Wednesday, January 16, 2019
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Posted at: Mar 26, 2018, 12:45 AM; last updated: Mar 26, 2018, 12:45 AM (IST)

The price pledge

Price-deficiency payment or ‘Bhawanter Bhugtan Yojana’ is a better way to ensure minimum price guarantee to the farmers. The scheme has a potential to address wider agrarian issues and provide much-needed stability to agricultural prices, says Sher Singh Sangwan
The price pledge
Tribune photo: Himanshu Mahajan

The Finance Minister announced in the Budget that the minimum support price (MSP) of all crops would be at least one-and-a-half times of their production cost. It was also stated that if the price of a produce is less than its MSP then the government would purchase the produce at its MSP or provide the MSP to farmers through some other mechanism. 

The first part of the announcement, i.e., MSP vis-à-vis one-and-a-half times of the cost of production, has already been discussed in the media. The government has clarified that it will be calculated on the basis of costs plus the imputed value of family labour i.e., Cost A2+ FL. But, the other alternative mechanism to ensure value equivalent to MSP has got little attention.

Bridging the gap

Although, the Centre is yet to spell out the mechanism as an alternative to MSP, it is widely believed that the Finance Minister might be hinting at the price deficiency payment scheme i.e., Bhawanter Bhugtan Yojana (BBY). It is being implemented by Madhya Pradesh for eight kharif crops. Under the BBY, the state has paid farmers, the difference between the MSP of a crop and its actual average sale price (ASP) received in the market. It has been followed by Haryana in December 2017 for potato, tomato, onion and cauliflower. In this scheme, one of the most important conditions is the prior registration of area to be cultivated by a farmer under the crops to be covered under BBY.

Madhya Pradesh has already paid Rs 1,900 crore to farmers under BBY for five kharif crops whose ASPs were less than their MSPs. The state has made a strong case for support from the Centre under the BBY. As per newspaper reports, Dr Ramesh Chand, a member of the NITI Aayog, has visited the state to study the scheme and he has made his recommendation to the Central government. 

Input compensation

Another alternative mechanism has been announced by Telangana in the second week of January 2018 in the form of input compensation at the rate of Rs 4,000 per acre of owned area from the next crop season. Earlier, such scheme was implemented by Andhra Pradesh to compensate the farmers’ loss due to drought conditions. 

Detailed studies about impact of both these schemes are not available. Some perceptions have, however, appeared in the newspapers on these schemes. According to the reports, input compensation policy of Telangana is a better option than the BBY, though the former is yet to be grounded. Their opinions are based upon less coverage of total production in case of urad, soyabean, maize, groundnut and moong whose ASPs were less than their MSPs. The less coverage may be due to non-registration by farmers and no market surplus with majority of farmers to sell just after harvest. Compared to the BBY, it is mentioned that Telegana scheme does not require any registration and farmers are free to grow any crop and sell any time. Moreover, the BBY has potential of manipulation by traders, though it is too early to accept this allegation without analysing prices for two-three seasons. 

Different liabilities

Consider implications of these schemes. Firstly, under the input compensation yojana, owner-farmers are to be paid uniform amount per acre. It will be an ongoing liability on taxpayers without affecting any diversification in the cropping pattern as per demand.  It may be unsustainable like free electricity to agriculture by some states.  Whereas, the BBY creates liability for the state for some specific crops only in the years when their ASPs are less than the MSP. Hence, it may not be uniform ongoing liability in every season and every year for the total cultivated area.

Secondly in the BBY, the requirement of prior registration of area to be sown under various crops especially to be covered under MSP is stated to be a too much micro management by states. But the scheme has strength to pave way for area planning in the country. Area planning is an approach followed by countries like Australia, the USA, the UK, etc; otherwise the vast available land in some of the countries would have led to unlimited surplus production in the world. In this approach, the area under different crops is planned as per their domestic and export demand. The Budget 2018-19 also mentions that an institutional mechanism will be created with participation of all ministries concerned for forecasting total demand (including export) of each crop. 

Area planning

In our country, there is a limitation of area on the one hand and shortage of some crops like pulses and oil seeds on the other hand. The BBY, with the conditions of area registration under each crop, can lead to area planning by the following mechanism. Through the registration of area to be allotted under different crops, each state and the country as a whole will have information of the cumulative area under each crop. On the other hand, the department concerned will have estimates of required production of each crop and hence likely area to be allotted. As the area figures under a crop reach near its required production, the states may stop registration under the crop. Then, farmers may seek registration under second best crop as per productivity and MSP. 

Some condition of maximum area can also put for single farmer to include more of them in each crop.  In this way, the area will be planned under different crops.  Moreover, the crops like pulses and oil seed will also register more area and more production which will reduce their imports. It will also lead to optimum utilisation of scare inputs like water, seed, fertilisers and chemicals by avoiding wastage in excess production. The liability of payment through BBY will also be reduced due to less occasions of price crash owing to area planning.  

Waiting for Godot

  • Poll promise: Farmers’ profit 50% more than cost of produce
  • MSP based on paid out costs on inputs plus family labour (A2+FL)
  • Farmers want MSP based on comprehensive cost (C2)
  • Current MSPs are far less than the promised profit margin  

— Dr Sangwan is Professor, SBI Chair at the Centre for Research in Rural and Industrial Development (CRRID)


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