RS Sidhu and BS Dhillon
PROMOTING a free market economy in agriculture in India has been a subject of debate since 1991, when reforms in the industrial and financial sectors were introduced. Then came the WTO agreement in 1995, of which India was one of the first signatories. As part of this agreement, quantitative restrictions on trade in agricultural products were removed, bound tariff rates were negotiated for various crops, and a maximum level of agricultural subsidies was set for developed and developing countries. It has been argued that large-scale reforms are needed to loosen the growth of agriculture. Last year, the Union government enacted three laws with the avowed aim of making agricultural markets more competitive for better crop prices for farmers, as they would be able to sell their produce outside of APMC markets. designated to any buyer (processor, aggregator, bulk buyer, trader, FPO, etc.).
Over the past 10 years, it appears that the benefits of PSM and government procurement are widely enjoyed by only 7-8 states, while in other states, farmers are confronted with market forces and receive the benefits. price their products accordingly. Further, the narrative is being worked out that the MSP has lost its usefulness as a result of increased food grain production in states other than Punjab and Haryana, and buffer stocks reaching up to ‘to 80 million tonnes. The food subsidy bill becomes burdensome, justifying public procurement to be reduced, rationed and undertaken in the consumption areas themselves in the name of rationalization and profitability. The MSP and the public procurement system should be analyzed for its role and advantages over the so-called free market economy in Indian agriculture which is promoted by the laws of 2020.
The Agricultural Prices Commission, now called the Agricultural Costs and Prices Commission (CACP), and the Food Corporation of India were established in 1965 to recommend the MSP of various crops and procure food grains for the public distribution system ( PDS). During this period, India faced a severe food shortage and depended on food imports. The objectives of the MSP were to encourage production through better and assured crop prices, supported by government-assured marketing, and to make food available and accessible to poor consumers at low prices for overall national food security through at the PDS. The guaranteed prices encouraged farmers to adopt new technologies in the form of improved seeds, chemical fertilizers and to invest in private farms in irrigation (tube wells), tractors and other agricultural machinery. The government created market infrastructure under the APMC Act to manage products, facilitated connections to tube wells, and provided institutional loans at subsidized interest rates. Punjab, Haryana and a few other states have adopted new technologies and diverted land and other resources to food grain production. As a result, India has become not only self-sufficient in food products, but also an exporter of rice and wheat. The policy also deliberately kept food prices low through the PSM in order to protect the interests of consumers when improved technologies led to a substantial increase in agricultural productivity and production during the Revolution. green and thereafter.
The Punjab was at the forefront of harnessing the potential of improved technology. Its production of food grains increased from 33.9 tonnes of lakh in 1965-66 to 306.9 tonnes of lakh in 2019-20. Other irrigated regions also followed and benefited insofar as their agro-climatic conditions, their natural resource endowments and their infrastructure allowed. However, during this process, the Punjab and other states overexploited their natural land and water resources.
The MSP and public procurement system is effectively implemented for wheat and paddy in surplus producing states like the Punjab. In states like the UP, public procurement at the MSP is limited, while Bihar represents the case of an unregulated free agricultural market where the APMC law was abolished in 2006. Agricultural crop prices were reviewed by report to MSP for paddy and wheat in these states. MSP was effectively carried out by farmers in Punjab, while prices of wheat and paddy during the immediate harvest season were lower than in UP and Bihar. For example, the FHP (agricultural harvest price) was equal to the MSP in Punjab, while it was 7-14% (paddy) and 4-5% (wheat) lower in the UP, and 20% lower in 25% (paddy) and 10-20% (wheat) in Bihar in 2013-18. It indicates the economic benefits of the presence of the public sector in purchasing operations. In addition, the release of agricultural markets from the APMC law in Bihar has not resulted in better discovery of product prices for farmers. Conversely, in Punjab, regulated markets provided PSM to farmers through public procurement and aggregation of products in APMC markets as well as through better market infrastructure.
The MSP is advertised for 23 crops, but is received by farmers for wheat and paddy in a few states due to economies of scale in supply operations. In other states, market prices are lower than the MSP. This raises many questions about the relevance of PSM. First, it defeats the MSP’s goal of providing farmers with an economic incentive to produce, covering the cost of production. It was implicitly assumed that higher demand than supply in deficit areas would result in higher market prices than MSP, which in reality does not occur, resulting in economic losses for farmers. Second, what is the logic of announcing PSM when it is not assured to farmers?
Chalk and cheese
It is claimed that the new agricultural laws will create an alternative market outside the market designated by the APMC and improve the competitiveness of marketing for better price realization. Producer-sellers are very numerous, poor, less educated or uneducated, unorganized and unaware of the harsh consequences of free market forces. On the other hand, buyers (traders and businesses) are relatively fewer in number, resourceful, better informed, well organized, equipped with information on the forces of supply and demand, and well connected to take advantage of financial resources. PSM is always relevant for agricultural growth because the prices of the output play a key role. The agricultural sector recorded a growth of 4% largely driven by prices during the 11th five-year plan. Higher prices directly increase farmers’ incomes and subsequently contribute to the adoption of modern agricultural production technologies and practices for higher productivity. In large parts of the country, there are still large gaps in the adoption of the technology due to the lack of capital, which can be filled by increasing the profitability of the farming system. Agriculture mobilizes around 50% of the workforce and ensures the food security of the nation, hence the need to ensure secure livelihoods and better living conditions for farmers. That the MSP be made compulsory for all transactions and that the effect of rising agricultural prices be passed on to consumers. Farmers have supported consumers with low food prices in the past and now it is consumers’ turn to support farmers. Poor consumers can be covered by expanding the food safety net, if necessary, which will also help to balance supply and demand.
The authors are respectively Registrar and VC, PAU, Ludhiana