MSP won’t bankrupt India. It’s complex, but so is disinvestment

Debunking six myths about the MSP for BJP and allies, free-market wallahs and ecological warriors.

Women farmers at work in their vegetable plots near Kullu town, Himachal Pradesh, India | Source: Wikipedia Commons

A spectre is haunting India’s ruling class – the spectre of MSP. Over the last few days, various sections of this ruling class – political allies of the Bharatiya Janata Party, economic ideologues of free-market and some ecological warriors – have entered into an unholy alliance to exorcise this spectre and stymie the possibility of India’s farmers getting a fair price for their produce.

Ever since Prime Minister Narendra Modi’s dramatic, though over-delayed, capitulation on the farm laws, the fear of the ascent of the rural has left the Indian bourgeoisie petrified. Minimum Support Price (MSP) is now the new battleground. End of “reform” – arguably the most abused word – is the latest war cry. Ever since the Samyukta Kisan Morcha (SKM) has reminded the PM of its pending demand of a legal guarantee of MSP, we have witnessed a flurry of articles, editorials and debates out to block the possibility that the PM may concede this one as well. MSP is the “bane of agriculture” and the demand for its legal status “totally unreasonable” says the 50-word editorial of The Print, which I often agree with.

As in much ideological propaganda, this tirade against MSP is full of ignorance, prejudice, and fabrications. I cannot imagine such ill-informed canard getting space on national media if it concerned share market, Provident Fund, debt restructuring or anything that touched upon the interest of the “middle class”.

As this historic farmers’ struggle enters end-game, it is vital to debunk some of the misinformation and disinformation that surrounds the current debate on MSP.

Farmers shifting goalpost?

The first lie is an accusation: Farmers are shifting the goalpost by inventing the demand for legal guarantee of MSP once the demand for repeal of three agricultural laws was conceded. This is nonsense, contrary to the well-known and widely publicised position of the SKM. Demand for MSP realisation has been prominent on the charter of demands, next only to the repeal of three laws, at every stage of this struggle, from the very first memorandum to the 11 rounds of negotiations and the Kisan Sansad. The government’s power-point response to the SKM’s demands acknowledged this issue. This has been one of the main demands in the public domain, reiterated in almost every public speech. There is nothing new or surprising about it. Assured remunerative price has been a flagship demand of the farmers’ movement for decades.

‘MSP already exists’

The second lie is plain and simple: MSP is already available. So, why bother about legal status? Sadly, the PM’s rhetoric of “MSP tha, hai aur rehegi” has given fresh lease of life to this myth. The truth is that MSP has existed mostly on paper. The government’s own data shows that only 6 per cent farmers actually benefit from it. (I think a realistic number is around 15 per cent). That is why, over the years, farmers, movements have made three demands.

We can call these three components of the demand for MSP. One, the promise of Minimum Support Price should have a sound statutory status, instead of remaining just an executive order. (A working group of Chief Ministers headed by Narendra Modi recommended this component to PM Manmohan Singh in 2011. The Commission for Agricultural Costs and Prices also reiterated this demand in its 2017-18 report.) Two, the government should make good this promise by creating a well-funded and effective administrative mechanism that ensures that every farmer actually received at least this minimum price for her entire produce. (Successive governments, including this one, have repeatedly promised this without putting such a mechanism in place). Three, there should be a fair and comprehensive method of computation of MSP that takes full cost into account and is extended to all agricultural produce. (This was recommended by the Swaminathan Commission). All these three asks remain unfulfilled to this day.

Environmentally unsustainable?

The third lie is presented under an ecological garb: Legalisation of MSP would lead to over-production of water-guzzling paddy and delay the much-needed diversification of crops. This reasoning is fallacious: The over-dependence on paddy (and sugarcane for that matter) is not because of generous MSP, but because of skewed procurement. While the government declares MSP for 23 crops, it makes good this promise only for wheat and paddy, and that too in select states. No wonder all farmers in these states are hooked to these crops that are not environmentally sustainable. The solution does not lie in withdrawing MSP, but in making sure that the farmers realise MSP in other crops like chana, makka, bajra and various dals. The government should offer attractive MSP for pulses (as recommended by the Arvind Subramanian committee) and oilseeds and ensure their purchase.

Will it distort the market?

The fourth lie is dressed up as elementary economics: Any tinkering with prices by way of MSP would distort the market. Yes, it would, just as TRAI regulations distort telecommunication market, just as ban on surge prices distort road and air transport market. Ever heard these free-market wallas complain against these distortions? Do we not fix minimum wages lest they distort labour market? Should we allow aspirin to be sold for Rs 1,000 per tablet? As for the fear of food prices going up, the way to control it is to offer subsidised food to the poor, not to deny fair price to the producer. The fact is that “free market” is and must be regulated all over the world to meet overall societal objectives. Farmers are offered subsidies and price support all over the world. If price assurance is a bad idea, why declare MSP in the first place?

Impossible for govt?

The fifth lie takes bureaucratic form: MSP may be a good idea, but it is practically impossible. How can the government purchase all the produce of all the 23 crops? Where would it be stored? What would the government do with it? Or so goes the argument. The simple response is: No government needs to do something as silly as that in order to ensure that all farmers receive MSP. My colleagues and I have repeatedly argued that there are multiple methods for ensuring MSP to all farmers. The government can procure more than it does today, especially in pulses, coarse grains, and oilseeds. For the rest, the governments need not purchase. The farmer can be given deficit payment for the gap between the MSP and market price, as was done by the Haryana government this year for bajra. Government can do selective intervention in the market, or use protectionist policies in international market, to prevent prices from falling. And, in the last instance, it can use punitive measure to disallow trading below MSP. All this is complex, yes. But developing a mechanism for MSP delivery is no more complex than designing disinvestment or drawing up mining contracts.

Will India go bankrupt?

Finally, the fiscal lie: India would go bankrupt! My colleague Kiran Vissa and I had debunked this fear-mongering by presenting a rough estimate, with complete breakdown, of how much would it cost the government to make up for the gap between the existing MSP and the prevailing market price. Our calculation for 2017-18 showed the overall cost to be Rs 47,764 crore (just 1.6 per cent of the Union Budget that year and less than 0.3 per cent of the GDP). If the MSP were to be raised to the level recommended by Swaminathan Commission, it would still cost Rs 2.28 lakh crore (about 7.8 per cent of Budget and 1.2 per cent of GDP). Can India afford it for the welfare of nearly two-thirds of its population? That is the real question that the country must face.

Thanks to this historic farmers’ movement, the country has woken up to a political reality: Farmers do not belong to the dustbin of history, they are very much a part of India’s present and future. A legally binding system of fair calculation and effective delivery of MSP to each farmer is a logical corollary of this realisation. As A.R. Vasavi says, it’s time to move towards “Maximum Support Policy”. It is all about political will now.

Yogendra Yadav is among the founder of Jai Kisan Andolan and Swaraj India. Views are personal.

(Edited by Neera Majumdar)