Finance Minister Arun Jaitley touched wide segments of the Indian economy in his February 1 Union Budget. Given that agriculture and allied sectors grew at only 1.7% during the second quarter of 2017-18, showing a downward trend during the last four quarters, and the wide-spread farm distress across the nation, the finance minister has rightly focused on this sector. While GDP growth has shown some recovery, agriculture growth (at basic prices) has fallen to less than 2%. The number of farmers committing suicide, as per the National Crime Records Bureau, remains high.
Ironically, even when food production in the country is increasing, farmers are not able to get the fruits of their labour due to the much talked-about agriculture marketing problems and non-remunerative prices. In this budget, the government has promised to give 1.5 times the cost of cultivation as minimum support price (MSP) to farmers and extended the support to all crops. This provision can help farmers, provided they are able to market their products through this channel.
In reality, it is usually intermediary traders, not farmers, who are beneficiaries of the scheme. To help small and marginal farmers, who constitute more than 80% of farmers in India, to get the direct benefits of marketing, facilities at the local levels - 22,000 rural haats will be upgraded to Gramin Agricultural Markets (GrAMs). A corpus of Rs 2,000 crore is allocated for improving marketing facilities at the local level. The Niti Aayog is to take the initiative to formulate guidelines for the projects proper implementation.
A few issues arise in this context. First, India has more than six lakh villages. Can the transformation of 22,000 gramin haats provide relief to distressed farmers across these six lakh villages? Second, will Rs 2,000 crore be sufficient to make a significant change in farmers condition? Third, agriculture being a state subject, the commitment of state governments will be required for the schemes success.
The much bigger issue is the announcement of the MSP of "cost+50%". The issue is, which cost will be considered? Would it be A2+FL or C2 cost as calculated by the Commission for Agricultural Costs and Prices (CACP)? The former covers only the paid-out cost plus family labour whereas the latter covers not only the paid-out cost but also the imputed value of family labour as well as imputed value of owned land.
The Swaminathan Committee recommended the latter (raising MSP 50% above the C2 cost). Given that the imputed value of owned land can be as high as Rs 30,000 to 40,000 per acre in agriculturally advanced states like Punjab and Haryana, the base on which MSP is calculated makes a substantial difference to the farmer.
The second major issue relates to the number of crops covered under MSP. The MSP covers only food grains and oilseeds besides having a separate support price system for sugarcane, cotton, jute, etc. Even among the crops under the MSP, the coverage through government procurement exists only for wheat and rice; and that, too, in selected states and only among those farmers who sell through government procurement.
Our experience shows that a major part of the surplus, especially in the relatively poorer states (of the eastern region) like Bihar, Jharkhand, Chhattisgarh, Odisha, West Bengal, is disposed of by farmers through intermediaries at the field or village level itself. This is true for many small and marginal farmers of central, southern and western regions as well.
The pilot scheme of "Bhavantar Bhugtan Yojana" for eight oilseed crops initiated in Madhya Pradesh and the "Price Deficiency Payment Scheme" for four vegetable crops in Haryana can provide assistance in working out direct payment of difference in price actually obtained by a farmer (for MSP crops) and the announced price under MSP (as declared in the budget). However, it would be possible only for farmers who sell through formal channels of regulated APMCs, where sale price is transparent and officially recorded.
However, paying compensation to the farmers for the agricultural commodities sold through intermediaries within the village and the small amount of surplus disposed of by marginal and small farmers through other channels would still remain a major challenge, as there is no transparency or official record of the amount sold as well as price paid to the farmers. The coverage of commodities not covered so far under MSP will be a much bigger challenge as there is no acceptable cost of cultivation estimate available for such crops.
Given the fact that procurement takes place only for wheat and rice, for the rest of the crops the difference of actual price received and the declared MSP will have to be paid directly to the farmer, possibly using procedures followed in the case of Madhya Pradesh and Haryana (under the above-mentioned pilot schemes). Some state governments already have their state-sponsored procurement set-up. For example, in states like Karnataka, an Agricultural Price Commission is in existence. However, not all state governments have such a set-up in place.
Moreover, it will become necessary for the state governments to register all farmers and to have their bank account and other details for the implementation of this scheme. This will be needed to successfully transfer the difference between the price received by farmers and their entitlement as per the declared MSP. Aadhaar can play a key role in implementation of this scheme.
Nevertheless, working out the details and putting up a system in place for successful implementation of the MSP scheme discussed in the budget even for the crops already covered will take significant effort and time. For the crops that were so far not covered by MSP, even greater effort will be required, since estimating the cost of cultivation for such crops remains a much larger issue. To sum up, the implementation of the MSP scheme as declared in the budget promises to be a challenging task.
(The writers are faculty at the Institute for Social and Economic Change, Bengaluru)