Addressing Farmer’s demands

What is the issue?

Farmers from different parts of India recently marched to Delhi to register their protest against the government’s neglect of farmers’ demands.

What are their demands?

Debate in Parliament to discuss farm distress
One-time loan waiver
Raising MSPs to 50% above comprehensive cost (Cost C2) of production and making it legally binding on private traders

The first demand for a debate in the Parliament is easy and it would help in understanding the real causes of farm distress, and the policies which could best help to tackle it.

Has loan waiver benefitted farmers so far?

The second demand of a one-time loan waiver will not solve the problems of farmers altogether, yet this demand is also likely to be met basically for votes.
From April 2017 to July 2018, several states (Tamil Nadu, Uttar Pradesh, Maharashtra, Punjab, Rajasthan, Karnataka and Andhra Pradesh) have announced loan waivers that together amount to Rs 1,82,802 crore.

However, it is interesting to note that of the states that have already announced loan waivers, only a few budgeted them while many others remained mere on paper.
For example, Punjab announced a loan waiver of Rs 10,000 crore, but so far has budgeted less than Rs 600 crore.
Further, it may be noted that it is the better ones in the peasantry which will benefit the most from this move.
This has made the small and marginal farmers to depend more on the money lenders, where the interest rates range from 24% to 48%.
Hence, there is a need for financial inclusion of these small and marginal farmers in institutional credit at reasonable interest rates and not outright loan waivers.
Also, these loan waivers will hit public investments in agriculture adversely and may even worsen farm distress in due course.

What is the case with minimum support price?

The third demand, of setting higher MSPs and making them legally binding, is equally dangerous of loan waivers.
Farmers are pushing for the implementation of the Swaminathan formula by giving a 50% margin over C2, instead of the current reference cost of A2+FL, which is about 38% lower than C2.
Also, an MSP formula based on just cost, be it A2+FL or C2, ignoring the demand side from the consumers is patently inefficient.
Even in the current situation, the market prices are way below the MSPs announced in this kharif season.

These are prices in the districts with the highest arrivals in the largest producing states.
Thus, making MSP legally binding for traders will turn out to be anti-farmer as private trade will exit for fear of being jailed, and market prices will collapse even further.

What needs to be done?

India needs large reforms in its agri-markets, from reforming APMC markets to abolishing the Essential Commodities Act and rolling back all export restrictions.
It should also encourage contract farming, allow private agri-markets in competition with APMC markets and should cap commissions and fees to not more than 2% for any commodity at any place in India.
To avoid lower prices due to surplus production, measures like opening futures trading in agriculture, negotiable warehouse receipt system, e-NAM with due system of assaying, grading, delivery and dispute settlement mechanisms would help.
Also, alternatives to MSP in the form of PM-AASHA scheme was made by the government and has to be emulated by every states.
These measures would be followed by building efficient value chains, especially of perishables, through the PPP mode, thus creating employment to a larger extent.
So, until a sustained income support for farmers is ensured, the demand for quick fix of their problems through loan waivers will continue.

Source: The Indian Express