A non-starter

MSP-based procurement policy has outlived its utility

The kharif marketing season is already underway but the government’s much-hyped umbrella programme to provide steeply hiked minimum support prices (MSPs) to farmers appears to be a non-starter. Despite having an aspirational acronym PM-Aasha (meaning “hope” in English), the new Pradhan Mantri Annadata Aay Sanrakshan Abhiyan has failed to live up to the farmers’ expectations. Most of the 14 kharif crops whose MSPs have been raised to 50 per cent above their production costs are currently selling at 10 to 40 per cent below these rates. The reasons for this subpar performance of this ambitious price protection programme are several. For one, none of the three marketing models is flawless. Nor are any of them financially attractive enough for the states. Besides, the whole plan was finalised just before the beginning of kharif marketing, leaving little room for states to do the necessary pre-launch spadework. Moreover, PM-Aasha has been mandated to be executed through the existing mandis run by the Agricultural Produce Marketing Committees, which are notorious for their inefficiencies and malpractices. No doubt, the Prime Minister’s office has now relaxed some norms and begun nudging the states to implement this programme.

The three agri-marketing models mooted under the PM-Aasha are: The conventional procurement-based price support scheme, the price deficiency payment scheme (modelled after the Madhya Pradesh’s Bhavantar Bhugtan Yojna) and the private procurement and stocking scheme (involving private trade in market support operations on payment of service charges). The first two of these three mechanisms are already in operation in some states for selected crops. But their benefits accrue only to a small section of farmers in a limited manner. The third option of extending price support through private trade is an innovative concept that needed meticulous hawking to woo traders. But there was hardly any time to do so prior to the current kharif marketing season. Hence, no takers for it. Nevertheless, this method and the price deficiency payment system are theoretically sound ideas because they spare the government of the burdensome and cost-intensive tasks of procuring, transporting, storing and finally off-loading the stocks. However, capping of service charges at merely 15 per cent of the MSP may be a deterrent. The price deficiency model also suffers from cumbersome procedures leading to harassment of farmers and delays in payments. Such glitches need to be sorted out.

The genesis of the farm sector’s economic woes, marked by depressed prices necessitating income support for cultivators, is rooted in outmoded and ill-advised agricultural marketing and pricing policies. The concept of an assured market at pre-fixed remunerative prices through MSP-based procurement was conceived as a stimulant for higher production at the time of perpetual shortages. It has outlived its utility and is ill-suited in the present era of surpluses. Besides, it has distorted the market by delinking production (read supplies) from demand to accentuate the commodity glut and put a further downward pressure on prices. The need today is to incentivise agri-exports and let the production of commodities match the combined demand in domestic and export markets. The objective of income support for farmers needs to be attained through cash price adjustments without distorting the market.