Context:

• With farm prices of several commodities falling way below their minimum support prices (MSPs) in 2016-17 and 2017-18, farmers have been under increasing stress.
• The Centre and several state governments are searching for ways and means to support farmers.
• Although the Centre regularly announces MSPs for 23 commodities (including Fair and Remunerative Price (FRP) for sugarcane), its implementation remains a distant dream.
• Except paddy, wheat and sugarcane in major procuring states, the announcement of MSPs remains largely indicative in nature.

Bhavantar Bhugtan Yojana (BBY)

• The Madhya Pradesh government tried to help farmers through the Bhavantar Bhugtan Yojana (BBY)
• It is a price deficiency payment (PDP) scheme, in Kharif 2017
• But it gave up abruptly in the rabi marketing season as the scheme could not cover even 25 per cent of the harvest, even though prices of most crops were way below their MSPs

Scaling up the BBY/PDP scheme

• Scaling up BBY/PDP scheme requires reaching all farmers, registering their market arrivals, and paying them the difference between the MSP and market prices
• Cost plus pricing, which ignores demand side, will lead to major distortions in the system
• For example, farmers will find jowar relatively more attractive and increase its production
• Higher supply without any change in demand will create a glut and thus depress market prices, requiring either large-scale procurement by the government at enhanced MSP or a huge PDP
• Higher cotton and paddy MSPs will make India less competitive in global markets, adversely impacting their exports

Pricing methodologies

• A2+FL is the cost which includes paid out costs plus the imputed value of family labour
• C2 is comprehensive cost including the imputed rental value of owned land and imputed interest on owned capital
• The government is in a dilemma on which way to choose for MSP reforms

Way forward

• There is no shortcut to long overdue agri-market reforms
• Synchronising trade and tariff policy with the MSP policy has to be done
• There is no respite in sight for peasants in the near future, except may be some band aid as a result of knee-jerk reactions in terms of loan waivers or some income support.

Source:IE