The farmers and the government both want the income of the former to double in no time. Farmers believe that maintaining the Minimum Support Price (MSP) is the way to go. They will get high prices, increase their production and get high incomes. However, the government believes that PSM leads to excess production, which becomes a burden on the economy as a whole and which, in turn, also leads to reduced incomes for all, including farmers.
However, it should be noted that the farmers ‘approach ensures them high income, the government approach does not help improve farmers’ income. Therefore, farmers are justified in demanding legislative protection for PSM.
Let us understand the government’s point of view. The MSP distorts the production model. Farmers produce more wheat and paddy because they are assured of high prices. The increased production will lead to a decrease in the increased supply in the market if there was no PSM. This would lead to lower prices and farmers would reduce production of these crops the following year.
In this way, the demand and supply of wheat and paddy would balance out. Prices would rise and farmers would increase their production if there was less production. Conversely, prices would fall and farmers would reduce their production if there was more production. This self-correction mechanism does not work once the MSP is in place.
High MSP lure
Farmers keep increasing their production even when we already have surplus stocks because they are drawn to the high PSM. Increased production does not lead to lower prices because the MSP is fixed. The result is that this excess production must be exported at a very low price.
In the end, the government buys these crops at a higher price and exports them at a lower price, resulting in a financial burden and this burden falls on everyone, including the farmers. The government is justified in removing the MSP because of this problem. But he has no solution as to how farmers’ incomes can be increased in such a situation. However, solutions are available.
The first solution is for the government to try to shift farmers from low value crops supported by the MSP like wheat and paddy to high value crops. Our farmers produce pepper in Kerala, silk and areca in Karnataka, mango in Maharashtra and Uttar Pradesh, palm in Andhra and “paan” in Bihar. Farmers producing these high-value crops are generally not fussing over PSM. They are already making good income from these crops.
Tulip road to abundance?
The situation at the global level is even more dramatic. Tunisia produces olives, France produces grapes, the Netherlands produces tulips, the United States produces nuts, Saudi Arabia produces dates. These countries sell these crops at a high price on the world market. A farm worker in the Netherlands earns around Rs 10,000 a day in tulip production. We should be able to pay our farm workers a daily wage of Rs 10,000 if we could grow tulips as well.
Our special advantage is that we have a variety of climates from Kashmir to Kanyakumari. We could produce tulips in the winter in the south and in the summer in the north. We can supply the whole world with specialized agricultural products at a very high price all year round, which France and the Netherlands cannot do. They would not be inclined to spend their time demanding MSP if they could make money from tulips like the pepper growers in Kerala.
Cash transfers on grants
The second solution is to increase the level of cash transfers already made. There are approximately three crore farming families in the country. The government could transfer Rs 1,000,000 per family per year and provide them with a minimum basic income. After doing this, the government could dismantle the MSP and also remove subsidies on fertilizers, electricity, water, food grains and export. The price of wheat and paddy in the market would then decrease and farmers would produce more mango and “paan”. Farmers would have no reason to complain as their minimum income is provided by cash transfers.
In my opinion, the center and state governments would save around Rs 6,000,000 crore if they removed the MSP and all subsidies. Half of this amount, or 3,000,000 crore rupees, could be returned to farmers in the form of direct cash transfers of one lakh rupee per family per year. Farmers would then have no argument to make because their basic income would be assured.
The desert of research
The difficulty in implementing these solutions is that the research bureaucracy in the laboratories of the Indian Agricultural Research Council and our universities is simply not interested in undertaking research. Their salaries are guaranteed. They continue to receive their salary whether or not they do research. They embellish their resumes by posting cut-and-paste academic articles in fake journals. Therefore, the government should dismantle all this research bureaucracy and award research contracts to these government laboratories, as well as private institutions, to undertake mission-based research and produce specialized crops that can provide high income in the world. all regions of the country.
The second difficulty in implementing this solution is that the bureaucracies of the Food Corporation and the public distribution system thrive on buying, storing, transporting and selling food grains. They will not get any income if the government dismantles the MSP. Therefore, they do not allow politicians to implement these solutions.
One problem with this solution is that the production of specific crops can oscillate. There may be excess production of wheat and paddy in some years and a shortage in other years. The solution is for the government to convert the Food Corporation of India into a “Food Trading Corporation”. This company is expected to enter into future contracts for the supply of various crops so that price stability is kept within reasonable limits. This company can also import and export according to the situation. In this way, we can ensure a secure supply of food grains without having to subsidize unnecessarily on fertilizers, electricity, water, food grains and exports.
The writer is a former professor of economics, IIM Bengaluru, and can be reached at 85278-29777
(To receive our electronic paper daily on WhatsApp, please click here. We allow sharing of the PDF document on WhatsApp and other social media platforms.)
Posted on: Saturday December 04, 2021, 2:30 AM IST