Relevance : GS Paper III (Indian Economy)
Why has this issue cropped up?
Thousands of farmers from different parts of India marched to Delhi on November 29-30 to register their protest against the government’s perceived apathy and neglect of farmers’ demands.
Demands of farmers
They were basically demanding three things:
- one, debate in Parliament to discuss farm distress;
- two, one-time loan waiver; and
- three, raising minimum support prices (MSPs) to 50 per cent above comprehensive cost (Cost C2) of production, and making MSPs legally binding on private traders — that is, if any trader buys below MSP, he should be put in prison for, say, three years.
Rationality of these demands
- Accepting the demand for a debate in the Parliament is easy and it would help in understanding the real causes of farm distress, and the policies which could best help to tackle it.
- The second demand is of a one-time loan waiver. It is well known that loan waivers will not solve the problems of farmers because:
- it is the better ones in the peasantry which will benefit the most from this move.
- these loan waivers will hit public investments in agriculture adversely and may even worsen farm distress in due course. It is a vicious circle.
- The third demand, of setting higher MSPs and making them legally binding, is strange because :
- an MSP formula based on just cost, be it A2+FL or C2, ignoring its demand side, is patently inefficient. It will cost the nation heavily in due course.
- making it legally binding will turn out to be anti-farmer as private trade will exit for fear of being jailed, and market prices will collapse even further and the government does not have the paraphernalia to procure, store, and distribute 23 commodities for which MSPs are announced.
- India needs large reforms in its agri-markets, from reforming APMC markets to abolishing the Essential Commodities Act and rolling back all export restrictions.
- Encouraging contract farming, allowing private agri-markets in competition with APMC markets, capping commissions and fees to not more than 2 per cent for any commodity at any place in India, opening and expanding futures trading, negotiable warehouse receipt system, e-NAM with due system of assaying, grading, delivery and dispute settlement mechanisms, are some of the necessary steps needed urgently.
- Once this is done, major investments need to follow in improving the functioning of markets and building efficient value chains, especially of perishables. This can be done through the PPP mode, creating millions of jobs. But it needs sustained and focused efforts, steered by a strong minister as was done in the case of GST reforms.
- The time is also coming to think of a sustained income support for farmers.
- The small and marginal farmers often depend more on the money lenders, where the interest rates range from 24 to 48 per cent. What is needed is financial inclusion of these small and marginal farmers in institutional credit at reasonable interest rates and not outright loan waivers.
- PM’s AASHA (Annadata Aay Sanrakshan Abhiyan) tried to give support through three sub-schemes — the Price Support Scheme, Price Deficiency Payment (PDP) and Private Procurement & Stockist Scheme. However, none of the states has implemented the scheme. The states must implement it.
Time, patience and vision to do all this is needed. If we go for quick fix of loan waivers, farmers will be back on the roads after another five years, asking for another loan waiver.