Farm laws must widen MSP coverage, ensure profitability

Farm laws repealed
With the repeal of farm laws, it is important to evolve a better MSP regime that offers better prices and more farming options.

The government has finally withdrawn the three farm laws in the face of fierce opposition from farmers. Both the houses of Parliament passed the Farm Laws Repeal Bill, 2021 without debating what should be the vision and approach to farming. Just like any investment by a company is based on the internal rate of return, farmers in India engage in farming based on the minimum support price declared by the government.

With more than half of the country’s population dependent on agriculture for a living, ensuring stable returns on investment to farmers is a basic requirement for the sector’s survival. The minimum support price, periodically revised by the government, does not influence cropping patterns. Better quality of seed and produce does ensure a good market price.

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India must boost farmers’ income

Currently, the MSP covers only food grains. There is a need to offer price support to all crops to give wider choices to farmers and agriculture experts to experiment with better crop and farming practices. Punjab is still growing wheat and paddy due to assured returns. If other crops have pre-determined minimum price, farmers will shift to crops that need lower amounts of water. Madhya Pradesh, with its better quality of wheat, has emerged as a large beneficiary of government procurement.

Many argue that widening of MSP coverage will burden the exchequer. MSP does not mean that the government will procure all the produce, only that the government will intervene if market prices fall below the MSP to bring stability in prices. Strong mandis and contract farming executed through registration at mandis will widen the choices for farmers and ensure immediate payment, leading to traders and buyers offering prices higher than the MSP. The tax charged by mandis is used for the improvement of mandis and welfare of farmers.

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Farm laws must eye better MSP regine

With the repeal of farm laws, it is important to evolve a better MSP regime that offers better prices and more options to farmers. Farmer producer companies allow producers to come together and adopt better practices and inputs and procure quality seeds. There is also a need to cut down cost by reducing GST on inputs.

The reverse tenancy results in farmers giving their land to big holders and becoming labourers or rickshaw pullers in urban cities. To ensure that this does not happen, there should be an effort to maximise the income of small and marginal farmers. Activities like extracting menthol from mint (with mint powder as byproduct) and making fruit/tomato pulp will add to the wealth of rural areas and generate additional employment. While we have examples of such efforts from across India, there is a need to put a futuristic policy in place.

Thus, the focus of agriculture reforms should be strengthening of mandis, robust MSP regime that ensures return on investment, reducing input cost and adding one step-up food processing in local areas. The political debates should now focus on how to achieve it. A holistic export policy can make farming profitable. The burden of MSP will come down if all crops are covered. The PDS system takes care of only food grains.

The need is not for farmer regulation, but market regulation. The Swaminathan committee has studied the issue exhaustively and suggested that return on investment must be ensured in farming too. The government needs to guarantee the same as 70% of the population is dependent on farming. India, with large tracts of arable land, is producing quality wheat, rice, vegetables and fruits. Venturing in oil seed cultivation can ensure good prices to farm products.

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Dr Aruna Sharma is a New Delhi-based development economist. She is a 1982-batch Indian Administrative Service officer. She retired as steel secretary in 2018.