MSP and loan waivers: Historic or rhetoric?

India should make agri economics work for the neglected small-holder farmers

Last week, newspapers were full of ‘pro-farmer’ headlines. One day, it was about the historic ‘Minimum Support Price at 150 per cent of cost’, the other day, it was about the ₹34,000-crore farm-loan waiver in Karnataka, with Bank of America Merrill Lynch estimating the total farm-loan waiver in the next one year to be around $40 billion. Overall, it proved again that MSPs and loan waivers make the biggest headlines for agriculture. While some believe that the MSP step is historic, others have dismissed it as the new rhetoric.

Why we should worry

Is MSP viable? Will loan waivers make farmers’ lives better? Is it making the markets more efficient? Unfortunately, we always fall short of verifiable data before pledging thousands of crores of rupees for schemes, which generate good election results. I believe this should change.

Gap between the cup and the lip: The announcement by the Prime Minister doesn’t mean that the commission agents pay MSP for the produce — crop grading is one of the most common reasons the agents quote for this, and there are no standardisations. Hence, what is promised is often not paid.

Informal money lenders: Many farmers sell produce to informal money lenders, who also determine the price. This is one other area of leakage that we constantly note.

Credit linkage should be more streamlined by considering actual cost of production, than setting theoretical standards which often meet only 60-70 per cent of the farmers’ needs (National Sample Survey data).

Perceptions on MSP: It is often perceived that MSP is a remunerative price, but in reality, it is like an insurance to cover farmers’ downside risks. As long as there is no fair market with strong supply chain created for buyers and sellers, there is no chance to create value for the farmers.

Local contextualisation of MSP: The very basis for fixing MSP should change. Cost of production of a commodity in Maharastra is different from that in Arunachal pradesh. Then how can MSP be same across the country?

How can we change ‘MSP’?

Authentic data points: By capturing and making the data entry meticulous, independent, verifiable and immutable, we can arrive at a more accurate understanding of cost of cultivation for different crops across geographies. This should be the basis for determining cost of all factors of production such as remuneration towards land, capital and labour. Today, rental cost of land is not considered. Determination of MSP should no longer be based on those ‘debatable’ field surveys which are tough to verify.

Frequency: There is a 20% increase in fertilisers but MSP went up by 13%. When paddy quintal increased by ₹200, a bag of urea increased by ₹200. What do these numbers mean to farmers? Will the same MSP hold good? These revisions, which happen once in many years, should change. MSP should be more dynamic, similar to how the RBI determines the interest rates. The mindset to take data-driven decisions can make this possible.

Reducing dependence on MSP: Out of the ₹33,500 crore of the cost that is expected on account of MSP, about a third is expected to go towards paddy. What if we build a support system for paddy farmers using ₹10,000 crore. Will this not give a more lasting solution? Then, the dependence on the socialist policy of MSP will come down and the efficiency of the market will enable farmer to get prices better than MSPs.

MSPs and loan waivers are just painkillers. I am always worried when we enter the year before the general elections as agriculture turns into ‘agri-elections’ — focus shifts from sustainable solutions to immediate gratifications. Focus will shift from what will change the farmers’ lives for better to what can swing the elections in favour of a party. Will 2018-19 be an exception?

The writer is the co-founder of Kheyti, a farm-tech startup.

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