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For India's Farmers, Budget 2018 Is Nothing but a Hoax -Kirankumar Vissa
-TheWire.in

The finance minister has made a big announcement on minimum support price, but he should make it clear whether all he is promising is to take the prices back to the UPA-II levels.

The government has done it again. Like last year, there has been much hype about a pro-farmer Budget, but in actuality it rests on misleading claims which don’t address the farming crisis. Last year, the agriculture credit target made headlines – not a rupee from the government, but the finance minister made it seem like Rs 10 lakh crore was being given to farmers.

The announcements on the Pradhan Mantri Fasal Bima Yojana (PMFBY) and increased allocation for MGNREGS, too, made headlines. It was later realised that both these schemes are symbols of the dysfunctionality in this government. This time round, the finance minister did not even mention the PMFBY and MGNREGS in his Budget speech. However, this year, the big announcement is about minimum support price (MSP).

Before examining that, it is important to note that as the Budget numbers go, there is little in it for farmers to gain – the numbers are there for everyone to see. Last year, the share of agriculture ministry was a miniscule 2.38% of the entire Budget. This time, it has dipped to 2.36%. Interest subvention on loans got Rs 15,000 crore last year. It remains the same this year. On rural employment guarantee scheme (MGNREGS), the revised expenditure for 2017-18 is Rs 55,000 crore. The allocation for 2018-19? Rs 55,000 crore. The allocation for Rashtriya Krishi Vikas Yojana was reduced from Rs 4,500 crore (RE) to Rs 3,600 crore. The allocation for Market Intervention Scheme and Price Support Scheme went down from Rs 950 crores (RE) to Rs 200 crore.

Yes, there were some routine increases and a few positive announcements on animal husbandry, farmer producer organisations and rural haats. But the actual Budget numbers belie hopes of any big change. The budget for agricultural marketing has gone down from Rs 1,190 crore (2017-18) to Rs 1,104 crore (2018-19). The total budget of the Department of Animal Husbandry, Dairy and Fisheries went up marginally from Rs 2,921 crore (BE) to Rs 3,580 crore. Considering that these sectors contribute 25% to the entire agricultural GDP and provide livelihood to a large section of small and marginal farmers, there is need for much stronger support systems, but this allocation hardly gives that a boost.

What is also completely missing is any step towards providing debt relief for farmers, given that this has been a major demand across the country. This means that the massive debt burden that is pushing farmers into distress and suicides has gone unaddressed. Neither have any steps been taken to bring many excluded sections of the farming community into the ambit of institutional credit, crop insurance and other support systems. This includes women farmers, Adivasi farmers, sharecropper and tenant farmers and landless agricultural workers.

Finance minister Arun Jaitley’s Budget speech had a vague statement that the NITI Aayog will work with state governments on the issue of lessee farmers who lease land for agriculture. However, the model Land Leasing Act enacted by NITI Aayog is so weak that rather than providing any rights to the lessee farmers, it would empower absentee landlords.

On the other side, farmer organisations have been asking for setting up a credit guarantee fund that would encourage banks to extend loans to tenant and landless farmers. But, the finance minister failed to put money where his mouth is.

So, why is the Budget being hyped as a ‘big’ boost to the farmer? It’s primarily because of that one, single announcement – that the government will implement Prime Minister Narendra Modi’s and BJP’s campaign promise of fixing MSP at one-and-a-half times the cost of production. In fact, Jaitley went ahead and said that the government had already provided more than 50% margin over cost of production for most crops this rabi season.

How did this happen? In 2015, this same government had submitted an affidavit in the Supreme Court saying that the demand of MSP at 50% above cost of production cannot be met. The crux of its response was, “… the fixing of MSP is not a ‘cost-plus’ exercise… MSP is recommended by CACP on objective criteria considering a variety of relevant factors. Hence, prescribing an increase of at least 50% on cost may distort the market. A mechanical linkage between MSP and cost of production may be counter-productive…”

In May 2017, Union agriculture minister Radha Mohan Singh said that Modi never promised 50% increase in support price. Interestingly, this is the first time that the government has admitted, through the Budget speech, that the PM did make this promise on MSP.

But, how is it that the government is now saying that not only will they use one-and-a-half-times the production cost as a “pre-determined principle” for MSP, but also that they had already done this for the rabi 2018 MSPs, which were announced back in October 2017? This is strange, because the government could have projected three months ago that they have already delivered on their election campaign promise. Then why didn’t it?

The brief answer is that the government decided to use a different formula before this Budget session itself. They changed the baseline measure of production cost from “C2” cost, which has been the basis of farmer organisations’ demand for a decade, to A2+FL, which is a lower cost measure. Obviously, if a lower measure for cost of production is used, it is easier to provide 50% margin above that.

MSP and production cost: C2, A2+FL and all that

Now to the details. Since 2006, farmers’ organisations have been demanding that the MSP should be at least one-and-a-half times the “C2” production cost, based on the recommendations of the National Commission on Farmers. Professor M.S. Swaminathan, who headed the commission, has stated clearly that the recommended formula is at least 50% above “C2”.

The Commission for Agricultural Costs and Prices (CACP) uses C2 as a comprehensive cost measure, which includes the imputed value of land rental and interest over working capital, and fixed capital. As intermediate components, CACP computes various values, such as A1, A2, B1, B2 and A2+FL. In fact, when CACP calculates the “returns to farmers” provided by the MSP, the margin over A2+FL is called “gross returns” and the margin over C2 is called “net returns”.

Going beyond the formulas and mathematical terms, everyone with an understanding of household economics knows that “net income” is what matters. The same is true for farmers – their demand has been around net returns over C2, not gross returns. When the BJP and Modi sought farmer votes, they referred to the Swaminathan Commission recommendations, which is understood as one-and-a-half times the C2 production cost.

It is important to understand that the difference between the gross returns over A2+FL and net returns over C2 is not a matter of nitpicking. Let us take the top 12 crops whose area of cultivation is above four million hectares (the rest are all below one million hectares). Out of these, sugarcane doesn’t come under the MSP regime because there is a different system of statutory minimum price.

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