Kavitha Kuruganti: “Don’t equate MSP with government procurement”

Kavitha Kuruganti, a farmers’ rights activist and an expert of the agrarian economy, shares several relatively low-cost ways to implement price guarantees for Indian farmers and ensure a life of dignity and fulfillment for our food producers
"Our aim is not to isolate farmers from the markets" - Kavita Kuruganti
"Our aim is not to isolate farmers from the markets" - Kavita Kuruganti

As the country approaches yet another general election, the atmosphere in the nation’s capital is again heating up, but not because of the usual politics. This time, it’s because thousands of farmers are back to collect on the promise made by the Government of India more than two years ago.

Their primary demand is the establishment of legally-mandated minimum prices for all agricultural produce in India – also known as ‘legal MSP’ or ‘legal minimum support price’.

However, this demand has met with stiff resistance from both the government and industry.

Some of the objections are leveled on practical grounds – such as the paucity of funds and warehouses. For others, this is an ideological and moral question: How can the government guarantee minimum prices only for one category of producers (farmers), while everyone else, such as artisans and industry, are forced to depend on the vagaries of supply and demand for their remuneration and rewards.

To address some of these questions, The New Indian Express caught up with Kavitha Kuruganti, a social activist known for her work related to sustainable farm livelihoods and farmers' rights.

Kuruganti has over 30 years of experience working in the development sector and is the founder convenor of Alliance for Sustainable & Holistic Agriculture (ASHA), a pan-Indian alliance of more than 400 organisations that have come together to secure India's 'Food, Farmers & Freedom'. She has also been an advisor on many government committees and panels.

Q- The primary objection raised by critics – whether from the government side, academia or industry – is one of paucity of funds. In fact, government sources are pointing to an incremental liability of Rs 10 lakh crore to meet the universal MSP that the farmers are demanding. How do you address such concerns, particularly with regard to the funds required?

A - Many of these concerns stem from improper understanding. In fact, they have not even attempted to understand what exactly have been the demands from the farmers’ side. In fact, many critics are interpreting the demands in their own way, with the result that they are equating the deficiencies in the current procurement regime with the kind of universal MSP regime that farmers’ movements are talking about.

First, the universal MSP scheme doesn’t mean the government has to buy everything that all farmers in India produce. What the farmers are looking for is a legal entitlement for a remunerative price that is fixed which gives them a decent margin over and above the cost of production. If the cost of production is 100 rupees, they are saying give me at least 50% above that, and guarantee that as the price in a statutory framework.

There are numerous ways by which the Government can deliver the entitlement to all farmers. We are not saying that it is the responsibility of the government to purchase everything that is being produced by every farmer.

One of the measures (and not the only one) is to ensure that across India, make sure that no purchase happens below MSP in any regulated market. Anyone who wants to buy - let them buy at or above MSP. 

Incidentally, state-level traders’ associations, of the ones who operate in APMCs, are telling me that they don’t have a problem with an MSP being the floor price for various commodities all across India. Traders are saying “if it’s the legally enforced floor price, I will only add my margin and move it forward in the supply chain”.

What they are worried about is one state having MSP as a legal right and another state not having MSP as a legal right, because, then, all the produce will come into the state with the MSP and will create a burden on the traders of that state. But if it’s a national level measure, traders are saying they don’t mind.

Q - But if the government does impose such a minimum price, and there are no buyers at that price, won’t the government have to buy it instead?

A - Not really. The government can choose to deploy a multiple set of measures for different commodities, depending on what suits a particular commodity and a particular region the best.

In some cases, you may want to procure the produce physically, for instance, for distributing through public food schemes. We are procuring wheat and paddy today for this. We can add oilseeds and pulses. To ensure nutrition security, the government can expand the food security scheme [by offering] one kilogram of pulses per month or one liter of oil per month.

Or you may want to achieve import substitution, such as to reduce the import of oil seeds and pulses.

Q - Can you explain how this can be achieved in practical terms, for example, when there’s too much production and the market cannot absorb the output?

Besides direct procurement, there are multiple policy tools by which this can be achieved.

One - market invention schemes. Here, the government does not procure because it wants to consume what it has procured. It is stepping into the market only to prop up prices whenever they are crashing…whenever prices crash below MSP, the government can choose to open a procurement center to keep procuring for a few days until the local traders are also forced to offer a better price to the farmers. That procurement can actually generate revenue back for the government, because the government can sell the produce, including in global markets. 

The second tool, especially for perishables, is a price deficiency payment. Under this mode, the deficiency between the MSP that is guaranteed and what the farmers get, is made good by the government. This is not farmer by farmer, but like in crop insurance schemes, with an area kept as a unit for administering this tool. Here, the government does not procure anything. 

Another scheme could be a modified version of the current warehouse receipts scheme. Under the current scheme, farmers are encouraged to retain their produce and not bring it all to the market when there is oversupply, usually during harvest season when most of the produce is coming into the market. The current scheme is aimed at improving the retention capacity of the farmers by making available to them warehouses where they can store, and against the value of the produce stored, banks extend a certain proportion of [the value of the stored produce] as a loan. However, this does not really guarantee an MSP to farmers. 

On the other hand, a modified scheme can build in elements of daily market price intelligence for farmers who store their produce, with a right of forfeiture of the produce if prices do not increase to MSP or above within 3 months. In such a case, the government has to pay the entire value of the produce at MSP to the farmer, and dispose of the produce itself. In this modified version, the interest subvention cost of the loan given by the bank is to be borne by the government. 

In addition to all this, there is also a fourth option, involving farmer producer organizations. These are enterprises formed by farmers themselves. The idea is to interface with the market in a collective manner, rather than as individual farmers trying to deal with powerful players in the market (a weak entity vs strong entity kind of an interface). The government can make FPOs into special vehicle mechanisms wherein those FPOs which are paying their members MSP can be provided with special incentives once they show proof that they have paid MSPs to their members.

Q - Why can’t these very same FPOs interface with large corporate buyers? This will ensure that the farmer is protected from exploitation by the corporate buyers, and at the same time, the government is not directly involved in procurement either.

A - This could work, provided that the government creates an ecosystem that empowers the FPO, and not one where the FPO becomes a mere supplier to big players, and the absorber of their transaction costs. Unfortunately, big companies are eyeing FPOs as the entities that can do all the hard, challenging and difficult work of aggregating from many many marginal producers.

Yes, an FPO can be empowered to interface better with the markets than individual, marginal farmers. But even there, we need an overall ecosystem that allows an FPO to actually work in the market space with equal footing – with the kind of tax holidays, financing scheme, and a variety of incentives that are given to big entities.

If you can ensure that they can stand up on their own feet by providing a whole lot of things – managerial skills, institutional capacity building etc – FPOs can be a solution. But FPOs cannot be seen as –  to use an un-feminist word – handmaidens of big corporations.

Q - How do you address concerns stemming from an ideological perspective? For example, many ask – if industries don’t get minimum price guarantees for their products, if artisans don’t get minimum price guarantees for what produce, why should farmers get it? Why not let the market decide the prices?

A - The answer to this question is that  farming is the riskiest enterprise that there is. Climate change makes it worse. Show me another enterprise, whether of an Adani or an Ambani, which is riskier than the farming that a marginal holder in India practices.

Secondly, we are not asking the government to completely shield the farmers from the market. We are not saying markets don’t exist or markets can’t exist. We are saying markets exist, and in the schema of the MSP as a legal guarantee, the government being a market player procuring things is as valid as the government being one who will allow other players to interface [fairly] and always stand on the side of the farmer when there is a deficiency, when there is a need for a forfeiture right, when there is a need for interest subvention, when there is a need for extra incentives.

How can I, or anyone out there, say there is no role for markets. It is markets which will determine prices, and the government that will guarantee remunerative prices for farmers.  

Q - There are also concerns that guaranteeing minimum prices for agricultural commodities will lead to run-away inflation, affecting the consumers of this country…

A - This whole business about what will happen to consumers is a completely bogus argument. We have ways of protecting consumers in this country, and the largest number of consumers are actually farmers. The consumers in this country are not distinctly different from producers. The largest number of consumers who are benefiting from government food schemes are also farmers. The largest number of the hungry and the malnourished in this country, are indeed those involved in the food production processes.

If you don’t put purchasing power in the hands of the farmers, how are they likely to give fair wages to agricultural workers and how are they likely to feed themselves?

Q - What about the question of funding? Some government estimates suggest a universal MSP scheme will cost the government Rs 10 lakh crore, more than four times what it current spends on purchasing food grains under MSP.

A - This is also wrong. According to our calculations, the government can achieve a lot of things by spending as little as Rs 1 lakh crore. Today, if they have the political will to give MSP as a legal guarantee, they have a 100 ways to come up with 1 lakh crores.

For example, in the last elections, they tried to bribe voters to vote for the BJP by fitting in the PM Kisan scheme. They retro-fitted it. They announced it in the budget [in February], but they gave it from the December quarter itself in the hope of getting farmers’ votes. And that was a sudden [expense of] Rs 75,000 crores. No Narendra Modi, no Nirmala Sitharaman asked where will this money come from. They conjured up Rs 75,000 crore just like that.

Similarly, we all know about the Rs 12 lakh crore write-off of bank NPAs. We also know how other sectors are supported repeatedly whereas there are no financial concepts of Limited Liability or Bankruptcy applied to a farmer’s enterprise.

Q - If the government can indeed ensure basic income security to farmers and prevent lakhs of farmer suicides with Rs 1-2 lakh crore rupees, what is the cause for all this conflict?

Whatever they are saying about [farmers being] Khalistanis and all that, the fact is that the farmers have waited for close to three years for this government to make good its promises made in November and December 2021. We have a written letter of assurance from the Government of India that year. Today, the farmers are more than justified in coming back into Delhi and reminding the government about its broken promises.

The reason for the conflict is not a lack of resources or methods. It is just an obdurate, mulish and anti-farmer attitude that the government of India is adopting. This is actually a classic situation where the Modi government does not want to give in to what the farmers are asking because the Modi government’s pride and ego is getting hurt.

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