Rural distress is growing. Chand Committee report on MSPs shows a way out.

During the election campaign, the BJP had promised a 50 per cent profit margin on minimum support prices to farmers. But over the past year, the optimism of farmers has turned to despair. Since the parliamentary elections, basmati paddy prices have fallen by 35 per cent and cotton by 25 per cent. The era of cooperative federalism notwithstanding, the Centre practically decreed that states not announce a crop bonus. Sugarcane farmers’ dues continue to pile up. The Shanta Kumar Committee recommendation to dismantle the Food Corporation of India is worrisome. Most farmers were compelled to buy urea in the black market, paying a 40 per cent premium, something that never happened in the UPA years. All this irritates farmers more than the amendments to the land acquisition act. As if this were not enough, potato prices have crashed by 80 per cent and rubber prices are just 40 per cent of what they were three years ago. Milk prices have also come down by 15 per cent since last year, while fodder is up by 50 per cent. It’s not difficult to comprehend why farmer suicides are increasing.

The destruction of crops due to unseasonal weather has farmers wondering how much worse it can get. A possible way out could be the acceptance of the recent recommendations of a committee chaired by Ramesh Chand, which was set up by the UPA in 2013, to examine the methodological issues in the fixing of MSPs.

Economic analysts are convinced that MSPs leads to food inflation and are outdated in a market-driven economy. Early on in life, farmers learn that no farm practice is perfect or permanent and that what works on the neighbour’s land may not work on theirs. Similarly, we realise that MSPs are inadequate and far from perfect. They need to evolve and be tweaked — even small changes could go a long way. But “cutting and pasting” imported economic models alone won’t work. In spite of being limited by its terms of reference, the Chand Committee managed to recommend a roadmap to achieve better farm margins.

The Commission for Agricultural Costs and Prices recommends a price policy for 24 crops, but purchase of only six actually takes place. Procurement is possible from those farmers who have a marketable surplus and that too only in states where a public procurement system is in place. To try to overcome these issues, the committee recommended a “deficiency price payment” mechanism for crops for which an MSP is declared but purchase doesn’t materialise. In such a situation, the committee recommends, the government could compensate farmers for the difference between the MSP and (lower) market price.

The committee report also lays bare the ludicrousness of the present methodology for calculating cultivation costs. For example, only the number of hours that the bullock actually works on the farm is used for the calculation, as if the animals don’t need to be fed on the other days of the year. Similarly, interest on working capital is calculated for half the cropping season, presuming that the farmer would repay the loan when the crop is half grown. More ridiculous is the fact that post-harvest expenses are not accounted for. Economists have known about the deficiency in the methodology to calculate MSPs all along, but chose to stay silent. By the CAG’s standards, the presumptive loss to farmers over the decades would make the coal or 2G numbers look like chickenfeed. And even chickenfeed’s expensive now.

But not all the suggestions of the farming community were included in the recommendations. For instance, committee member Kavitha Kuruganti had reasonably argued that all members of a family engaged in farming should be valued at skilled wage rates and not just the head of the family, as has been recommended.

To overcome regional farm credit disparity, the committee suggested that at least 25 per cent of the value of agricultural output be supplied as short-term loans each year in every state. To deal with contentious issues of price and quality of agriculture inputs, it has been recommended that the government set up a regulatory authority with the power to deal with farm-input pricing, availability and quality.

The committee has gone further and recommended that the CACP be consulted on import-export decisions as they are generally taken in the interests of consumers, not farmers. The arbitrary decision-making of the government, specifically the commerce ministry, has long been a source of misery for farmers.

It’s difficult to decipher what the stars foretell, but the combination of world commodity trends and poor internal policies could unite farmers and be the nemesis of the incumbent government. These recommendations may sound insignificant to the uninitiated, but by accepting them, the government could begin to stem its loss of sheen in the villages.