Farmer Angst
The ongoing farmer protests have put the spotlight on the problem of stagnant farm incomes and the limits of MSP in resolving this challenge. EPISODE #165
Dear Reader,
A very happy Monday to you.
Three years later, angry farmers are back at the gates of Delhi. This time with a new set of demands, but equipped with the same playbook. And, once again most of them are farmers from Punjab.
The timing of the latest protest, just weeks before the general election cycle kicks off, suggests that this is all about politics. Yet the underlying reasons are important. For most of us all this can be confusing.
Fortunately, I was able to interview Ashok Gulati, in my view, the last word in Indian agriculture. In an interview that aired on StratNews Global (and shared below), he offered an alt-view that makes lot more sense than the armchair commentary.
Separating chaff from the grain of truth, he unpacked the real problem facing Indian agriculture—something that regimes of various political hue have conveniently ignored. This week I try and unpack the farmer protests with his help.
Worth pointing out a coincidence. The last farmer unrest three years was the first episode of this newsletter.
The cover picture is sourced from Unsplash taken by Pavan Kumar Nagendla.
Last week I made an error in the newsletter. The heading should have been Ahlan Modi and not Alhan Modi. Apologies and thank you Allan for flagging it.
A big shoutout to Surendra, Shiv, Gautam, and Premasundaran for your informed responses, kind appreciation and amplification of last week’s column. Once again, grateful for the conversation initiated by all you readers. Gratitude also to all those who responded on Twitter and Linkedin.
Unfortunately, Twitter has disabled amplification of Substack links—perils of social media monopolies operating in a walled garden framework. I would be grateful therefore if you could spread the word. Nothing to beat the word of mouth.
Reader participation and amplification is key to growing this newsletter community. And, many thanks to readers who hit the like button😊.
The MSP Bogey
Once again angry farmers from Punjab are threatening to lay siege to the national capital. And yet again the face of the agitation are the rich Punjab farmers backed by the powerful lobby of middlemen who control the grain markets. Mercifully, unlike last time, it has not descended into violence. Fingers crossed.
This time the farmers are demanding a law on the Minimum Support Price (MSP)—the floor price for food grains set by the government—which statutorily protects their farm incomes. The headlines and the rhetoric of the protestors is skewing the debate by focusing on this as the core issue.
It is as though if MSP is turned into a law all the problems of Indian farming would disappear. Very unlikely. Worse, it could potentially unleash a food inflation spiral and also wreck the exchequer.
The sad reality is that MSP is no magic wand. It is a tool—first created in the late 1960s—that may have outlived its utility.
Unknowingly though the agitating farmers may have pointed us in the right direction: The problem of stagnating farm incomes.
Addressing this solely through MSP is a fool’s errand.
A Reality Check
The timing of the agitation, just before the general election, does suggest that this is more about politics.
I ran this thought past Professor Ashok Gulati. He concurred and shared some disturbing contradictions about the MSP policy:
“I would say it's a mix of political economy. Elections are there, everybody wants to take as much as possible from the government.
And remember that Punjab farmers are the richest farmers in the country. The poorest farmers are in Bihar. They are selling their harvest at 20-35% below the MSP and you don’t see them protesting.”
For the record MSP is offered for 23 crops. Effectively it is operational primarily for wheat and rice. Further, almost the entire procurement is undertaken in Punjab, Haryana and Western-Uttar Pradesh.
More importantly, as Professor Gulati points out, more than three-quarters of Indian farming—especially rapidly growing segments like poultry farming and horticulture—is not covered by MSP.
Again, as Prof Gulati points out, the idea of MSP as a security net for farmers was proposed in the 1960s. It was felt, rightly so, that in the aftermath of the green revolution—which deployed high yielding varieties of wheat and rice—there would be a glut in the post-harvest months, which will drive down prices. The MSP operated as a floor so that farmers were assured basic profits.
This assessment by the government was correct. Indeed there was an unprecedented glut of grain and as Prof Gulati pointed out that this had to be stored in schools—as there was no proper storage facility.
Before the success of the green revolution, India was a net importer of food grains. And, hence at the mercy of international suppliers. You may recall the PL-480 episode when the United States held off grain exports, bringing India to its knees. And, this at at a time when it was facing external threats from Pakistan and China.
In fact, such was the crisis, the then prime minister Lal Bahadur Shastri (also the person who pushed the idea of the green revolution) appealed to the people to skip a meal.
All this changed with the green revolution. India went from a food scarce to a food surplus nation. Today it is among the leading exporters of food grains in the world. In fact, they were in the eye of the storm after the Russia-Ukraine conflict completely upended the global food grain market.
New Circumstances
Through this transition the government balanced the interests of consumers and farmers. However, this trade-off was never easy to manage. Farmers would lobby for a higher price, while consumers wanted the government to put the lid on food inflation—also, a macroeconomic threat.
Electorally, consumers are far more important. As a result, governments inevitably leaned towards the consumer. Farmers were assured a progressively higher MSP and also provided subsidised inputs like fertiliser and free electricity. The idea was to keep their cost of production low and hence keep a lid on the prices.
The problem is that what worked in the 1960s, especially the use of MSP, is no longer as effective in protecting farm incomes. In fact, this patchwork of compromises is now hurting the Indian economy and its agriculture.
It has created phenomenal distortions. For instance, subsidising fertilisers is leading to a massive diversion away from agriculture, besides ruining the health of the soil through excessive use. Further, the government is guilty of manipulating supplies to ensure a lower procurement price for itself, creating even more market distortions.
Clearly, while MSP is at the centre of the present debate it is hardly the panacea to the problem of stagnant farm incomes—given that the non-farm economy is growing, relatively too the farmer feels shortchanged.
Worse, the special interests, middlemen and politicians, in wheat/rice farming are entrenched, wealthy and politically powerful. They oppose any effort to alter status quo. We saw that in the agitation three years ago, when the union government was forced to roll back the new farm laws that enabled farmers to bypass the existing middleman controlled framework and sell their harvest to the highest bidder.
The Way Out
According to Prof Gulati there is a way out. But for this there has to be some plain speaking.
In the present circumstances this is inconceivable. Not only do we have a general election round the corner, the environment is vitiated by the prevailing binary discourse. Presumably, there will be a rethink after the conclusion of the general election.
Regardless, the plan proposed by Prof Gulati makes imminent sense.
For one, he proposes a step-up in investment in farm infrastructure. Most recently we have evidence of the success of such a strategy. Steady step-up in investments in Madhya Pradesh, especially in irrigation and rural-urban road connectivity, completely turned around its agriculture.
It is in fact now emerging as the food bowl of India. Check out the episode I did with Prof Gulati on StratNews Global capturing this dramatic makeover. Sharing the link below:
Second, he proposes a complete repurposing of the subsidies, while ensuring that farm incomes don’t get compromised in any way.
“I am saying reorient subsidies. First condition is farmer should not be worse off than what he is today. Otherwise nothing will move. But then you have to reward him for better farming practices, better choice of commodities, so that the distortions in the economy which are leading to inefficiency are reduced—these gains from savings on inefficiency should be given back to the farmer.
So it is not withdrawal of subsidies. It is reorientation, it is repurposing so that you will get a bigger bang for the buck on your spending and farmers will get a better deal.
And that requires some little understanding of what is happening. And it requires patience, and it requires political communication to the farmers.”
Connecting all the dots makes it clear that there is a clear challenge in the farm economy—manifesting in the form of stagnant farm incomes and growing risks. Further, MSP is no one-stop solution.
Instead, there has to be a comprehensive strategy to overhaul Indian agriculture, while ensuring that farmer interests are protected. This is not impossible. But neither is this task easy. At the same time it is clear that the proverbial can no longer be kicked down the road.
Hopefully, the incoming government will invest it hard earned social capital to fix this key challenge facing the Indian economy.
Recommended Viewing/Reading
Sharing the latest post of Capital Calculus on StratNews Global.
Agitating farmers, mostly from Punjab, are looking to blockade Delhi in their bid to get the union government to agree to their demands—which includes providing statutory backing to minimum support price (MSP), the floor price for crops.
Going beyond the headlines it is clear that the agitation is putting the spotlight on structural challenges facing Indian agriculture.
How reasonable is this demand? Has the idea of MSP, introduced in the late 1960s when India introduced high-yielding varieties of wheat and rice, outlived its utility? Does Indian farming in general and Punjab agriculture in particular need a reset?
To answer all this and more I spoke to Ashok Gulati. The outspoken Dr Gulati is an economist, the last word on Indian agriculture, and a previous guest on this show.
Sharing the link below. Do watch and share your thoughts.
Till we meet again next week, stay safe.
Dear Anil
One has barely forgotten the miserable situation three years back and now we are again facing a farmer's protest. Most people dread the thought of Delhi borders being under seige,the violence, endless traffic jams. Though they eventually got their way, the farmers lost out on public sympathy. There is no denying the fact that Punjab has the richest farmers. One wonders how the farmers of other States are peacefully going about their work.
One factor is physical proximity to Delhi. It's so easy for these farmers to reach Delhi borders with their tractors and JCB's. It's obvious that this agitation is politically motivated. It's the perfect time to arm twist the government before the general election and the Model Code of Conduct is imposed. One wonders how many of those agitating are genuinely farmers. If they are such poor, hardworking farmers can they afford to stop all farming activities for days on end.
Last time the farmers were able to get what they wanted. Since they can't now protest about the farm laws, they have come up with MSP. Presently they have taken a break but it's to be seen whether this is a lull before the storm.
The timing of this agitation is critical, as the general elections are round the corner. This seems to be a deliberate ploy, in order to squeeze out a deal, that the government will be negotiating with their hands tied. Although the wind has been taken out of the sails of this agitation, at this stage, a renewed thrust is on the way, after some regrouping. The expensive lifestyles of the rich farmers has made loan waivers a periodic demand, that political parties have made into an election winning tool. In the Haryana budget, the interest on loans have been waived. This waiver has benefitted the already prosperous farmers of Haryana and will be helpful for the elections and for breaking up the thrust from Punjab; loan waivers however do not benefit the actual needy poor farmers, who take loans at high interest rates from private money lenders. A lot of seemingly wise suggestions are being given freely to cure the ills, but if there were any easy remedies, it would have happened by now. However, one should be positive and hopeful and the change could happen by counseling the affected farmers to change the crop pattern by following successful experiments in Andhra Pradesh and MP. Along with some farmers, some politicians are equally to blame for the current mess. Thank you Anil for sharing your thoughts on this topical issue.