On Raising Farm Incomes – Policies favour the consumer, not the producer

Source: This post on Raising Farm Incomes has been created based on the article “Ashok Gulati writes on farmers’ protest: Policies favour the consumer, not the producer” published in “Indian Express” on 19^th February 2024.

UPSC Syllabus Topic: GS Paper 3 Agriculture – Issues related to direct and indirect farm subsidies and minimum support prices.

News: The article discusses the demands of the ongoing farmers’ protest. It highlights the implications of accepting these demands and the steps to raise farm incomes in India.

A detailed article on MSP Guarantee Law and Farmer’s Protest can be read here.

Background:

Farmers protesting on Delhi’s borders are demanding to make minimum support prices (MSPs) legally binding and fixing the MSPs according to the Swaminathan formula (50% profit over comprehensive cost, often referred to as Cost C2).

What is the Cost C2 formula?

This cost concept includes not only all the paid-out costs of farmers and value of family labour (Cost A2+FL), but also the rent on owned land and the interest on owned capital. The difference between Cost A2+FL and Cost C2 is roughly 25 to 30% for most crops.

The current MSP formula that the government has accepted is minimum 50% margin over Cost A2+FL. If this is replaced by Cost C2 plus 50% margin, in most crops covered under MSP regime, the MSPs will go up by 25 to 30%.

What will be the implications?

1. Raise the Fiscal Deficit.
2. Raise Food Inflation.
3. Similar Demands from other Sectors: If the government agrees to raise the MSP (based on Cost C2), and make it legally binding, then milk producers, livestock producers, and horticulture producers will also demand the same treatment.

What should be done to increase farmers’ incomes?

1) Focusing on Livestock, Fisheries and Horticulture Sector: These sectors need a well-integrated value chain approach. For instance, the Amul model in milk or the vertically integrated poultry sector.

2) Raising Agricultural Productivity: The best way to raise farmers’ incomes in the 23 MSP crops is to raise productivity in a sustainable manner. This requires investments in agri-R&D and irrigation.

3) Ensure Access to Markets: Access should be enabled to markets not only in India but across the world. This can be achieved by:
a. Remove all bans on agri-exports.
b. Remove stocking limits on private trade.
c. Stop selling wheat and rice in the open market at below the economic cost of the Food Corporation of India (FCI).

4) Rethinking Consumer-Centric Subsidies: India’s agri-food policies are highly tilted towards consumers at the cost of farmers. For instance, 80% subsidies currently are geared towards consumers to keep food prices low.
Instead, according to the author, 75% of the subsidies should be focused on producers (in the form of a price stabilisation fund or PM-Kisan).

Question for practice:

What steps should the government take to increase farmers’ incomes in India?