MSP to Middlemen, All That Spelled Death for India’s Rural Economy

In India, an agrarian economy, the farmers are perpetually dissatisfied and their demands remain unmet.

On Kisan Diwas, farmers across India continue to suffer due to Narendra Modi’s note ban.

(Photo: The Quint)

At this point, I believe each and every one of us has been told that the existing government has completed four years of its term. This anniversary and its ostentatious 15-day celebration, however, coincided with what can only be described as a series of unfortunate events for the country, an oil price shock that had even the most devoted followers of the government guessing, and of course an unprecedented 7-state farmer agitation – not unprecedented in the issue that it represents, but in its sheer scale.

While of course the state-sponsored ads of schemes and plans hit the ground running, even that could not entirely blot out the sight of farmers dumping vegetables and milk on the roads.

The Failure of the MSP Promise

Now to be clear, agrarian distress is hardly a problem that emerged over the past 4 years, but one must wonder as to the policy decisions, or their lack, that led to a full-blown crisis. In India, a country with agrarian economy with 60-70% of population employed in the sector, the farmers are perpetually dissatisfied and their demands remain unmet. It appears as if their problems are not realised and the solutions offered often miss the target.

One of the core reasons for the ongoing protests is the increase in the MSP. In a report, CRISIL has found that “While, the average annual growth (in MSP) between agriculture year 2009 and 2013 was 19.3 per cent, it was only 3.6 per cent between 2014 and 2017. India has seen an inflation of 5%-7% in different regions. A government employee gets up to 15% inflation allowance.”

So basically, farmers who already operated with a wafer-thin margin have been reduced to loss-making or subsistence-farming.

Furthermore, Finance minister Arun Jaitley, in his budget speech of 2018, announced the that MSP would be 50% over production costs. While this figure seems very grand, the production costs were to be valued as per the A2+FL formula (actual cost + imputed cost of family labour) and not the more comprehensive C2 formula as promulgated by the Swaminathan Committee Report, which has a much more inclusive and realistic approach to calculating cost of production.

It has been a long-standing demand of farmer organisations for the implementation of the suggestions of this committee since 2006, especially the committee’s recommendation with respect to use of MSP of 1.5 times the production cost based on C2 formula.

The Many Layers of Commission Agents

This situation becomes much more damaging when you keep two things in mind.

One, that most farmers across the country do not have any access to government procurement as it is, and the corruption and incompetence of Food Corporation of India (FCI) has encouraged middlemen to form three layers of commission agents who systematically abuse a poor farmer. They are left to fend off market volatility by themselves.

Two, the MSP prices being offered are lower even than those calculated by the present Government’s formula.

Government claims it has Commission for Agricultural Costs and Prices (CACP) as an exclusive body for deciding MSP for the benefits of a farmer – but the fact remains that CACP decides MSP for only 25 crops. In a country where there are 109 crops, fixing MSP for just 25 crops which doesn't include any vegetables or fruits, is awfully little.

The Curse of Demonetisation

When we add to this situation, the impact of demonetisation and the systemic issues of policy implementation that India is plagued by, it has spelled the death of India’s rural economy.

While demonetisation was a story of changing goal posts, one of the most poignant arguments given by the BJP was the sheer actionable financial data that it would create for the tax authorities.

However, tax authorities have taken little to no action on Benami properties, largely due to the lethargic attitude of the government. And as we know most of the money was already returned to the banks.

So was it worth it, to unsuccessfully crack down on black money and in effect decimate the livelihood of 700 million people who already lead a hand-to-mouth existence?

Demonetisation destroyed the informal economic activity and its victims, primarily farm labourers and small farmers, are still recovering from its shock.

Even now, nothing has been done to address the core issues of agriculture in India, and one is left to wonder whether the present government will ever see a plan through to fruition.

While the BJP has come up with some of the catchiest acronyms for policies, their implementation leaves much to be desired. Take, for example, the eNAM (electronic national agriculture market) – something that only exists on the internet and government documents, but not on the ground.

(Ishanee Sharma is Partner, V&K Law & a practicing lawyer at the Delhi High Court. This is an opinion piece. The views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)