The Wire
Poverty and inadequate demand need to be tackled by policy makers by focusing on the welfare of the vast majority and not just of businesses and the well-off.
byArun Kumar
The strife between the government and farm unions has again come to a head with farmers heading towards Delhi more than three years after the 2021 episode. The issues this time are somewhat different from those in 2021-22.
Earlier, the issue was the repeal of stealthily enacted three farm laws. Now the key issue is farmer’s incomes via a legally guaranteed MSP (Minimum Support Price) for all crops.
Linked to this are the demand for debt waiver, pension, additional provision for MGNREGS, etc. The farmers have also widened the ambit of their protest by including rural employment and issues pertaining to indigenous people.
Focus
The key point is inadequate incomes of a vast majority farmers (85%) who have marginal or small holding, plowing less than 2 hectares of land. Even the rest of the farmers supplement their income from agriculture through other work or business, like agri-businesses. Thus, even if the Punjab farmers have taken the lead, they represent the concerns of the farming community.
The talks at the last minute between the government and the farm leaders having failed, the farmers decided to march to Delhi. Trust between the government and the farmers is almost non-existent since the promises made in 2022 when the farmers lifted their siege of the Capital have not been kept. The doubling of farmers’ incomes by 2022 is also nowhere in sight. A Committee, set up to deal with the issue of MSP and reforms in agriculture became suspect since it was packed with pro-government members and therefore boycotted by the farm unions.
Government’s arguments
Why is the government against the farmers’ principal demand – MSP for all crops based on full cost? The farmers feel this is the only way they can turn the currently loss making proposition into a profitable one. Then the other demands, like, debt waiver would lose their urgency.
Some of the arguments advanced against this proposition are:
a) it will be hugely expensive, costing Rs 10 lakh crore. Earlier, the cost was put at Rs. 27 lakh crore;
b) The entire crop would have to be procured;
c) This would not be administratively feasible;
d) Private traders would stop buying and the farmers would lose out;
e) Currently, only wheat and paddy are being procured so how can MSP be implemented in the case of other crops;
f) Only the big farmers get the MSP; and
g) Difficulties will mount in WTO.
The facts?
MSP is applicable to 23 crops and implemented only for wheat and paddy. There is also an assured price for sugarcane to be paid by the sugar mills. So, these three crops assure a profit which other crops do not. Hence cropping pattern has shifted in favour of these three crops. Consequently, crops that suit a agro-climatic zone are not grown there resulting in environmental damage. Like, cultivating sugarcane in water starved areas of Maharashtra and paddy in Punjab. The result is excess production of these three crops, large stocks with the government and much wastage since there is inadequate storage capacity. The Food Corporation of India (FCI) has been heavily subsidized for procuring and holding the stock and releasing it in the Public Distribution System (PDS).
If MSP is implemented for all crops, profitability would be the same across all of them and crops would be grown based on their suitability in a given agro-climatic zone. That would:
a) Eliminate excess stocks of some crops;
b) Reduce need for large storage capacity;
c) Increase production of those crops, which currently are in short supply, like, oilseeds; and
d) Reduce if not end import of these crops resulting in saving of foreign exchange.
The storage space released would become available for other crops. The subsidy to FCI would drastically decline and food wastage would be reduced. As crops suited to the agro-climatic conditions would be grown, environmental damage would decline.
The argument that the entire crop would have to be procured to implement MSP is fallacious. Procurement would be required only when the price drops below MSP – that is at the margin. As excess production declines, the price of the crops would rise above the MSP. If the government were to procure the entire crop and store it there would be mass starvation and sky high prices. Whatever the government procures would get sold in the market, so it would only need working capital which would be a fraction of the Rs.10 lakh crore bandied about.
This would be a win-win situation. So, why is the government reluctant to implement the scheme? It wants food prices to remain low so that workers can be paid a low wage which would lead to higher profit for businesses and benefit the elite which needs cheap labour (servants, drivers, etc.) to maintain its comfortable life style.
Farmers protesting in Rajpura railway station in Punjab. Photo: Special Arrangement
Reform needed
Why do farm produce prices drop below the MSP? Price of agricultural produce is demand and supply determined because there are a huge number of producers and any mismatch between them leads to price changes. For instance, supply floods in during the post-harvest period ad prices drop. Further, NHFS data shows that 30% women and children are malnourished. They are not able to afford proper nutrition in spite of government providing almost free food to them.
The implication is that overall demand is low due to large scale poverty and that is why, farmers don’t get a remunerative price. An OECD study estimates that the loss to Indian farmers in 2022 due to lower price was Rs 14 lakh crore. This is 3.5 times the subsidy to farmers. That is why MSP, procurement and public distribution become crucial. If workers and farmers had a civilised existence, these would not be needed.
The constitution promises a ‘living wage’ to all. If that is ensured, demand for farm produce would rise both from workers and farmers and that would drive prices of agricultural produce above the MSP. So, workers are the natural allies of the farmers and the farmers ought to demand and pay them a ‘living wage’. The farmers would not lose even after paying a higher wage since their MSP would be determined accordingly.
Higher wages and prices would lead to higher inflation which could be tackled by reducing indirect taxes and raising direct taxes. In the alternative scenario presented above, farm subsidies would decline and that would help in WTO negotiations. Subsidies can be shifted to education, health, public distribution system, infrastructure, etc., so that neither the ‘living wage’ nor the MSP need rise unduly. The result of all this would be a virtuous cycle of increase in employment and demand.
Also read: India’s WTO Stance on Farmers Will Be a Test of Its Rhetoric of Championing the Global South
Subsidies are said to be undesirable. That is not the case for education and health which are cases of merit wants or in case of infrastructure, like, communication and transportation. The government gives subsidies to industry and calls them incentives. Take for instance, the PLI scheme which offers heavy subsidies to big corporations who really don’t need them. These are called ‘tax expenditures’ which in 2021 amounted to Rs 4.48 lakh crores. Subsidies are offered on land, water and electricity to businesses. So, why the partiality towards the already well off?
It is argued that farmers should take up employment in non-agriculture. But, employment is hardly available in organised non-agriculture due to mechanisation, automation and now use of AI. The per worker output in the organised sector is 19 times that in the unorganised sector. So, as the former expands due to concessions given to it, overall employment contracts. Workers have to resort to self-employment at low wages or remain disguised unemployed.
The objections raised against the farmers’ demands are only scare crows to frighten the public.
The solution to farmers’ problems of low incomes lies in macro, due to the linkages between output, income distribution, prices, employment and investment. This will provide a rational long term policy. Piecemeal and ad hoc policies attempted till now have resulted in contradictions and persisting poverty. Of late, farmers in Europe have also been blocking roads and highways to rise their demands. Clearly, post the pandemic, the issue of adequate farm incomes has become more acute globally.
Any big policy shift would take a few years to fully get implemented. Poverty and inadequate demand need to be tackled by policy makers by focusing on the welfare of the vast majority and not just of businesses and the well-off. The issue is political, and judges whether the life style of the latter should be maintained at the expense of the former.
(Arun Kumar is retired professor of economics, JNU. He is the author of Indian Economy’s Greatest Crisis: The Impact of Coronavirus and the Road Ahead, 2020)
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