Ever heard a shopkeeper who could not clear his stock getting financial support from the government — that too by way of a grant of 1.5 times his cost price? That is precisely what the farmers of Punjab and Haryana are demanding, much as they cannot be faulted entirely because this was a recommendation by the holy cow called MS Swaminathan, whose wisdom no government functionary dares question, and worse, the Narendra Modi government had promised this much of minimum support price to the farmer in his election speeches. While it is a no-brainer that no government in the world has its own money; that all that it grants come from the pool of taxes from the people, a government that is callous about handling this money soon finds it difficult to manage the administration as the treasury dries out due to its philanthropic profligacy. Now, while the prime minister is himself from a state that is among the best in understanding financial matters, he turned avowedly socialist after drawing wrong lessons from the consecutive electoral losses of the BJP in 2015 — first in Delhi and then in Bihar — in the hands of freebie-distributing leaders of the challenging parties (AAP and JDU). So, while he could, with some effort, convince the citizens of Gujarat that there was no such thing as a free lunch, he realised while ruling India for a couple of years that this simple economic sense is hard to drill into the minds of non-Gujarati Indians. But then, the farmer issue faces a different conundrum. Within the purview of socialism, which Prime Minister Modi now swears by, the agitating farmers say he has not fulfilled his promise. The prime minister says he is giving MSP at the rate of 1.5 times the cost that the farmer incurs whereas the latter says he never gets that money! So, who is speaking the truth? The farmer says if Modi is speaking the truth, he must also pledge as much in writing. The government says that is not possible. To know why this does not mean the government is cheating, the devil must be seen in the details.
Ensuring that the government continues to purchase foodgrains at MSP and, through legislation, declare the purchase of crops at prices less than that as a crime, is not as easy as farmer organisations presume. In order to protect the interests of farmers — which is albeit ethically wrong because either people in all vocations must get this treatment or none should — the MSP ensures that even if the prices of crops fall in the market, the union government would buy the crops at the artificially inflated but socialistically justified rate.
The MSP of a given crop is the same in the whole country. The Union Ministry of Agriculture determines the MSP based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), under which, 23 crops are purchased. They include paddy, wheat, jowar, millet, maize, moong, groundnut, soybean, sesame, cotton, etc.
According to an estimate, only 6% of the farmers in the country get MSP, of which the maximum farmers hail from Punjab and Haryana. That makes it obvious why the opposition to the farm reform laws is the stiffest in these states.
The government has not yet issued a written order that its procurement of crops will continue. The promise is all verbal. But that is because while the government procurement continues, such an order cannot come from the Ministry of Agriculture but from the Ministry of Food Processing Industries.
Second, there has been a reduction in the Rural Infrastructure Development Fund given to the state governments. The union government used to give this 3% grant to the state governments every year. Again, not a fair arrangement, but that is how it is. This year, the Modi government refused to give this fund which, while aiming at rural infrastructure, is spent largely on agriculture-related activities. Here, the multiplicity of authority is an issue.
Third, following the revolutionary decision to let farmers choose from any market in the country to sell their produce, if the government adds the provision of purchasing crops at MSP, how will the law be followed? For one, the stock that the government buys at MSP has to be of a “fair and average quality”. The agitating farmers ask how they would know whether their stock meets the quality standards. That is to say that they not only demand a privileged status out of all professionals in society, but they also want ― a pampering other professionals cannot even think of receiving from the nation-state ― to dump their goods on you at a fixed price, howsoever substandard their products are!
If the crop does not meet the specified standards, if the government further incorporates the demand of farmers in the amended law, it will be nearly impossible to implement it. Several committees — like the report of Shanta Kumar Committee sent to the Niti Aayog — have recommended to the government that it should reduce the purchase of wheat and paddy. This has panicked the producers of these crops. More so because when the very government purchase is doubtful, the question of purchasing at MSP does not arise. In such a situation, a written pledge would make no sense.
If government buys less in the future, farmers will, of course, have to sell crops to private companies which, in turn, will not appease the farmers, as governments do, by buying foodgrains at MSP, whatever be the quality of the crops. Making the purchase of crops at a sub-MSP rate a crime would mean packing off the food and food processing industries to jail. If this is not a ridiculous demand of the farmers of Punjab and Haryana, what is?
A written promise of purchasing at MSP also throws up issues of monopoly and monopsony. The second means a buyer dominating the market rather than completely occupying it, unlike in a monopoly. Also known as cartels, this probable scenario is but more like a visualisation of a section of economists who are, for reasons known best to them, not reading all the three farm-related laws together, rather than a nightmare of farmers.
The fourth issue is quantity. Price is not the only thing that is difficult to push down the throat of private businessmen. The farmers expect that these companies will also buy all that they want to sell whereas even if a company accepts buying crops at MSP, it will obviously buy less — a quantity that its budget permits. And there is no way the government can force private companies to buy the entire crop at MSP — that too when the government is itself reducing its volume of purchases.
What the lost or misled farmer does not realise is that forcing MSP on the market will prove counterproductive for him. It is like a job seeker making himself so pricey that no recruiter wants to employ him. The unjustified social security cover that the farmer enjoys at the cost of others is not a burden that can be passed on to private companies that must work on the principle of demand and supply.
Fifth, it would be politically disastrous too. Once the farmers face reluctant buyers, their ire will be directed once again at the government — for a situation they had themselves asked for!
Sixth, if the provision of MSP is added to the law, three parties will be involved in every lawsuit related to it: government, farmer and the private company involved in the given deal. That, in turn, would add pendency to the already overloaded judiciary. Given the civil nature of these cases, unlike criminal cases, they would likely drag on and on for years together. How does that help the farmer?
Seventh, this privileged treatment of the farmer could be justified when, since the late mediaeval era, they were forced not to act as normal businessmen but dictated terms. When the injustice continued in independent India following the neglectful British Raj, selling to mandis or warehouses at prices not fixed by them became the norm. Now that the Modi government has offered them the freedom other businessmen have always enjoyed, they must concentrate their energies on constructive activities to improve their own lot as well as that of the country.
Eighth, Prime Minister Modi’s direct financial support through the Kisan Samman Nidhi is a reprieve, not a long-term solution. On the one hand, the farmer cannot be expected to be satisfied, getting just Rs 2,000 in his bank account. On the other, it totals to Rs 87,217.50 crore of honest taxpayers’ hard-earned money.
Ninth, the fear of a monopoly or monopsony dictating deliberately low prices can be addressed if the BJP government gets over the inhibition of being challenged by the Swadeshi Jagran Manch. Because large agriculture-related firms will be needed. Eminent economist and former vice-chairman of NITI Arvind Panagariya wrote in an article published in The Print in March: “… the creation of high-productivity jobs requires the entry of significantly larger firms in industry and services than is the case. It is not merely that large-scale firms themselves are more productive; their presence also helps small and medium firms achieve high productivity. Large firms effectively become agents of change in technology, skills and management. They also demand high-quality components that small and medium firms may supply.” But then, the presence of just a few large firms will affect competition and encourage cartel formations. This is why multinationals like a Wal-Mart, a Carrefour and a Tesco will be required as much as Reliance Fresh that showed its clout by buying up Big Bazaar recently. This will further ensure that farmers who have been given the freedom to choose markets ― but who do not know how to make travel from (say) Ludhiana to Coimbatore feasible ― can sell to these companies. A balanced but variety-filled mix of Indian and foreign companies will make cartels nearly impossible.
The tenth and ultimate issue is of a sustainable scale. It is estimated that 82%-85% of small-scale farmers in India have less than 5 ac of land for cultivation. That is less than 20% of Indian farmers are making money. This is unlike developed economies where less than 5% are engaged in farming; they are all reasonably rich, and they feed their respective countries and are still left with enough to export. Mercifully, while in the 1980s, India sought pride in the fact that 65% of its adult population was engaged in agriculture, the people from the occupation realised that there was nothing to be proud of in hunger and poverty and started diversifying, bringing the percentage down to somewhere between 53% and 58% only if labourers are included in the count (and ignoring the downright lousy census exercise by state governments).
Insisting that one would remain in the business of farming while subsistence is at stake every year is not the problem of the poor farmer alone. Additionally, his small land holding permits neither scientific experimentation for higher yields nor a good enough margin in sales, thus affecting the economy of the country.
May just the rich farmers remain in the profession, make a lot of money — and eventually agree to pay income tax that the rest of the reasonably earning Indian population does — produce enough food for his family, the nation and also the world. The sons and daughters of others, over a period of a decade or two, may diversify just as about 10%-15% have already since the 1980s. After all, there is no law forcing an Indian to stay in a vocation that is not feeding him properly. But yes, the total volume of agricultural production should not decline; it should only go north. When the only farmers left are the rich ones, they can employ advanced techniques in their large fields, switch from intensive to extensive farming, and realise this dream.