Does MSP help reduce farm distress?

Though MSP is needed to protect the Indian farmer, the current lopsided procurement system must change

Yes, say lakhs of farmers of Punjab, Haryana and western UP who, for the past 10 months, have been protesting at Delhi’s Singhu, Ghazipur and Tikri borders. They believe that the farmland crisis would be solved if private buyers were forced to buy their produce at the MSP announced by the government.

That may, however, not be true. For the procurement by the FCI at MSP is primarily in paddy and wheat and benefits less than two crore farmers, largely in the well-irrigated and prosperous northern belt of the country where farm sizes are large and water is abundant. It leaves out more than 20 crore farmers spread out in the rest of India, where water is a scarce resource and farm distress is severe. Besides, over three-fourths of FCI procurement is done from farmers who have over 10 acres of land and not from the small and marginal farmer. This is largely because of economies of scale and not due to any bias against the small farmer.

The procurement of 87 million tonnes (MT) of paddy and 43 MT of wheat at MSP during the crop year July-June 20-21, amounted to Rs 2.5 lakh crore of the taxpayers’ money. This was more than 70% of the money spent by the government for agricultural procurement. Cereals, pulses, soya bean, cotton and oilseeds accounted for the rest. Surprisingly, most beneficiaries of the FCI’s paddy and wheat procurement policy at MSP are out on the streets protesting. They want to ensure that this buying pattern continues. The farmer unions have organised the year-long protest, supported by the APMC mandi Arathiyas. They demand the scrapping of the three farm laws that bring in the private sector to compete with APMC mandis and want MSP mandatory for all foodgrain procurement.

However, even that will not reduce farm distress, because it is this very lopsided procurement under MSP that is creating inequality and poverty in rural India. Rice procurement under MSP by FCI accounted for over Rs 1.6 lakh crore or nearly half of the Centre’s food procurement budget of 2020-21. This left little incentive for farmers producing pulses, oilseeds, ragi, bajra, jowar and many other crops that are grown in arid regions where farm distress is the highest. Of the 22 items under MSP, just two get priority. Had the Centre’s food procurement budget been more equitable, capping the MSP procurement of rice at 30% and wheat at 20%, it would have helped the distressed farmers in low water regions across India.

Government buying of food grains understandably has budgetary limits. For private buyers to buy at MSP, a quality benchmarking certified by the ISI or some such quality control institution would be needed. However, though MSP is needed to support and protect the Indian farmer, it will not reduce rural poverty unless the FCI procurement policy is made more equitable. The current policies are unsustainable as they have led to an acute imbalance of demand and supply. The FCI godowns are overflowing with excessive stocks of rice and wheat that are now being stored in open yards. Meanwhile, there is a shortage in the production of oilseeds and pulses that is resulting in large-scale imports and inflationary prices that hurts the kitchen budget. Had India’s farmers found favourable buying policies in pulses and oilseeds, domestic production would have improved and imports decreased.

There is a third reason why the current practice of large-scale buying of rice and wheat under MSP is counterproductive. India became a water-deficient nation during the 2011 Census, when per capita water availability fell to 1,545 cubic meters per person. The Central Water Commission had warned of this at the turn of the century, stating that over 85% of the total water consumed was for agriculture. At that time, the per capita water available in India was 1,770 m3 per person, as against a global average of 6,000 m3 per person. But nobody heeded the warnings.

Policymakers during the last 20 years have continued with vote-bank politics. As a result, several water-intensive crops like rice and jute, wheat, soya, sugarcane and cotton continued to receive unusual patronage. Also, the budgetary spending on irrigation canals and motorised tubewells have grown rapidly, creating severe depletion in groundwater levels. In view of the massive farmer protest at the borders of Delhi, it is highly unlikely that any government would have the courage to balance the current procurement policy under MSP and set things right. And unless that happens, buying at MSP by the government or the private players will not reduce farm distress and rural poverty.

(The writer is a journalist and author of three books on economic governance)