MSP guarantee legislation will only create a black market and encourage corruption: Anil Ghanwat

This is the version sent to Times of India for the Faceoff debate published on 26 November 2021. It was published here  and here

[PDF of online edition screenshot | PDF of picture of the print edition]


The origin of MSP dates back to the famines of the 1960s when it was designed mainly as a way to build a strategic food reserve. Our organisation does not oppose MSP in principle, but we would like it to be used only where it has proven to be the best way to achieve a national objective.

Even where it is determined that MSP should be used, open-ended procurement is never the answer. Today, around Rs 2 lakh crores is locked up in stocks that exceed the buffer norms – norms which are, in any case, too high. We don’t need 100 million tonnes of foodgrain sitting around, rotting in the rain, being eaten by rats. And since our prices are not competitive globally, neither can we export these mountains of foodgrain.

Second, if an objective of MSP is to help the poor, then with the advent of IT, we can now effectively use the most direct policy: for less than the amount we spend on MSP, we can lift hundreds of millions of the poor above poverty by transferring funds into their bank account.

Third, if our objective is to reduce farm price volatility, then direct funds transfer to the poor can partially address that objective along with a well-regulated, trustworthy and accountable crop insurance system – definitely not of the sort that exists today.

The harms of MSP must also be taken into account. MSP is given only for a few crops which means there is excessive production of these at the expense of other crops that may be more nutritious and could earn us export revenues. This distorted focus also depletes the water table. There is a demand to expand MSP to more crops. That would make things much worse. Even setting the price for MSP is fraught, for only markets can truly determine any price, not bureaucrats.

We must also take into account the effects of MSP on equity. Poor farmers get virtually nothing from MSP because they have little or no surplus: many subsist as agricultural labourers. Some farmers do benefit on occasion, maybe in a few states, but the largest chunk of the funds allocated to MSP is siphoned off by the government’s machinery.

In sum, MSP may have a few positives but it has many negatives and should be deployed only with great circumspection. Our Supreme Court Farm Law Committee’s report provides a lot more information.

Unfortunately, a new demand has emerged – for a guaranteed, legislated MSP in which the private sector is forced to buy at the support price.

We know that governments can use taxpayer funds to buy high and sell low, but even they can only do so till they bankrupt the nation (e.g. our gold was forced by the socialists to be flown to London in 1992). But no trader or stockist has this luxury. A legislated guarantee will create a black market. The farmer will be forced to surreptitiously sell at a price even lower than an already low market price. The Inspector Raj will look like heaven compared to the situation if traders are jailed for buying below MSP: that will lead to unprecedented corruption and the food distribution system will collapse.

A legislated MSP guarantee is entirely unimplementable and extremely dangerous.

There is a more fundamental issue here. Why are having this discussion – which is a comparison between two shades of micro-management of the economy? The nation needs to reject the failed policies of Marx. Let us revert to India’s own economic model – of Shubh Labh. Did our ancient kings operate banks, run buses and hotels, trade in foodgrains or produce cement?

In our scriptures, the government’s duty, its Dharma, is to ensure justice, security and infrastructure. No more. We have all heard of “Jahaan Ka Raja Ho Vyapaari, Vahaan Ki Praja Ho Bhikhari”. Where the king is a trader, the people are beggars. Kautilya’s Arthashastra also emphasises free trade and good regulation.

Mr Modi talks about Minimum Government, Maximum Governance but he has abandoned the farm laws which would have reduced the stranglehold of government on farmers. The farm laws had their own defects which our Committee has pointed out. They were not based on a policy rationale nor consulted widely.

Farmers need far more fundamental reforms to increase market and technology freedom; and compensation for decades of negative subsidy. Let the government set up a Committee to prepare a White Paper on agriculture to explore the state of affairs and consider the costs and benefits of various options. Let there be wide consultation. And let new laws be created that facilitate enterprise. The MSP should be reviewed as part of this process.

Regulation must reduce harms but for agriculture, excessive regulation (much of it sheltered in Schedule 9 of the Constitution) is choking farmers’ production and marketing efforts. Let farmers produce and buy and sell as they think best.