A smoking gun

On a bright new Monday morning, I am being blunt with the headline. Because now, we will debate an issue that needs to be dissected, deciphered and certainly understood for its many implications. Having recently been granted a smashing victory by a reluctant Government, India's protesting farmers are now demanding a hand, a leg, an arm and many other sensitive body parts. Scenting blood after a historic win, thanks to the impending repeal of the three 'black farm bills', farm leaders are now grabbing for the Sun… They now come armed with six new demands, with MSP (Minimum Support Price) being the foremost. For a while, let's forget the latter five, which are do-able, but the sheer enormity of the demand for assurance on MSP can't be understated, for it just cannot happen. Here's why.

To begin with, understand me right, for I am not taking sides and everything that I have written on this matter over the last year is testimony to that. In fact, I have favored the agitators and lambasted the powers that be through various articles. In the process, I myself have been bombarded with feedback and called some rather chippy names, but I have persisted. But the insistence on MSP by the farmers is ludicrous, simply because it is just not tenable. One farmer victory cannot lead to demands that get in the way of India's larger economic revival, which is looking exceedingly unlikely anyway. The numbers scare me. Let me scare you too.

Understanding MSP

First, let's unravel the MSP conundrum. On paper, MSP is applicable on 23 farm produces in India – paddy, wheat, maize, bajra, jowar, ragi, barley, chana, arhar, moong, urad, masur, groundnut, soyabean, rapeseed-mustard, sesamum, sunflower, niger-seed, safflower, sugarcane, cotton, copra and raw jute. That's enough agricultural produce names to make the head spin. The down-to-earth reality is different, though, for MSP has never been paid even partially. It can't be. If it were, it would cost around Rs 17 lakh crore in the ongoing year for these 23 crops alone. India just can't afford it and, anyway, no Government should be forced to buy every single grain produced in the country. Economies and GDP would be crippled if this were to happen.

We are in a typical Catch 22. I understand the farmers' plea and their explanation that the Government doesn't have to buy it all. The Government only has to set base prices and then private players can pick up the produce too, but that will turn the Utopia of our Green Revolution (circa 1965) topsy-turvy. We also need to consider the fact that private entrants to this dinner fest have already created silos and paraphernalia for storage of foodgrain, allegedly even before the announcement of the 'three black laws'. That has led to suspicion and speculation among the farmers, and understandably so.

Out of the 23 crops named above, let's exclude sugarcane from the equation as the onus for paying sugarcane MSP lies with sugar mills and not the Government. At the ground level, the Government is procuring only a few crops on MSP, largely paddy, wheat, cotton, pulses and oilseeds. The combined MSP value of the procured quantities of these exceeded Rs 2.7 lakh crore in Year 2019-20.

Not every grain…

Admittedly, state-run agencies don't have to buy every single grain that comes to the market. Mopping up even a percentage of the overall produce will lift market prices on its own. It happened with cotton when the Cotton Corporation of India procured around 20 per cent of the total crop in 2020-21. This move by the CCI propelled market prices, which crossed the MSP and saw private players picking up much of the remainder of the crop output at higher rates. That would be a reason to push MSP through, you would say, but the problem here is that we are a foodgrain-surplus nation, by far. That's one of the main reasons that the Government has been distributing free foodgrain to 80 crore Indians.

Also, the core kernel of market dynamics dictates that private players cannot be forced to buy foodgrain at Government-dictated prices. The market demand-supply equation simply has to be allowed to play itself out. Anyway, if private players buy at pre-determined prices, they will simply pass the burden on to the end-consumer – that's you and I. The other end of this price see-saw is that forcing private players to buy at prices greater than the market dictates will invite a tipping point where they will simply stop buying. This, again, will make a mockery of the entire exercise and lead to a supply crunch in the market, which will fuel price increases and stoke inflationary fires.

As I write this column, nearly all of us are feeling the pinch of rising prices of essential commodities, especially edible oils, pulses, fruits and vegetables. Add to this the runaway fuel prices. The average Indian has already changed his / her eating habits as pockets just aren't deep enough to absorb the enormity of the price hikes. Further price rises may simply tip the inflation iceberg over.

Is the situation bad?

Unfortunately, it is. Let's look at both sides of the MSP coin. A majority of India's farmers are languishing, earning on an average Rs 27 per day, which leaves them unable to even feed their own families, leave aside pay back the loans they have been forced to take. The other side is that forcing the Government and private players to buy everything at pre-defined MSP rates would be self-destructive, as explained above. Look at what happened in the case of sugarcane, the only food commodity where private industry has been forced to pay at Government-defined prices. The inability of private players to pay farmers on time despite statutory provisions is a telling indicator, with many sugar mills going out of business. Who got hurt the most in this? Our farmers…

For a moment, let's take a leap of fancy and imagine that the Government accedes to the demand for MSP, ending the current imbroglio at our Capital's borders. What comes next? Well, chaos does, if other farmers also take to the streets and demand a similar mechanism for their produce. Why? Because MSP covers only around half of the farm produce and does not extend to fruits, vegetables and livestock products. Together, these three categories alone have a 45 per cent share in the output of India's agriculture, forestry and fishing sectors. The value of milk and milk products alone is more than that of all cereals and pulses combined.

What's the answer?

That is the burning question, with no magic wand to help out. Some economists feel that one option could be to provide farmers with guaranteed minimum 'incomes', rather than minimum 'prices', and this is not as bizarre or far-fetched as it sounds. It has been tried both by the Telangana government with its Rythu Bandhu scheme and by the Centre with the Pradhan Mantri Kisan Samman Nidhi. Some states are even examining the possibility of making DBT (Direct Benefit Transfer) payments to farmers on a per-acre or per-family basis. How this turns out remains to be seen, for such a move could open up the scourge of even non-farmers registering for the scheme and receiving payments, plus other typical Indian irregularities.

What is needed is a middle path, a formula that alleviates the suffering of India's farmer community, but does so without crippling the Government's fiscal outlook and private players' business prospects. For that, the only way forward is across-the-table sittings between all concerned parties, with genuine issues being discussed in an unadulterated manner and a reasonable solution being worked out. We have enough brains in our country, and international precedents can also be examined to see whether they fit the Indian scheme of things. And this needs to be done fast. Else, we are staring at another long standoff, one that will not only hurt both the Government and the farmer community, but also spell financial, physical and mental ruin for every single Indian who needs to put food in the stomach to stay alive.

The writer is a communications consultant and a clinical analyst. narayanrajeev2006@gmail.com. Views expressed are personal.