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Tuesday, 01 December 2020 00:00
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Punjab’s farmers are the most pampered in India, yet their productivity is falling; in any case, MSPs not being phased out

Given how India appears to revere its farmers (annadata), the popular narrative around the current Punjab farm agitation is that the Narendra Modi government passed the farm laws in a hurry, and without any real discussion, so it is not surprising ‘poor’ farmers – who helped make India self-sufficient in foodgrains – are up in arms in the capital. If the agitating farmers believe MSP-based procurement will be abolished, it is because, the argument goes, the haughty Modi government never really engaged with them; just explain the facts to the farmers and, the belief is, they will quietly go home.

While a larger discussion on anything is a good idea, does anyone really believe any reforms can easily be passed when a party doesn’t have a majority in both houses of Parliament. As an aside, did Dr Manmohan Singh first discuss his 1991 reforms threadbare or did he just announce them? It is also worth keeping in mind APMC reforms have been discussed for decades. Indeed, the first successful attempt at APMC reform, to allow farmers to sell fruits and vegetables in non-APMC mandis in various Congrss-ruled states, was done in 2013, when Dr Singh was the prime minister in a UPA regime; the reasons for this were the same as now, to give farmers more choice in whom they sold to and where. Nor is it clear that if the Modi government laws are so anti-farmer, why haven’t those from other states joined the agitation.

More important, though some journalists such as this one and several economists have been campaigning for abolishing MSP-based procurement as it is unfairly tilted towards a few states like Punjab (see graphic), the Modi government has not done this. If, despite this, the impression is being spread that MSP is to be abolished, this is clearly mischievous. But why not, the seemingly reasonable counter is, put an unlimited (?) MSP-based procurement clause in the law; that way, farmers will be reassured.

 

Since an unlimited MSP-based procurement is not in the law even today, it is not clear how this is even an issue today. More important, putting this in the law means India will get tied to distortions that MSP-based prices cause in perpetuity. Assuming the government – even one led by Dr Manmohan Singh or Rahul Gandhi in the future – agrees to this, why should this be restricted to just wheat and rice that Punjab grows? Extending this to all crops, however, is totally unaffordable. So, if the budget is a constraint, ideally whatever the FCI-spend is on unlimited procurement today should be divided equally among all states, either based on their population or output; no matter what metric you use, Punjab is hopelessly pampered. If the Modi government is content to let Punjab remain pampered, it is its good fortune that other states like Uttar Pradesh (UP) or West Bengal are not agitating against this.

About 70% of Punjab’s wheat output is procured by government agencies and this is about 85% for rice; once you factor in how much of the crop is consumed by farmers, almost all the marketable surplus is procured at MSP. Contrast this with the fact that just around 10% for UP’s wheat is procured at MSP – UP produces double the wheat Punjab does – and this is around 24% for rice. So, while mandi prices are typically 20-50% below the MSP for most crops, the Punjab – and Haryana – farmer is almost completely insulated from any market-risk.

A related point worth keeping in mind is that even with the MSP-based procurement intact, this will not really help Punjab since growth in the state’s agri-GDP is rapidly slowing. Agri-GDP grew by 5.7% a year in 1971-72 to 1985-86 versus India’s 2.3%; both Punjab and India grew at roughly the same 2.9-3% in 1986-87 to 2004-05, but in the period since then Punjab’s agri-GDP grew at just 1.9% versus India’s 3.5%. The reason for this is that while MSP for wheat and rice can rise just so much given global prices – our MSPs are already higher than global prices – as well as the impact on the central budget, other crops and livestock are yielding significantly higher returns; the once adventurous Punjab farmer, on the other hand, has mostly remained stuck with wheat and rice and is paying the price.

And while it is important to acknowledge Punjab and Haryana’s role in providing India food security during the green revolution days, large government expenditure in building a road and irrigation network – Punjab has amongst the best road and irrigation networks in the country – played an equally big role as this reduced both market- and output-risks. Even today, with fertilizer and electricity subsidies (this is borne by the state) at over Rs 13,000 crore a year, each farming household in the state gets Rs 120,000 of sops apart from what FCI spends on buying wheat and rice far in excess of what it needs or the interest subvention by the central government or even the real cost of the water used for farming.

A related issue is that of the damage to Punjab’s soil due to it growing water-guzzling crops; most of the land in the state is ‘over-exploited’ and overuse of urea has also lowered the fertility of the soil. Were the same kind of money – especially the guaranteed offtake by FCI or other procurement agencies – spent in states like Uttar Pradesh, Bihar and West Bengal, not only would this transform their economies, it would also reduce India’s water consumption since some of these states also require a lot less water for surface irrigation for the same crop.

The high-pitched agitation in Delhi is not just based on incorrect perceptions of what the new farm laws will result in – the abolition of APMC mandis and MSP-based procurement – they are also not about protecting the Punjab farmer since it is clear the status quo is responsible for the fall in Punjab in the country’s agriculture GDP rankings. The agitation is purely an attempt to corner the Modi government, to boost the sagging fortunes of the Congress party by deliberately misleading farmers. That is why, before Captain Amarinder Singh decided to fuel the agitation, he used to be batting for increased diversification to non-MSP crops/livestock in the state.

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Prabhu and Bani front page

 
Farmers from Punjab have taken their protests against the Centre’s agriculture Bills to the national Capital, and not without a reason. For decades, a deadly combination of a distorted procurement system of the Centre, Punjab government’s extravagant electricity subsidies and generous credit disbursed by mostly public-sector banks has only served to mollycoddle the state’s farmers, often at the cost of their counterparts elsewhere.
So any move that threatens to even remotely undermine this privilege is bound to irk at least the elite in the state’s farming community, while the political dispensation would avoid antagonising the mandi lobby because their networks enrich the state coffers, through compulsory levies collected from the Centre’s grain procurement agencies.
Now, picture this: as much as 26% of the Centre’s grain (wheat and rice)  procurement this markting year is from Punjab, although it contributed just 13% to the pan-India output (see chart). More than 90% of Punjab’s wheat/rice output was procured by the government at minimum support prices in 2019-20 crop year (July-June), while government purchases were much less in all other states, barring Haryana.  Only 44% of the paddy produced in the country was procured by the government agencies in 2019-20, whereas wheat procurement in Uttar Pradesh, a major producer state, was just 10% of its output. Needless to say, for most part of the year, mandi prices remain below the MSP.  
Punjab’s electricity subsidy for farmers was as much as 1.1% (Rs 5,670 crore) of its nominal gross state domestic product in FY19, while the country’s stood at just over 0.5% of GDP, excluding the interest on late payment. The state’s power subsidy has since risen by 13% on year to Rs 6,402 crore in FY20 and is now estimated to touch Rs 7,180 crore in FY21.
The Punjab State Farmers’ and Farm Workers’ Commission, set up by the current state government in 2018, too, flagged certain peculiarities. According to the report, while the total short-term credit required in Punjab, based on its roughly 10 million acres of cultivated land, is estimated at Rs 24,000 crore per season, the crop loan outstanding of all banks in the state is around Rs 60,000 crore. The state has about 26 lakh farmers, while banks together have issued more than 40 lakh Kisan Credit Cards. Over a period of 11 years (2004-05 to 2015-16), the credit offtake has risen by around 8 times whereas production increased only 1.11 times.
While the report raised concerns about the quality and use of credit, and the inadequacy of a monitoring system, the data presented by it unmistakably point at the vast access the state’s farmers has to the formal credit channels.
Citing a Niti Aayog analysis last year to push for tighter scrutiny of loans, a top finance ministry official had told FE that crop loans to Chandigarh stood at 1,997% of the Union territory’s value of farm output, while those to Punjab were to the tune of 159%. In contrast, Jharkhand received crop loans of only 11% of its farm production value, West Bengal 17%, Maharashtra 32%, Bihar 33% and Uttar Pradesh 42%. At the aggregate level, crop loans were to the tune of 72% of the cost of production. Of course, some other states and Union territores (Kerala, Himachal and Tamil Nadu and Delhi), too, cornered a high share of crop loans.
As for procurement in Punjab, it continues to be wholly routed via APMC mandis. FE has already reported that the state levies an aggregate tax of 8.5% of the minimum support price at which the FCI and other agencies buy grains. This is against the pan-India average of 6% of MSP. The state alone collected Rs 1,750 crore, out of Rs 8,600 crore collected across India as mandi fees alone, of trade in all farm commodities in FY20.
Of course, as procurement of wheat in Madhya Pradesh and paddy in Chhattisgarh, Odisha, Andhra Pradesh and Telangana has increased in recent years, Punjab’s relative share has declined bit, though in terms of absolute volume it is around same level in the last four years. 
Before the GST’s launch, various levies paid by FCI added up to even higher 13% of the MSP paid to farmers on a pan-India basis. The levies ranged from a relatively modest 3.6% in Rajasthan to 11.5% in Haryana, 14.5% in Punjab and 13.5% in Andhra Pradesh, the major producers of grains.
The agriculture marketing reforms through the two new Bills passed by Parliament is expected to help the Centre reduce the tax burden on it on account of the Food Security Act/PDS, if FCI and other agencies start procuring at the market rates circumventing the mandis.
Prime Minister Narendra Modi has already made it clear that the MSP system would continue. Stating that the current laws tied the hands of farmers, he has said the reforms would enable them to be self-sufficient with access to multiple buyers.
However, even as Modi assured farmers that the Centre would continue to procure at MSPs, the Punjab government has already passed three Bills to reject the Centre’s Bills.
(With inputs from Prasanta Sahu and Anupam Chatterjee)
 

 

 

 

 

Last Updated ( Tuesday, 01 December 2020 04:56 )
 

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