Jobs and agrarian distress in India cannot be solved unless the economic growth rate is high.

The crux of the agrarian crisis is that prices have collapsed and it is said that minimum support price (MSP) is a solution. But, if the market demand does not support it, I am not sure if an MSP will solve the problem.

Non-agriculture jobs

If growth was there, people would have gone out of agriculture to take up non-agriculture jobs. Therefore, rural distress is not going to be solved by keeping the present number of people in agriculture and making their income go up. It’s going to be solved if you run the economy in a way which absorbs them away from agriculture into better earning jobs. That way, existing agriculture population would be better off.

Investment rate and health of the financial sector, among others, should be improved for achieving higher economic growth.

What is minimum support price?

Minimum Support Prices is the price at which government purchases crops from the farmers irrespective of the market price. The objective of the scheme is to check fall of prices of farm produce below certain level and thus support the farmers.

How the price are fixed?

Government fixes MSPs of various kharif and rabi crops every year on the recommendations of Commission for Agricultural Costs & Prices (CACP), views of concerned State Governments and Central Ministries/Departments and other relevant factors.

Who does the procurement under MSP?

Procurement under MSP is undertaken by the designated Central and State Government agencies and Cooperatives. MSP is in the nature of minimum price offered by the Government. Producers have the option to sell their produce to Government agencies or in the open market as is advantageous to them.

Basics about MSP:

• This scheme started in 1966-67 on advent of green revolution
• MSP is announced for 25 crops
• No MSP for Sugarcane. Instead government fixes FRP (Fair & Remunerative Price) for sugarcane. Each state then fixes its own SAP(State Advised Price)
• For Oil seeds and Pulses, there is a Price Support Scheme by NAFED (nodal Agency). So, when the prices of oilseeds, pulses and cotton fall below MSP, NAFED purchases them from the farmers.

Farmers Distress

• The year 2018 was marked by several farmers’ protests nationwide, with a few turning violent
• The protests highlighted the plight of farmers and the extent of agrarian distress.
• In June, 2018, some farmers were killed in police firing in Mandsaur, Madhya Pradesh, during an agitation for better crop prices
• In June 2018, many farmers are on an unusual 10-day ‘strike’ to draw the government’s attention to distress in the fields. A federation of 130 farmer bodies has decided to stop supplies of vegetables and dairy produce to major cities and hold a dharna on 30 national highways, without blocking vehicular passage.

What are the Farmers’ Demands?

• Enhancement of the minimum support price regime for crops in line with the M.S. Swaminathan Commission’s recommendations, higher prices for milk procurement and loan waivers to offset low or negative returns on investment.
• Stir also derives from lack of tangible action on assurances made earlier and imperceptible movement on the Centre’s grand promises such as doubling farm incomes and raising MSPs.

Reasons for the crisis:

• The main reason for farm crises is the rising pressure of population on farming and land assets
• Government data show the average farm size in India is small, at 1.15 hectare
• The small and marginal land holdings (less than 2 hectares) account for 72% of land holdings
• This predominance of small operational holdings is a major limitation to reaping the benefits of economies of scale

Other factors

• Crop production is always at risk because of pests, diseases, shortage of inputs like seeds and irrigation, which could result in low productivity and declining yield
• lower than the remunerative price in the absence of marketing infrastructure and profiteering by middlemen adds to the financial distress of farmers
• The predominance of informal sources of credit, mainly through moneylenders, and lack of capital for short term and long term loans have resulted in the absence of stable incomes and profits
• Uncertain policies and regulations such as those of the Agricultural Produce Market Committee (APMC Act), besides low irrigation coverage, drought, flooding and unseasonal rains, are some other factors that hit farmers hard

Price mechanism

• Farmers face price uncertainties due to fluctuations in demand and supply owing to bumper or poor crop production and speculation and hoarding by traders
• The government’s economic survey for 2016-17 points out that the price risks emanating from an inefficient APMC market are severe for farmers in India
• This is because they have very low resilience because of the perishable nature of produce, inability to hold it, hedge in surplus-shortage scenarios or insure against losses.