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LATEST NEWS UPDATES | Swaminathan MSP: Solution to Agrarian Crisis and Farmers’ Distress? -Ranjit Singh Ghuman

Swaminathan MSP: Solution to Agrarian Crisis and Farmers’ Distress? -Ranjit Singh Ghuman

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published Published on Aug 17, 2015   modified Modified on Aug 17, 2015
-Economic and Political Weekly

Farmers' unions and political parties have been demanding the implementation of the Swaminathan minimum support price (cost plus 50%) to address agrarian crisis and farmers' distress. But they have not raised demands for the implementation of the recommendations of the National Commission on Farmers, which have the potential to provide lasting solutions.

Ranjit Singh Ghuman (ghumanrs@yahoo.co.uk) is a Nehru SAIL Chair Professor, Centre for Research in Rural and Industrial Development, Chandigarh.

The views are of the author; usual disclaimer applies.

Farmers’ unions and political parties have been demanding the implementation of the Swaminathan minimum support price (cost plus 50%) to address agrarian crisis and farmers’ distress. But they have not raised demands for the implementation of the recommendations of the National Commission on Farmers, which have the potential to provide lasting solutions.

Suicides by a large number of farmers and agricultural labourers during the last two decades or so, along with the high incidence of indebtedness among them, is a clear indicator of emerging agrarian crisis and farmers’ distress. According to the National Sample Survey Office (NSSO), a large number of farmers across the country are not interested in agriculture. Lakhs of farmers have already been pushed out of agriculture as employment in agriculture is fast shrinking. As per the preliminary results of an ongoing study by the author in Punjab, nearly 80% farmers do not want their sons to be agriculturists.

The National Commission on Farmers (NCF) set up under the chairmanship of Sompal in February 2004, and subsequently led by M S Swaminathan from November 2004, also bears testimony to farmers’ distress in India. The union government’s special package of Rs 70,000 crore to address indebtedness among farmers in 2008 is also a recognition of the agrarian crisis and farmers’ distress. Earlier, a debt-waiver package of Rs 25,000 crore was given to compensate agricultural households whose breadwinners committed suicides in Maharashtra and some other states.

Swaminathan’s Cost Plus 50%

As per one of the recommendations of NCF (popularly known as Swaminathan recommendations), farmers should be given a minimum support price (MSP) of at least 50% more than the weighted average of the cost of production (NCF 2006: 246). This recommendation, however, was not incorporated in the National Policy for Farmers, 2007. The Ramesh Chand Committee, constituted for a comprehensive review of the Commission for Agricultural Costs and Prices (CACP) methodology to determine MSP, made a number of recommendations—except the Swaminathan MSP. Before the 2014 parliamentary elections, the Bharatiya Janata Party promised to implement the Swaminathan MSP, but has since forgotten the promise. It has, in fact, submitted an affidavit in the Supreme Court stating that the government cannot implement the Swaminathan MSP.

Farmers deserve remunerative prices for their produce. However, there is a need to have a well-informed debate before taking any decision on the Swaminathan MSP. The following are the significant issues at hand:

(i) Will it be appropriate to fix MSP in such a mechanical manner?

(ii) What will be its effect on consumers (particularly, the poor), on inflation, and the overall growth rate of the economy?

(iii) Will it be in consonance with the Food Security Act?

(iv) Are the political parties, across the board, sincere to implement Swaminathan MSP or are they simply doing politics over it?

(v) Will any government be able to implement Swaminathan MSP even if it is sincere to implement it?

(vi) And above all, will it provide a long-term solution to agrarian crisis and farmers’ distress?

In the case of the first question, it is significant to mention that the terms of reference of the CACP do not allow a mechanical determination of MSP as recommended by the NCF. While recommending the MSP for various agricultural commodities (about 25 crops at present, 14 kharif crops, seven rabi crops and four other crops), the CACP takes into account a variety of factors. These include the cost of production, changes in input prices, input–output price parity, trends in market prices, demand and supply, intercrop price parity, effect on industrial cost structure, effect on cost of living, effect on general price level, international price situation, parity between prices paid and prices received by the farmers, effect on issue prices (mainly for public distribution), and implication for subsidy.

The CACP, thus, analyses a wide spectrum of information and data, in addition to cost of production, before recommending MSP of any of the crops. Costs, however, remain the significant determinant of MSP but other factors, too, are not ignored. Nonetheless, both CACP and the union government are not in favour of any mechanical determination of MSP. Perhaps nowhere in the world are farmers given cost plus 50% support price.

The answer to the second question is also addressed in the CACP’s terms of reference as it takes into account the likely impact of MSP on cost of living, general price level, and effect on industrial cost structure. The taxpayers and the corporate sector may also not favour a high MSP. Households below poverty line (BPL) (who are income as well as asset-and skill-poor, and are victims of multipronged poverty) are another large set of people to whom the state, society, and government owe a responsibility. Given the one-third weightage of agricultural produce in the wholesale price index (WPI), higher MSPs will certainly escalate prices and costs of living. The prices of agricultural produce, which are raw materials in processing and manufacturing, shall also have an effect on the overall growth rate and the global competitive capacity of the economy.

It is, thus, clear that the CACP cannot recommend MSP without taking into account other factors. Perhaps it is in this context that the NCF recommended the revision of the terms of reference and review of the CACP methodology of MSP determination (NCF 2006: 246). The constitution of Ramesh Chand Committee seems to be the outcome of this recommendation. The government too is constrained. It has a number of societal, economic and political concerns in this regard. Therefore, MSP has to be set within certain limits.

As regards the third question, the MSP shall have a definite effect on the cost of public procurement, distribution, and buffer stocks of foodgrains. There is a direct correlation between MSP and cost of providing food security to 67% of the Indian population.

The fourth and fifth questions are not only two sides of the same coin but are also very complex. Given the track record of the election manifestos of various political parties, it is difficult to say anything about the sincerity and commitment of the political leadership, across parties, to implement the Swaminathan MSP.

Ground Reality

The last question is the main focus of this commentary as the farmers and their leadership seem to be convinced that the agrarian crisis and farmers’ distress are mainly because of low levels of MSP, and that the Swaminathan MSP is the solution. I wish they were right. But they need to correct their understanding in view of the large proportion of marginal and smallholdings, low productivity, increasing production costs, shrinking employment opportunities, and declining growth rate of net per hectare returns. Sometimes even inefficient production, which means higher costs and/or relatively lower output, is also covered by MSP.

According to the 70th round survey of the NSSO (2014), the estimated number of agricultural households (AHHs) in India is 90.2 million, who constitute 57.8% of the total estimated rural households (156.14 million). Clearly 42.2% of rural households (RHHs) are without any agricultural land.

Among the AHHs, 2.65% have only 0.01 hectares (ha) of land and are simply notional AHHs. Another 31.89% AHHs have land between 0.1 ha and 0.4 ha; and 34.9% have land between 0.41 ha and 1 ha. These three categories of AHHs account for 69.44% and are classified as marginal farmers. If we add small farmers (17.14%), the proportion of marginal and small farmers comes out to be 86.58% of the total.

The average size of the marginal holdings is only 0.41 ha (one acre) and that of smallholdings is 1.4 ha, much lower than the upper size-class limit of 2 ha. Given their economically unviable holding size, and small quantities of marketable surplus, there will be a marginal increase in the total net income of these farmers from agriculture even if they are given the Swaminathan MSP. It is also important to understand that Swaminathan MSP shall increase farmers’ incomes only by the difference between the prevailing MSP and the Swaminathan MSP.

Moreover, such smallholdings of land do not provide year-round employment, nor adequate income to meet basic needs, let alone costs of health and education. The question is: how will the Swaminathan MSP make these farmers economically viable and provide sustainability in the long run?

For the submarginal farmers (with land up to 0.01 ha) agricultural income accounts for merely 0.65% of their monthly income. Nearly 35% of the farmers with land between 0.01 ha and 0.4 ha have wage employment as their principal source of income. Their share of income from agriculture is just 16.55% (NSSO 2014).

In the holding size-class of 0.41 ha to 1 ha (1 acre to 2.5 acre), income from agriculture is 40.89% of their total monthly household income. Clearly, the major share of the monthly income of these AHHs comes from non-agricultural sources. Even in the case of small farmers, income from cultivation accounts for 57.28% of their monthly income (NSSO 2014).

At the national level, the share of agriculture in gross domestic product (GDP) dwindled to 13%, while its share in employment is still around 55%. On the eve of independence the share of agriculture in India’s GDP was 55% and its employment share was about 75%. As of today, two-thirds of agricultural land is not under assured irrigation.

The relative economic conditions of the agricultural workforce (cultivators as well as labourers) have gone poorer vis-à-vis their counterparts in the non-agricultural sectors. Taking into account the large number of underemployed and those disguised unemployed workers in agriculture, MSP alone is not going to address the agrarian crisis and farmers’ distress, especially in the case of marginal and small AHHs, who account for 87% of AHHs.

NCF’s Other Recommendations

Significantly, the NCF submitted five reports to the Government of India during 2004–06 under the main title “Serving Farmers and Saving Farming.” The first report was submitted in December 2004, and the last in October 2006. The NCF also submitted a Revised Draft National Policy for Farmers in October 2006.

These reports revealed that the main causes of agrarian distress, including suicides by farmers, were unfinished agenda of land reforms, shortage of water for irrigation, technology fatigue, inadequate access to and availability of institutional credit, and lack of opportunities for assured and remunerative marketing, low levels of education and skill, and lack of employability of surplus workforce in agriculture.

These reports made several recommendations, including cost plus 50% MSP, to improve agriculture and the economic condition of farmers. However, farmers and political parties are demanding the implementation of Swaminathan MSP and are not demanding the implementation of the other recommendations of the NCF.

Ironically, these other recommendations are of a more fundamental nature and have the potential to provide a long-term solution to the agrarian crisis and farmers’ distress. Those recommendations are mainly in the domain of land reforms, irrigation, productivity, credit, insurance, food security, bio-resources, and public investment in agriculture, human development, and the rural non-farm sector. The NCF has thus looked for solutions to agrarian crisis and farmers’ distress both in agriculture as well as beyond agriculture. Within agriculture, the main challenge is to raise the productivity of land and labour, and thereby increase the per capita income of the agricultural workforce.

Beyond Farms and MSP

The development of the rural non-farm sector, mainly based on agricultural produce, and generations of employment therein is another significant recommendation of the NCF. In view of the ever shrinking employment opportunities in agriculture, the generation of employment in the rural non-farm sector, inter alia, and absorbing surplus workforce in agriculture therein shall be the most potent and lasting solution to the agrarian crisis and farmers’ distress. Historically, this has been experienced by most present-day developed countries.

The long-term dynamics of growth and historical experience of other countries clearly indicate that, as an economy grows the share of agriculture in GDP and employment goes down and India is no exception. The fundamental issue is: how to shift the surplus workforce from agricultural to non-agricultural sectors. The answer to this lies in the development of the rural non-farm sector, and to generate gainful employment for surplus labour.

The employability of this surplus labour is the necessary condition for their employment outside agriculture. This would require providing them quality education and skill. It is the only “mantra” to decrease pressure of workforce and population on agriculture. The lasting solution, inter alia, thus lies in improving rural education, skill, health, and infrastructure and not in freebies and subsidies. The access to and affordability of quality education and health is sine qua non to achieve this goal.

It is in this context that the farmers must understand that even the very existence of CACP and the public procurement system (see the Shanta Kumar Report released in 2015) may not be there for all time to come. In 2002 also, there was a move to freeze MSP. In the present era of market-driven development, the CACP and public procurement system are liable to be more vulnerable. The periodical occurrence of crop loss/failure is also not covered by the CACP, and many a times by the procurement agencies.

Incidentally, farmers (mainly because of a lack of awareness) and political leadership (that tends to mislead) are demanding only the Swaminathan MSP and are not raising any serious demands for the implementation of other fundamental recommendations of the NCF.

The Swaminathan MSP may help medium- and large-holding farmers and that too in the short run, but not the marginal-and small-holding farmers. It is high time that, along with demanding remunerative MSP, they must demand the implementation of more fundamental recommendations made by the NCF. Unfortunately, even farmers are not ready to understand these hard facts.

References

NCF (2006): Serving Farmers and Saving Farming: Towards Faster and More Inclusive Growth of Farmers Welfare, National Commission on Farmers, Government of India.

NSSO (2014): Key Indicators of Situation Assessment of Agricultural Households, 70th Round, January–December 2013, National Sample Survey Office, Ministry of Statistics and Programme Implementation.

Economic and Political Weekly, Vol-L, No. 33, August 15, 2015, http://www.epw.in/commentary/swaminathan-msp.html


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