New Delhi: Prime Minister Narendra Modi’s announcement last week about repealing the three farm laws in the upcoming winter session has been seen as a setback to the economic reforms process with some economists offering alternative models for reforming the sector in absence of these laws, which includes certain procurement of a part of farmer’s produce rather than giving them guarantee on minimum support price.
Soumya Kanti Ghosh, chief economic advisor of India’s largest bank State Bank of India, suggested five points which include guaranteed procurement of a percentage of a farmer’s produce, treating of MSP as national floor price on electronic mandis (e-NAM), strengthening of existing agricultural produce marketing committees (APMC) mandis to prevent crop wastage.
Last two suggestions include the establishment of an all India contract farming institution for farmers and above all symmetric procurement of wheat and paddy from across the states as the procurement from large producing states such as West Bengal and Uttar Pradesh remain low in comparison with the procurement from smaller producers such as Punjab and Haryana.
In a surprise move, Prime Minister Narendra Modi on Friday announced the government’s decision to repeal the three farm laws on the occasion of the birth anniversary of the first Sikh Guru, Guru Nanak, known as Guru Purab.
Prime Minister Modi also announced the decision to form a committee to decide other pending issues, including the steps to make minimum support price (MSP) for public procurement more effective and transparent.
Though the Prime Minister appealed to the farmers to go back to their homes, it apparently failed to satisfy some farmer’s organizations, especially the Samyukt Kisan Morcha (joint forum of farmer’s organisations) as it has stuck to its demand of a legal guarantee for a minimum support price.
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Though the deadlock has not ended immediately, State Bank’s chief economist Soumya Kanti Ghosh offered five key agricultural reforms that would act as key enablers even without the three farm laws.
Ghosh says MSP, as a price guarantee, has always been a tricky issue and buying cereals at MSP will drive down the prices significantly below MSP.
Commenting on the dynamics of the Indian farm produce market, Ghosh says private buyers will always have an incentive in striking a separate deal with sellers as a large number of small and marginal farmers will be desperate to sell their produce but will be unable to do so due to lack of market outside the APMC Mandi system.
Guarantee the procurement quantity, not the price: SBI Research
He says in such a situation the government should consider two things. First, instead of MSP as a price guarantee that farmers are demanding, the Government could insert a quantity guarantee clause for a minimum period of five years that procurement to production percentage of crops being currently procured should at least be equal to last year percentage with safeguards in exceptional events like droughts, floods etc.
“Historical trend in case of procurement indicates that the average procurement of wheat has jumped from 26% in FY14 to 36% in FY21 and that of paddy from 30% to 48% during the same period,” he wrote in the report.
Convert MSP as floor price for e-NAM
Second, the Government should explore converting the Minimum Support Price (MSP) to Floor Price of Auction on National Agriculture Market (eNAM).
Citing the data from e-NAM, department of agriculture and cooperation and SBI's own research, the economist said that the average modal price for 9 crops at e-Nam till November 19 was considerably lower than the MSP for those crops for the FY 2022.
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These are Jowar, Bajra, Maize, Ragi, Arhar, Moong whole, Urad whole and Paddy.
The only exception was Soyabean whose modal price in e-Nam was substantially higher than the MSP price for the FY-2022.
Strengthen the existing Mandi system
As a third step, Ghosh says the government must continue to strengthen APMC market infrastructure.
“Based on a Government report, as per our estimates, the monetary loss for cereals is almost Rs 27,000 crore due to harvest and post-harvest losses. The losses for oilseeds and pulses are Rs 10,000 crore and Rs 5,000 crore, respectively,” he said.
The SBI’s chief economic advisor also advises the government to establish a Contract Farming Institution in India that will have the exclusive right to oversee price discovery in Contract Farming.
He says contract farming has been instrumental in many countries by providing growers access to supply chains with market and price stability, as well as technical assistance.
Citing Thailand’s example, Ghosh says its experience shows market certainty (52%) and price stability (46%) were prime factors due to which farmers participated in contract farming.
End disproportionate procurement from smaller states
One of the suggestions offered by Soumya Kanti Ghosh is to end the practice of disproportionately high procurement of wheat and paddy from smaller states such as Punjab and Haryana that puts the farmers of other producing states at a disadvantage.
Ghosh advised the government to ensure a symmetric procurement across states.
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“The procurement of cereals had continued to be asymmetric, with top paddy producing states like West Bengal (first) and Uttar Pradesh (second) witnessing very low procurement, even as states like Punjab and Haryana that are not largest producers witnessing much larger procurement,” he said.
“For the record, for Punjab and Haryana, the procurement of cereals were 83% of produce, while for some other states this was in single digits,” Ghosh noted in the report.
