Today's Editorial

The Solution to Farmers' Problems Lies in the Macro

Relevance: GS Paper III

Why in News?

The government and farm unions are facing a resurgence of tensions, with farmers heading towards Delhi over three years after the 2021 incident, with the issues contrasting from 2021-22.

Key demands:

• Earlier, the issue was the repeal of the three farm laws. Now, the key issue is farmers' incomes via a legally guaranteed minimum support price (MSP) for all crops.
• The other demands are - 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.

Background:

• Trust between the government and farmers is almost non-existent, and the promise of doubling farmers' incomes by 2022 remains unfulfilled.
• The majority of farmers (85%) have marginal or small holdings, ploughing less than 2 hectares of land. Even the rest of the farmers supplement their income from agriculture through other work or agribusinesses.
• A committee set up to address MSP and agricultural reforms became suspect due to its pro-government membership and, therefore, was boycotted by the farm unions.
• The farmers decided to march to Delhi after talks with the government failed.

Government’s arguments:

• It will be hugely expensive, costing Rs 10 lakh crore. Earlier, the cost was put at Rs. 27 lakh crore.
• The entire crop would have to be procured.
• This would not be administratively feasible.
• Private traders would stop buying, and the farmers would lose out.
• Currently, only wheat and paddy are being procured, so how can MSP be implemented in the case of other crops.
• Only the big farmers get the MSP.
• Difficulties will mount in the WTO.

Impact of MSP: Current scenario:

• Skewed cropping pattern:

• • The MSP applies to 23 crops and is primarily implemented 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, the cropping pattern has shifted in favour of these three crops.

• Environmental damage:

• • Crops that suit an agro-climatic zone are not grown there, resulting in environmental damage.
  • For instance: Cultivating sugarcane in water-starved areas of Maharashtra and paddy in Punjab.

• Excess production and stockpiling:

• • The result is excess production of these three crops, large stocks with the government and much wastage due to inadequate storage capacity.

• Financial burden:

• The Food Corporation of India (FCI) has been heavily subsidised for procuring and holding the stock and releasing it in the Public Distribution System (PDS).

Implementing MSP for all crops: Potential scenario

• Profitability would be the same across all of them.
  • Eliminate excess stocks of some crops.
  • Food wastage would be reduced.
  • Increase production of those crops, which currently are in short supply, like oilseeds.
  • The storage space released would become available for other crops.
• Crops would be grown based on their suitability in a given agro-climatic zone.
  • Environmental damage would decline.
• Reduce, if not end import of these crops, resulting in foreign exchange savings.
• The subsidy to FCI would drastically decline.
• The argument that the entire crop would have to be procured to implement MSP is fallacious. If the government were to procure and store the entire crop, there would be mass starvation and sky-high prices.
• • Procurement would be required only when the price drops below MSP – at the margin.
    • As excess production declines, the price of the crops would rise above the MSP.
  • 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.

Need for MSP, Procurement, and Public Distribution:

• Market dynamics:
  • The price of agricultural produce is determined by demand and supply because there are a huge number of producers, and any mismatch between them leads to price changes.
    • For instance, there is more supply during the post-harvest period, and prices drop.
  • An OECD study estimates that the loss to Indian farmers in 2022 due to lower prices was Rs 14 lakh crore. This is 3.5 times the subsidy to farmers.

• Poverty:

• • National Family Health Survey (NFHS) data shows that 30% of women and children are malnourished. They cannot afford proper nutrition.
  • The implication is that overall demand is low due to large-scale poverty, so farmers don’t get a remunerative price.

• Employment challenges:

• • Farmers supplementing their income from other work are facing challenges in organised non-agriculture due to mechanisation, automation and the 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.

• Covid-19 Pandemic:

• Post the pandemic, the issue of adequate farm incomes has become more acute globally.
• Lately, European farmers have also been blocking roads and highways to raise their demands.

Way forward - Need for Macro Policies

• Living Wage:

• • If a living wage for workers is ensured, demand for farm produce would rise both from workers and farmers, driving prices of agricultural produce above the MSP. The farmers ought to demand and pay workers a ‘living wage’. The farmers would not lose even after paying a higher wage since their MSP would be determined accordingly.

• Raising direct taxes:

• • Higher wages and prices would lead to higher inflation, which could be tackled by reducing indirect taxes and raising direct taxes.
  • Farm subsidies would decline in the alternative scenario presented above, which would help in WTO negotiations.

• Shifting subsidies:
• Subsidies can be shifted to education, health, public distribution system, infrastructure, communication and transportation from the big corporations and businesses.
  • So, neither the ‘living wage’ nor the MSP needs to rise unduly.
• This would result in a virtuous cycle of increased employment and demand.

Conclusion:

Piecemeal and ad hoc policies attempted till now have resulted in contradictions and persisting poverty. The solution to farmers’ problems of low incomes lies in macroeconomics due to the linkages between output, income distribution, prices, employment, and investment. This will provide a rational long-term policy.

Mains PYQ

Q. What are the major factors responsible for making the rice-wheat system a success? In spite of this success how has this system become bane in India? (UPSC 2020)

Q. What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low income trap? (UPSC 2018)

Q. How do subsidies affect the cropping pattern, crop diversity and economy of farmers? What is the significance of crop insurance, minimum support price and food processing for small and marginal farmers? (UPSC 2017)