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Thanks to MSP, a 'dysfunctional' system, Punjab farmers are richest in country

By Mohan Guruswamy*

The monthlong agitation by well provisioned and organised and mostly Jat farmers from Punjab and Haryana has gripped the attention of the nation. It is in many ways reminiscent of the agitation at Maruti’s Gurgaon plant where the permanent workers get among the highest wages paid to industrial workers in the country.
The farmers massed at the Singhu border crossing are easily the best off farmers in the country. They have for long been this nation’s pride and the underlying basis of its food security. To those of us who grew up under the shadow of shipments of PL 480 American wheat to the present when India produces far too much cereals has been quite a journey.
The per capita daily availability of cereals and pulses in 1951 were 334.7 and 60.7 grams respectively. They are now 451.7 and 54.4 grams respectively now. While the per capita availability of cereals kept rising, the availability of pulses is another story. The per capita availability plummeted to a mere 29.1 grams in 2001, thereby highlighting the cereal production focus of the national food policy.
The biggest driver of cereals production in India is the policy of Minimum Support Prices (MSP), in reality assured above market prices. Though we have 23 items with MSP listed, in practice MSP is mainly for wheat and paddy. Similar MSP incentives are not always available for pulses and oilseeds where Indian importers have got vertically integrated with overseas sellers and producers. Coarse grains and cotton don’t get any support at all, besides talk.
MSP in many ways epitomizes the dysfunctional nature of India’s food system of buy at the highest and sell at the lowest (PDS). The Public Distribution System (PDS) covers 809 million Indians which is 59% of the population (1372 million estimated 2020), and still falls short of the mandated coverage by over 100 million. Besides it is very uneven between the states.
MSP prices, instead of becoming the price of last resort, are the price of first resort. At present there is a difference of about Rs 600 a quintal between the market and MSP prices for wheat (Rs 1935). The effect of this over the years has been the over-production of cereals, excessive MSP procurement in certain regions like Punjab, Haryana and north Telangana and coastal Andhra.
This year the problem has been compounded by bumper harvests in Punjab and other states. The total paddy production in Punjab, a mostly non-rice consuming state, is expected to cross 210 lakh metric tons (LMT), an increase by almost 40 LMT over last year.
Consequently, MSP procurement has been stepped up by over 23% in states like Punjab, Haryana, Uttar Pradesh, Madhya Pradesh, Telangana and Andhra among others, where the Centre bought 411.05 LMTs paddy up to December 18 against 333.59LMT during the same period last year. 
Of the total MSP purchases of 411.05 LMT, Punjab farmers sold 202.77 LMT of paddy till November 30, which is 49.33% of total procurement in the country. Is it any surprise that government godowns are overflowing? As of September 1, stocks of rice and wheat stood at 70 million tonnes against a buffer stock norm of around 41 million tonnes.
Consequently, at least 95% of Punjab farmers are covered under the MSP procurement system. Is it any surprise then that the average Punjab farming household is the richest in the country? An average Indian farming household earns Rs 77,124 per annum; while it is Rs 216,708 in Punjab. Productivity and perennial irrigation aside, there is the fact that the average farm-holding sizes in Punjab and Haryana (3.62 and 2.22 hectares respectively) stand in sharp contrast with the pan-India farm-holding size of 1.08 hectares.
95% of Punjab farmers are covered under MSP. An average Indian farming household earns Rs 77,124 per annum, but Rs 216,708 in Punjab
Though almost 55% of the population is still dependent on it, agriculture’s share of the GDP has declined to just 13% and is falling fast. Very simply, it means that farming in general only ensures greater relative poverty. 
To make farming profitable, two things need to happen. One is that fewer people be involved in it and the other is that farm produce gets higher prices. Only rapid industrialisation and expansion of the modern sector will ensure the first, and it will take a drastic reduction in the cross web of state interferences to ensure the second.
Farmer suicides have become a metaphor for the condition of the Indian farmer. Farmers, who form 60% of the population, account for just 15.3% of suicides. According to the World Health Organisation (WHO), while the suicide rate in India, an agrarian economy, was 13 per 100,000, the rate in industrialised, rich countries was often higher or comparable – South Korea: 28.5, Japan: 20.1, Russia: 18.2, France: 14.7, Germany: 13.5, USA: 12.6. 
Suicide rates are lower in India’s poorer states such as Bihar (1.85) and Uttar Pradesh (3.02), while higher in richer states such as Gujarat (9.62) and West Bengal (18.45). Clearly there is no correlation between suicide rates and incomes.
The main proportion of the government’s outlay on agriculture goes towards subsidies, which contribute little to growth today. They benefit the rich farmers the most, while the marginal ones continue to live on the fringe.
These need to be done away with to arrive at a long-term solution. There is also a need to promote watershed management and increase the acreage under irrigation – currently only about 35% of total agricultural land is irrigated. This would reduce their susceptibility to drought and avoid crises.
A move towards freer markets and an end to the government’s attempt to jawbone producer prices are required. The frequent resort to the import of wheat or cotton or even onions at higher prices, only to keep domestic prices low, is proof of this interference. Unless agriculture is made a more profitable business, neither the poverty nor the indebtedness of the farmer will ebb.
There are other infirmities, which keep most farmers at subsistence levels. The fragmentation of holdings is a major cause, with about 83% of farmers considered small or marginal with less than 2 acres each. To compound matters, hardly any new irrigation potential has been created by the state in the last 25 years. 
All the additional irrigated holdings of the past two decades have come from private tube-wells. Two-thirds of our farmlands are still rain-fed. This clearly makes any commercial-scale farming impossible and the majority of farmers remain dependent on the rain gods and governmental lords.
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*Well-known policy analyst; former adviser to the Union finance ministry in late 1990s. Source: Author's Facebook timeline

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