The article suggests the policy options with the government to deal with the protest of the farmers against the recently enacted farm laws.

Context

• Farmers have protested against the recently enacted farm laws by converging on Delhi’s highways connected to neighbouring states.

Why farmers are protesting

• There is a gross communication failure on the part of the central government to explain to farmers what these laws are, and how they are intended to benefit them.
• Neither do the laws say anything about it, nor is the MSP/APMC system going to disappear with these laws.
• Nothing can be further from the truth.

1) Should government  repeal the laws

• Punjab farmer leaders, including two major political parties, demand repeal of these laws.
• However, repealing would mean bringing back controls, licence raj and the resultant rent-seeking.
• Milk, poultry, fishery, etc. don’t go through the mandi system and their growth rates are 3 to 5 times higher than that of wheat and rice.
• Overall, almost 90 per cent of the agri-produce is sold to the private sector.

2) Should the government make MSP legally binding

• Another demand is making the MSP statutory and legally binding even on the private sector.
• This is impractical as there are 23 commodities for which MSPs are announced, but in actual practice only wheat and rice enjoy MSPs in any meaningful manner, and that too only in 6-7 states.
• Punjab is the biggest gainer as its 95-98 per cent of market arrivals of wheat and paddy are procured at MSP by state agencies on behalf of the Food Corporation of India (FCI).
• The FCI is overloaded with grain stocks that are more than 2.5 times the buffer stock norms.
• Such high stock indicates massive economic inefficiency in the grain management system.
• If the government cannot cope up with excess production of just wheat and rice in any meaningful way, think of how it will handle 23 commodities under MSP.
• In case of excess production the government will not have the wherewithal to buy all and stock them without any viable outlet.
• It will massively distort markets, make Indian agriculture non-competitive and stocking of these will be financially unsustainable.
• And then, why only 23 commodities, why not 40?
• This type of state socialism is a sure path to financial disaster.

3) Optio of the Price Stabilisation Scheme

• The third policy option is to use the Price Stabilisation Scheme to give a lift to market prices by pro-actively buying a part of the surplus whenever market prices crash.
• It can be done directly by NAFED-type agencies that are already active in the case of pulses and oilseeds.
• Farmers can use Commodity Derivatives Exchanges where farmers can buy “put options” at MSP before they even sow their crops, and if the market prices at the time of harvest turn out to be below MSP, government can compensate them partly for lower market prices.

4) Decentralise MSP: Let the states decide it

• The fourth option is to totally decentralise the MSP, procurement, stocking, and public distribution system (PDS).
• MSP and procurement exist basically to support farmers for supplying grains to the FCI to feed into the PDS.
• So, the whole money on food subsidy can be allocated to states on the basis of their share in all-India poverty/proportion of vulnerable population, all-India wheat and rice production, all-India procurement of wheat and rice, etc.
• A step further could include another Rs 1,00,000 crore of fertiliser subsidy and free up fertiliser prices from any controls.
• Still further, even include another Rs 1,00,000, say, of MNREGA.
• Let the Finance Commission work out a formula for distribution of this Rs 3,00,000 crore amongst states based on some tangible performance indicators.
• And the Centre should get off from MSP, PDS, fertiliser subsidy, and MNREGA.

Conclusion

This would be true decentralisation, and can be accomplished provided enough ground work is done well in advance. But will this be acceptable to farmer leaders/opposing states/activists? Only time will tell.

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