Homeviews News

    Farmers aren’t the only ones enjoying subsidies! Government needs to incentivize them away from MSP

    Farmers aren’t the only ones enjoying subsidies! Government needs to incentivize them away from MSP

    Farmers aren’t the only ones enjoying subsidies! Government needs to incentivize them away from MSP
    Profile image

    By Latha Venkatesh   IST (Published)

    Mini

    Dr Ashok Gulati calculates that every farm household in Punjab and Haryana gets about Rs 1.2 lakh in subsidies per year.

    David Easton defined politics as the authoritative allocation of values and resources for society. This definition should help us understand why the Northern Indian farmers have given price supports 50 years ago and why these same supports are being seen as a drag now.
    Over 50 years ago, in the late 60’s actually, two back-to-back droughts had brought over a quarter of India’s population to the brink of starvation and the Indian state to helplessness. India was short by at least 10 million tons of food grains and had forex reserves to pay for just 7 million tons. The US, under its PL 480 (public law480) scheme,  gave India grain for rupee payments but that didn’t erase the humiliation or the helplessness.
    The Indian government of the late 60’s also embarked on a PLI (production linked incentive) scheme for atmanirbharta in agriculture. Of course, it was called by a different name: it was called the green revolution. Agriculture scientist, Dr MS Swaminathan recommended a combo of HYV ( high yielding variety) seeds, abundant water and a liberal dose of agrochemicals to increase yields. Since this kind of investment in water and seeds and fertilizers needed slightly larger farms, the choice fell on Punjab, Haryana and Western Uttar Pradesh for wheat. ( Please note the current PLI scheme is also seeking out stronger companies than giving equal inputs to all companies)  Farmers who made the investment obviously wanted a guaranteed return for their investments and hence the MSP ( minimum support price) was designed. It was sincerely and efficiently implemented only in Punjab, Haryana and Western UP because this was the target group of the green revolution.
    Politics, again as Easton explained,  is allocation of resources AND values. The slogan of the day was as much Jai Kisan as it was Jai Jawan.
    But times changed, economic realities changed and value too has changed. The Food corporation has three times the buffer stock the country needs. Its maintenance has pushed the FCI’s loan outstandings to nearly 2 lakh crore and suddenly Jai Kisan is being purveyed as Hai Kisan!!
    But before demonising the Punjab & Haryana farmer, a few issues and facts need to be noted.
    1.
    The north Indian rice farmers are not entirely responsible for the 2 lakh crore loan outstanding of FCI. The high buffer is also because governments over years have been less than efficient in off-loading the surplus in open market operations to smoothen prices, as also to stamp out starvation and malnutrition in the country through pro-poor programs.
    2. The rice and wheat farmer of Punjab and Haryana are not the only ones being subsidised. Sugarcane farmers in UP and Maharashtra are given a Fair & Remunerative price by the centre, which are raised further by the states. Only here, the burden is borne by the sugar mills and the consumer. (In fact, India’s high sugar subsidies are the subject of a serious complaint raised in the PTO by Australia, Brazil Thailand and a few other countries.) The Cotton Corporation of India also sustains huge losses year after year by procuring cotton In Gujarat and Maharashtra.
    3.  The north Indian farmer isn't the only well-off set to get subsidies;  there are many more beneficiaries of state subsidies who aren’t necessarily poor, but whom the state supports with subsidies because of some of the other values. The latest to enter the list is the PLI ( productivity linked subsidy) beneficiaries. Hand on our heart can anyone say the shareholders of Amber, Dixon, Bluestar, the various makers of Apple iPhone, the successful pharma companies and auto ancillary makers are poor segments who merit subsidies? The nation is ready to pay them because the current value-system is supporting other goals like Atmanirbharta, never mind if atmanirbharta requires a bit of inequality.
    4. There are more long-running subsidies which are as iniquitous: In 2016,  the HRD ministry, while hiking the fees for the IITs, said that the government, on an average, is spending about Rs 6 lakh on each of the 80,000 students enrolled in the 20-plus IITs. The MBBS fees in many government-run universities like JNU, Benaras Hindu University and other central universities all over the country charge Rs 15,000-40,000 rupees per year as fees while deemed universities charge between Rs 12-25 lakhs per year. Surely government medical colleges are hugely subsidised and not necessarily only for the poor.
    5. Dr Arvind Subramanian when he was Chief economic advisor, detailed in his 2015-16 economic survey in a chapter titled “Bounties for the Rich” at least one lakh crore rupees of subsidies that are not targeted at the poor.
    Dr Ashok Gulati calculates that every farm household in Punjab and Haryana gets about Rs 1.2 lakh in subsidies per year. If farm households have 6- 10 members per household we are talking of subsidies of Rs 1000-2000 per person per month.  Sample this for comparison: the government decided recently to pay the interest on interest for all borrowers of loans under Rs 2 crore, subsidizes borrowers who have taken a 2 crore rupee home loan!
    The purpose of this piece is not to argue that since one rich constituency is getting away with a chunk of the taxpayer's money, let us allow this all round. Nor is it a plea to ignore the danger of rapidly depleting groundwater due to excessive rice cultivation and reckless power subsidies.
    The point I am making is:  the north Indian farmer who was once the backbone of our atmanirbharta of the seventies, is seeing an existential threat and he needs to be helped out of the subsidy crutch than scared with a sudden uncertain future. He is reading the writing on the wall: PDS handouts may be gradually reduced and substituted with cash in jandhan accounts. The new farm laws look designed to squeeze out the finances of the APMC mandis, and before long the mandis may become too weak to be a standby buyer if the private buyer were to stop his purchases for any reason.
    The answer lies in the centre sitting with the farmer unions and the state governments of Punjab and Haryana and giving them a tangible alternative. The focus needs to be weaned away from the new farm laws by promising to stay their implementation for say one year. And this one year can be utiliized to hammer out a solid 10-year package which incentivizes the farmers away from water-thirsty crops like rice and towards more value-added crops, fruits and vegetables. Indeed they can even be woven into the Production Linked Scheme for agro-processing.
    arrow down

      Market Movers

      View All
      CompanyPriceChng%Chng