Modi insists farm bills have nothing to do with MSP – so why are farmers protesting?

In passing the three ‘farm bills’ in the current session of Parliament, the Modi government is seeking to effect a massive change in how Indian agriculture is organised, by giving corporate players a much larger role.

Till now, most of the farmer protests around these policy changes have been centered around fears that this new marketing regime would lead to the end of the minimum support price, or MSP: A welfare scheme in which the Union government pays a predetermined price delinked from market rates for specific crops, thereby subsidising them.

This, despite the fact that none of the bills directly affect the MSP regime. In fact, the Modi government has repeatedly claimed that “MSP will remain”.

To add to this, the vast majority of protests have taken place in the states of Punjab and Haryana.

What explains this pattern?

Green Revolution legacy

Siraj Hussain, former Union Agriculture Secretary, explains that these fears could be traced to the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill which allows farmers to sell their produce outside the state-run Agricultural Produce Market Committee markets or mandis. “Since MSP procurement in Punjab, Haryana and some other states takes place at purchase centres located in these APMCs, farmers fear that weakening them could be a precursor to reducing procurement of wheat and paddy at MSP,” explained Hussain.

This also explains why the protests have, so far, been concentrated in these two states.

“Punjab and Haryana have been major procuring states where 80-90% of farmers can realise MSP,” said Hussain. “There is a fear that, completely left to the market forces, the prices can fall by 15%-20%. Market prices of several other crops are lower than MSP. This frightens the farmers who benefit from the MSP regime”.

Data from the Union government shows that for the past five years, as much as 52% of total paddy and wheat procurement has taken place from just the two states of Punjab and Haryana.

Sudha Naryanan, an agricultural economist at the Indira Gandhi Institute of Development Research, explained that outside high-value varieties like basmati, almost all the trade in paddy and wheat in Punjab-Haryana was via MSP. This trend goes right back to the start of the 1960s Green Revolution – an agricultural method that used high yielding varieties of crops to boost production.

“In the 1960s, there was a need to become self-sufficient in food,” Narayanan explained. “India wanted to implement the Green Revolution quickly, so it went to Punjab and Haryana where there is land and farmers are enterprising. However, a sudden rise in productivity would mean a fall in prices. To control this, an MSP procurement system was put in place in Punjab-Haryana, which has today become entrenched.”

Even outside the major MSP procurement states, however, there are still many concerns about the prospect of weakened APMCs, given that if traditional traders are displaced, farmers will have to deal with large corporations – a situation which would further reduce the bargaining power a farmer has.

Does MSP help or harm?

The farm bills have revived what has possibly been the knottiest debate in Indian agricultural policy: what is to be done with the minimum support price?

Outside of Punjab and Haryana, the MSP regime affects a relatively small number of farmers. The 2015 Shanta Kumar committee report had used NSSO data to point out that only 5.8% of Indian farmers actually sell at MSP. “Much of the procurement that government agencies undertake comes from larger farmers, and in a few selected states: Punjab, Haryana, Andhra Pradesh and lately from Madhya Pradesh and Chhattisgarh,” the report pointed out.

“While the MSP is declared for 23 crops, it’s only in wheat, paddy and cotton that there is substantial procurement and in recent years there has been some increase in the procurement of pulses,” pointed out Mekhala Krishnamurthy, Senior Fellow at the Centre for Policy Research and Associate Professor of Sociology and Anthropology at Ashoka University. “Procurement is also still remarkably regionally concentrated and limited in its reach. The reality is that the vast majority of Indian farmers deal with private markets, where there is no protection if prices go below MSP.”

While the concentration of MSP procurement has obviously helped Punjab-Haryana in terms of prosperity, it has also had its drawbacks. “This has made these two states completely dependent on paddy and wheat, leading to drop in soil quality and the water table,” explained Sudha Naryanan.

MSP procurement of wheat and paddy from Punjab-Haryana was built for a time of food scarcity. “But today we are keeping on buying wheat and rice, which India has in excess, even as other crops are sold below MSP,” explained G Chandrashekhar, an agribusiness specialist.

Farmers want more MSP

While critics have used its small reach and geographical skew to ask for the removal of the MSP regime – and thereby move to private sector procurement – proponents of government intervention in markets see it the other way, asking instead for a massive expansion in MSP procurement. “If only 6% of farmers are benefitting, that does not mean the rest don’t want MSP,” argued Devinder Sharma, agriculture policy analyst. “Every farmer wants it and not only for paddy and rice but for all 23 crops.”

Sharma argues that far from removing MSP, it should be made a legal right – which would mean that it would apply to all transactions, not only procurement by the government.

The 2015 Shanta Kumar committee report had also commented on the skewed nature of MSP procurement arguing that the “FCI [Food Corporation of India] should move on to states where market prices often go well below MSPs, especially eastern Uttar Pradesh, Bihar, West Bengal, and Assam”.

Efforts to correct this skew have even been made by the Union government with mixed results. “In an attempt to expand procurement to non-traditional states, beyond Punjab and Haryana, the central government introduced in 1997 a decentralised procurement scheme for state governments, but there has been relatively limited uptake,” pointed out Mekhala Krishnamurthy. “Central India has been an exception over the last 10-12 years. Madhya Pradesh, for example, has done very well to procure at MSP since 2008. This rabi season in fact, the state has even procured more wheat than Punjab.”

In fact, driven by pressure from farmer interest groups, the MSP regime has itself seen an expansion under Modi. Union government data shows that wheat farmers accessing MSP have gone up by 50% in the last five years while the number of paddy farmers has increased by 70% in the same time period.

Shaky alternatives

How viable are calls to replace the MSP regime completely with private procurement? Bihar, where the APMC Act was removed back in 2006 presents a good case study, contends Devinder Sharma. “The arguments at that time were the same as today: private procurement would lead to greater price delivery,” pointed out Sharma. “But nothing like that happened.”

Mekhala Krishnamurthy points out the incongruity of the Modi government’s farms bills attempting large-scale agricultural reform without a simultaneous effort to discuss the place of price support, procurement policy and future of the minimum support price. “Given its history in a number of states and the demands of farmers organisations, MSP is the elephant in the room,” she argued. “One can’t talk about agricultural policy reform in India without openly addressing it. Without that, one undermines the larger agricultural market reforms process.”