people. Farmers take short term loans from the banks. For paying back in time, farmers get an incentive in the form of interest subvention. If they don't pay in time, under the KCC rules, they have to pay a higher rate of interest. Similarly, for the cooperative societies, rules already exist for recovering the outstanding dues from farmers. In any case, what needs to be understood is that for a farmer, crop cultivation is the primary economic activity. They invest as much as possible, in the form of money as well as family labour, to achieve a good harvest. For most farmers, all expectations of realising a better income are primarily based on finding a good market, which in other words means getting a good price for his produce. The possibility of getting a higher price (when sold at MSP) is what every farmer looks up to every marketing season.

The price a farmer realises from the sale of his crop is his gross income. After deducting expenses incurred, including out of pocket expenses for crop cultivation, the net return is what sustains a farm livelihood. Although in Dec 2021, the MP Minister for Agriculture and Farmers Welfare, Kamal Patel, had informed the State Assembly that no record of farmer's income was available, as per the Situation Assessment Survey of Agricultural Households and Land and Livestock Holdings of Households in Rural India 2019, Madhya Pradesh was among the six large states whose average farm incomes was less than the national average.

Accordingly, the national average of farm income stood at Rs 10,218 in 2018-19. Since the average farm income does include income derived from allied activities like livestock and also from non-farm activities, the income realisation from crop cultivation alone is very low. Another study by the Institute of Economic Growth had earlier worked out the total average earning of Madhya Pradesh farmers at Rs 74,712 per year, out of which income from crop cultivation alone stood at Rs 48,039 per year. This gives you a broad idea of what percentage of farm income comes from crop cultivation alone.

With such meagre income, the idea to deduct outstanding amount due against farmers from KCC and cooperative loans, is rather unfair. Even if the cost of seed and fertiliser that farmer incur, drawn from cooperative loans at zero per cent interest, this is not the way to recover the pending amount. Farmers say this has been the practice earlier too. This needs to stop.

Whatever is the economic rationale behind such a move, but if it be so why the same standards are not applied for the corporate sector remains the big question. As per news reports, banks have written-off more than Rs 11.68 lakh crore of bad loans (technically called as non-performing assets) in the past 10 years. While most of the NPA write-offs have happened in the past seven years, at no stage have I found the banks that extend fresh loans to the defaulting companies (after the NPAs have been written-off) ever deducting the unpaid dues from the loans that are subsequently issued.

For the defaulting corporate, most of them being willful defaulters, banks and lenders are made to take a heavy haircut under the insolvency proceedings, and the same banks then issue fresh loans to the same defaulting companies. This means companies get a fresh start on a clean slate, with the outstanding dues becoming the headache of the banks and the lenders. Wouldn't it be much better if the unpaid loan amounts are deducted from the fresh loans the banks issue? Wouldn't that be the right way to clean up the NPA mess that banks are saddled with?

If not, then why should there be a different set of rules for farmers? While there is no direct connection between MSP and the bank loans (except that the State government receives credit guarantee from the RBI for providing MSP to farmers), I see no reason why MSP should be used as a recovery tool. Let the banks (including cooperatives) do their job of lending and recovery, and let us refrain from taking a cut from the meagre income a farmer earns from selling his crop at MSP.

(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)