Proposing overhaul of MSP operation: Niti Aayog Member

New Delhi, July 4 (IANS) With the focus of the government squarely on reviving agriculture and increasing farm incomes as highlighted in the Interim Budget presented in February, there is widespread expectation of more sops for the distressed sector. On the eve of the full Union Budget 2019-20, IANS publishes an interview with Niti Aayog Member Ramesh Chand on reforms needed in the agriculture sector. He has been responsible for most of the inputs from the NITI Aayog towards government policies relating to agriculture. He is also the driving force behind the government's target of doubling of farmers' income.

Chand spoke with senior journalist and policy analyst K. Yatish Rajawat.

The Price Deficiency Scheme:

Q: Looking at low farmer incomes and given the agricultural distress in the country, you had recommended a revised Bhavantar scheme to the government in 2018. Has this been accepted by the states and what is the status of this scheme? How is it different from that of the past?

A: Yes, we are proposing an overhaul of how Minimum Support Price (MSP) operates today. What I am suggesting is a framework where immediately after sowing, farmers who wish to avail of MSP will register via a portal. Here they can store details of the crops they have decided to sow, and the amount of acreage of each crop. This will give a detailed picture of the farmers' chosen crop-mix. Now, the government already monitors the price activity of 3-4 key markets in each district. Data is collected on the ruling price of each crop in that specific district. Then, we can calculate the average price over a 7-8 week period. If we find that the ruling average price is lower than the MSP, the government can pay the difference to the farmer based on the productivity of that specific district and the farmer's own output. This is advantageous because it will involve minimal cost to make it work.

In the current scenario, we find that ruling prices are often far lower than the MSPs assigned, and the cost burden is also significant for the exchequer. A narrowing of the gap between ruling prices and MSP would go a long way towards controlling this. To limit this we could earmark a certain amount to the MSP depending upon historical prices through which we can meet 70-80 per cent of deficiency.

Q: Given that the MSP is applicable to 23 crops across several states, you are proposing not to increase the budget allocated to address price differentials but to utilize the available resources more effectively. Is that right?

A: Yes, absolutely. We are calling it the Price Deficiency Scheme. In fact, it would prove far less costly, compared to procurement where you are paying out MSPs for the entire volume. When you are procuring, you also have other costs associated with the process. There is movement and storage of crop followed by the final disposal of the produce. This is an inefficient process, and at best you can break even but often you will be paid less than that. If you look at procurement models in India through the FCI (Food Corporation of India) or other kinds of procurement, the cost can be as high as 20-30 per cent of the produce at which you are procuring. You will find that the price deficiency in most crops is not more than that, and that is why it would prove to be a more cost effective policy. Several other countries have also adopted it. China has done particularly well with this structure.

Q: I believe the US has the same scheme. But how effectively do you think we can adopt this?

Q: Yes you are right about the US. They have had similar schemes for a long time but we must recall that they have much better data on acreage and sales. It is indeed a much more efficient model, which we should follow in totality. But first, we need to ensure that the agricultural markets are functioning competitively to minimize the quantum of support that is required. If markets are not functioning smoothly, the cost borne by agencies will be inordinately high and frankly, unaffordable. It is crucial that we work towards making markets more competitive, so that any such deficiency is minimized.

Distribution of agricultural credit:

Q: One of the things at the heart of farmer issues is the lack of liberal credit and quick payments. If we look at a crop like sugarcane, these difficulties are particularly acute where we find a gap of even 6-9 months between the sale of crops and settling of dues. How can we improve this?

A: The issue is that agricultural credit is distributed very unevenly across states. In some states, we are supplying much more credit than what is required for inputs and labour costs. On the other hand, some states are starved of credit, particularly in the eastern and central regions. Looking at the data, we know that in some states the farmer is getting multiple loans. This is not in their interest in the long run, since easy credit is rarely spent on productive purposes. Of vital importance is the saturation of areas where low credit levels prevail. We are addressing this through new ways of institutional credit.

Natural advantage and district-wise planning?

Q: There has always been this thinking that agricultural planning and MSP pricing should actually be done at the district or even at a sub-district level. As an organization, Niti Aayog has focused on agriculture but not on data collection at higher resolutions. How would you respond to this?

A: This demand has been made many times before, and it has been debated at length. I have personally seen eminent economists like Dandekar ji (V.M. Dandekar) and Alagh saab ( Y.K Alagh) participate in these discussions. One of the purposes of MSP is to promote efficiency in production. If we were to start giving MSP based on cost of production at a block level or farmer level, then everyone would be incentivized to produce anything.

If Kerala for example, doesn't have an advantage in producing wheat, it should not be doing so. However, if you were to link the MSP to underlying costs, then Kerala would also produce wheat. That may be Rs 5,000 per quintal, or even be Rs 10,000. If you were to start considering the cost of production at the disaggregate level, this would completely distort the cropping pattern of this country. Everyone would choose the crop that guarantees the highest MSP instead of responding to demand signals.

Instead of that, when you zoom out and are considering an all India price, you will be sending a uniform signal to the country that commodities should only be grown in areas which are best suited to them.

Q: But one of the counterarguments could be that wheat and rice is grown in the North to the extent that it has led to a decline in the water table and reduced crop diversity. This is particularly the case in Punjab, Haryana and West Uttar Pradesh.

Q: Precisely. At one time, when the country was hungry, that was needed. Suitable placement or not, we wanted to have more food especially staples. Now we are facing the consequences. Sustainability is being damaged since we have deviated from the natural endowments of a particular region. Crops which have a competitive advantage from a natural resource point of view such as rainfall, soil type and temperature must be grown. Why is there so much more area under paddy in Punjab than what the region can afford? This is because electricity is free. Irrigation is the main input for rice. Even though Bihar is more suitable for rice cultivation. A farmer in Punjab whether he gets rainfall or not will grow it as he doesn't have to pay for water. In fact, he has a much more assured water supply than a farmer in Bihar.

Through this subsidy, the environment to produce paddy has been artificially created so that there is an unfair advantage in a place compared to the natural choice. If we ensure the right kind of pricing for water supply and other appropriate subsidies, along with expansion of MSP to alternative crops it will lead to a correction in the cropping pattern. Keeping in mind the suitability criteria of a crop is very important, or we shall continue to pay a very heavy price for it.

Q: But the expansion of MSP and procurement of other crops has not happened even though the government has tried to do this.

A: If you look at the total responsibility taken by the Centre, rice and wheat alone have a greater share of the MSP burden than all other crops combined. They do not even come close. While the Centre is committed to taking responsibility for these critical crops, coarse grains, pulses and oilseeds, it is important that states should also shoulder some responsibility. Farmer interests are a concern to both state as well as the Centre, and the Centre is playing its part through procurement and also making MSP payouts. I think the states' involvement is very important coupled with competitive markets. Only then will we have a solution for low prices and exploitative market practices.