One of the ideas created to get Punjab’s agitating farmers to the negotiating table is that the government give a written assurance – presumably, this will be component of some law – to farmers that their crops will be procured at the MSP. It is not clear if this will get the farmers to get in touch with off their 4-week-old gherao of the capital, but on the face of it, the proposal appears a affordable a single. After all, if the government is, year soon after year, announcing an MSP for 23 crops, it could as nicely guarantee to make certain farmers get this quantity why else is an MSP announced? This is an argument a number of Congress leaders have been generating for a lengthy time, as have numerous farm leaders, and a single variant of this is that all beneath-MSP trade be created illegal.
The difficulty lies in the reality that MSP is a historical hypocrisy considering the fact that, apart from a couple of crops in a couple of states, no farmer gets MSP even today if you incorporate cotton and sugarcane as nicely, much less than 10% of all farmers get their crops procured by government agencies, the rest take their probabilities in numerous mandis. Every politician knows this, but every person keeps up the charade presumably, the Modi government also went along for worry of upsetting the applecart except that, with the demand that a legal assurance be provided for MSP procurement, it is in danger of tripping up badly. That ought to be a lesson for all politicians.
In case the MSP is assured, and that will have to be for all crops and across the nation – and after this is provided, these increasing other crops like fruits and vegetables will also demand MSP – the influence will be large. The influence will differ from crop to crop, and even mandi to mandi, but provided the distinction involving mandi rates and MSPs variety involving 20 and 50%, the price to the government can run into a number of lakh crore rupees just about every year. Since the government will likely spend this in the type of gap-payments to private traders who will purchase the crops, the price can go up even more. Once traders know they will get more dollars if the mandi price tag goes down, they will build fictitious trades to do this. In other words, this will bring back the waste/theft that dogged government spending in the years prior to Aadhaar-primarily based checks had been introduced. This dollars, no matter whether or not the states share the charges with the Centre, can only come from saving elsewhere it is most likely that, with subsidies increasing considerably, government investment in the agriculture sector on producing fresh irrigation facilities, for instance, will take a beating.
To the extent buyers are prepared to spend more, this will lead to enhanced charges for buyers to the extent buyers do not purchase the crops, this will hurt trade. But the influence could be a lot more. Once MSPs rise above worldwide rates, as has occurred for wheat, this suggests export demand will dry up absolutely when procurement rates of products like cotton are raised also substantially, this will also hit exports of processed goods like readymade garments or textiles. Excess stocks of wheat and rice that FCI is forced to carry even today due to open-ended procurement in a couple of states are worth about Rs 150,000 crore today this will rise considerably when other crops – and other states – are to be added to the list exactly where compulsory procurement has to be undertaken. Presumably, that is why the government is attempting to stay clear of providing farmers an assurance on compulsory MSP-linked procurement or gap-payments. The lesson right here is clear: when reforms are place off for also lengthy, and this applies to the APMC reforms of the Modi government as nicely, they come back to bite you.