By CSC Sekhar
The stalemate more than the farmers’ protests seems to be a extended-drawn one and the implementation of the current farm laws seems stalled for now. One of the crucial demands of farmers and the opposition parties is to make the minimum assistance value (MSP) a legal proper. What is the feasibility of this move and its implications, each fiscal and administrative? Are there improved options?
Making MSP a legal entitlement tends to make it a justiciable proper, and there are two approaches of making certain this. The very first is by means of physical procurement by the government. The second is to let farmers to sell in the private marketplace and if they get a reduce value than MSP, then to reimburse the distinction amongst the two. Such a payment is known as ‘deficiency payment (DP)’. Procurement is the ideal alternative for making certain MSP. However, there are two main constraints to this—physical storage capacity and administrative capability (governance), which can limit the quantum of procurement. Thus, farmers also have to have to be supported by means of DPs.
The total production of 14 main meals crops, which contain staples rice and wheat along with 3 coarse cereals, 5 main pulses and 4 main oilseeds, was 321 million tonnes (MT) in 2019-20. A portion of the production is kept by farmers for house consumption and other makes use of. Using the existing marketable surplus ratios (MSR) from the ‘Agricultural Statistics at a Glance 2019’, the anticipated marketed surplus (MS) of these crops functions out to 261 MT. But the storage capacity accessible with the Food Corporation of India (FCI), state agencies, the Central Warehousing Corporation and the cooperative sector is only about 98 MT as per estimates by the Committee for Strengthening Negotiable Warehouse Receipts (2015). Given this storage capacity, which also holds the current grain stocks and stocks of other crops like cotton, it will not be achievable for the government to procure more than 30% of the marketed surplus, which is about 78 MT. The rest wants to be picked up by the private marketplace, for which DPs are necessary.
Fiscal charges
—On public procurement: Rice and wheat are procured by the government and distributed by means of the PDS at a hugely subsidised concern value of Rs 3 per kg and Rs 2 per kg, even though the financial expense is Rs 36 per kg and Rs 24 per kg, respectively. The distinction amongst the financial expense and the concern value constitutes the meals subsidy. If MSP is legalised, the remaining crops also have to have to be procured and also disposed in an orderly way. Since assured procurement will pretty most likely induce a lot bigger provide in the brief run, these crops may well have to have to be sold at subsidised costs.
Assuming that the ratio of financial expense and MSP of these crops is related to rice and wheat (which is 1.78 in the final 4 years) and the crops can be disposed at 50% of their MSPs, the subsidy to be paid to the FCI and other agencies functions out to Rs 2,56,250 crore annually.
—On DP: Since only 30% of the production can be procured by the government owing to storage constraints, practically 70% of the MS wants to be absorbed by the marketplace. When the marketplace value falls under MSP, DP wants to be paid equalling the distinction amongst the two. The steeper the fall of marketplace value under MSP, the bigger is DP. Assuming an typical fall of 20% of the marketplace value under MSP, which is a more most likely situation for most crops regarded as right here, the quantum of DP is estimated to be Rs 83,841 crore annually.
Thus, the total expenditure on account of government procurement and DPs functions out to Rs 3,40,091 crore annually. From this, subtracting the expenditure currently incurred on procurement of wheat and rice as meals subsidy in 2019-20, which is Rs 1,08,688 crore, we get the extra expenditure necessary for giving MSP to the remaining crops, which functions out to Rs 2,31,403 crore. This constitutes a 95% raise in the meals subsidy budgeted in the 2021-22 Union Budget (which is Rs 2,42,836 crore)!
Direct payments
It is critical to discover other alternatives that may well be fiscally prudent and administratively handy. One such is direct payments to farmers. However, it wants to be noted that through the Covid-19 crisis as properly as earlier meals crises in 1975 and 2008, India’s buffer stock program served the nation exceedingly properly. There is also a huge PDS of 80 crore beneficiaries to cater to. Thus, the MSP procurement program wants to be continued for staple foodgrains and, if achievable, be extended to pulses.
However, a various strategy is necessary for non-staple meals commodities. For a lot of of non-staple commodities, MSPs are announced with small or no procurement. This is genuinely ineffective. Thus, a gradual movement to an revenue-based assistance program is necessary. PM-KISAN is at the moment attempting this, but the assistance beneath the programme is grossly inadequate. Also, the financial rationale for the payment of Rs 6,000 per farm per annum is not clear and does not seem to be based on any systematic evaluation of charges and returns of farming. Therefore, working with the information on crop and state-smart A2 expense of cultivation published by the Commission for Agricultural Costs and Prices (CACP)—which represents the standard charges incurred by the farmer on inputs and land leased, location beneath numerous crops in various states, and the quantity of tiny and marginal holdings in the country—the weighted expense of cultivation (with location beneath crops and quantity of holdings as weights) functions out to Rs 16,769 per farm. This is practically 2.8 instances the existing payment beneath PM-KISAN. Data of 2015-16 has been applied for these computations so that direct payments do not influence the marginal production (existing production). Given the fiscal space accessible to the Union government, it may well not be achievable to cover the whole expense. Covering 50% of the expense will entail an annual expenditure of Rs 1,22,187 crore, which is a lot much less than the estimated expenditure for procurement plus DP program. Also, if rice and wheat holdings that get the advantage of MSP are excluded, then this expenditure may well be even much less.
If MSP is legalised for all meals crops regarded as right here, the budgeted meals subsidy for 2021-22 will raise from the existing 1.2% to 2.3%. In case of enhanced PM-KISAN payments, the corresponding raise is from .4% to .6%. Since DPs do not influence marginal production, farmers are most likely to align their provide with the demand situations.
In conclusion, public procurement wants to continue for staple cereals, but farmers of non-staple meals crops have to have to be supplied with direct revenue transfers—these are fiscally prudent, obviate the have to have for physical procurement and storage by the government, do not distort existing production, and also provide a standard revenue to farmers. These will also address the key concern more than the current farm laws associated to the vulnerability of tiny and marginal farmers and may well assist these farmers to stay clear of distress sales.
The author is professor of Economics, Institute of Economic Growth, University of Delhi
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