Will send inflation galloping
In a recent election speech BJP’s prime ministerial nominee, Narendra Modi, promised farmers an assured profit of 50% by tweaking agricultural support price policy. The support price sets a floor at which the government is willing to buy all the quantity offered and covers a variety of crops. However, a big gap between stated policy and ground reality has resulted in support price policy helping large farmers in a handful of states growing wheat and paddy.
Modi’s idea will further distort a lopsided agricultural policy and send food inflation galloping. Elevated inflation, driven by escalating food prices, has been India’s most serious macroeconomic challenge over the last five years. Implementation of Modi’s idea will exacerbate the problem. India’s agricultural price support policy has evolved into a mechanism that has largely helped farmers in northwest India and a few more states. Patchy ground presence of procurement agencies has meant that support price policy’s benefits are limited.
These cereals, however, are consumed across India and even poor families have to depend in part on the market. Therefore, an increase in support price has a direct impact on all Indians. In this context, when a policy guarantees a profit of 50% to a section of farmers, it has to necessarily come at the expense of other sections of society. There is no reason why a handful of farmers should be subsidised by other sections, including the poor. An agricultural policy to push cereals doesn’t make sense when seen from consumption trends either. Over the last two decades, the typical Indian family’s cereal consumption has declined in relative terms. Cereals are being replaced by other kinds of food such as proteins as income levels rise. Modi should drop this lopsided policy idea.
Uplift farmers, enrich India
Farming is occupation number one in India. Farmers are mostly poor. Improve the fortunes of these people, and India’s fortune will soar. Only a really bamboozled ostrich would deny this reality. So BJP’s PM candidate is spot on in saying that MSP needs to be revised upwards — with farmers guaranteed the entire cost of production and 50% profit. This formula was devised by the highly reputable M S Swaminathan committee on sugarcane pricing. Its credentials are strong and calculations simple, making it easy to implement across India evenly. Plus this formula offers farmers cushioning against inflation.
Inflation is a real worry for everyone but blaming MSP for it won’t cloak the failures of both RBI and government to counteract the structural factors actually causing inflation. Eliminating assured income support for farmers might lower some prices in the short term, but then the country would be stuck with troublesome shortages in the long term. In a recent CSDS survey, as many as 67% of farmers felt income from agriculture wasn’t sufficient to fulfil their families’ livelihood needs, and 61% said they would leave farming if they got jobs in the city. Take away meaningful MSP, and farmers would abandon farming en masse. So before protesting an upward correction of MSP, stop to think, those farmers who are expected to produce cheap food endlessly, don’t their livelihoods deserve appropriate protection?
Such protections are available even in the richest countries. In Norway, subsidies often make up to 60% of farmers’ income. American farmers have even made a convincing case for how agriculture has a domino effect on lots of other industries, like tractors, fertilisers and food processing. In India, where farmers are poor and being driven to suicide, the need for such protections is even more indisputable.
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