Agricultural subsidy in Punjab greater than the annual income for farmers in the rest of the country!

When an economist of the caliber of former RBI Governor Raghuram Rajan joins the topic of the new farm laws (https://bit.ly/39zmd3i) and suggests that all is not well, it seems like a good idea to re-evaluate them. . It is true that Rajan does not make too many categorical claims in his interview with journalist Barkha Dutt and when he talks about farmers being shoved into the hands of “conglomerate, multinational buyers” who will squeeze them, it is gleefully assumed, once the mandis have been finished (another assumption), he says this is an argument of those who oppose the new laws.

However, the fact that he repeats the claim that the mandi will die once there is competition with them after the new farm laws come into force suggests that he is at least sympathetic to this view; never mind, there is little evidence from other sectors to suggest that existing markets die when new ones are also allowed to increase competition. The state and central governments, of course, must make sure that the new markets work by giving them land, low-cost loans, etc.

And in response to a question on whether the new laws should be amended to say that private traders will have to pay at least the MSP for all crops – this is a demand that the Congress party has been making – Rajan says “if it has established an MSP, enforce it where you can ”. That, in a nutshell, is really the point of view of the restless Punjab farmers.

The problem with the argument that farmers will be thrust into the hands of evil traders once the MSP system is over (for the record, news laws don’t even dilute the MSP) is that it ignores the reality of how limited it is. the MSP as a whole. the system is right now. Less than 10% of all crops are sold today in the MSP to government purchasing agencies, so if most farmers are selling to private traders even today, it is difficult to argue that a catastrophe is around the corner. if the MSP system fails; that’s why the unrest is really limited to states like Punjab.

Two, there is a much greater growth in the production of fruits and vegetables or milk than in cereals such as wheat and rice; It seems unlikely that production would grow this fast – 3-5 times that of cereals according to agriculture expert Ashok Gulati – if traders and “conglomerate, multinational buyers” put pressure on farmers in the manner described. That, in fact, is the reason why Punjab’s agricultural growth has plummeted to 1.9% a year since 2005-06, while that of the rest of the country is 3.5% much higher.

It is also important to note that while no state is protesting this, the current system is hopelessly skewed towards a few states like Punjab and Haryana; Punjab accounts for 13% of the country’s rice and wheat harvest, yet 26% of what FCI buys comes from the state. In fact, one of the reasons why Punjab grows so much wheat and rice, in turn, is related to this benevolence of the FCI and very large subsidies, both now and in the past, when government investment gave it the best road and irrigation network in the country.

While farmers in the state already get Rs 13,275 crore in electricity and fertilizer subsidies, the FCI system also adds a considerable amount to this. FCI had about 42 million tonnes of additional wheat and rice stocks in June, and since it costs a lot of money to carry these stocks, given the high purchase price, it is difficult to liquidate them, it is an implicit subsidy for the farmer. According to the FCI data, the economic cost of wheat is Rs 2,684 per quintal and Rs 3,727 for rice. From this, lower the purchase cost: Rs 2,221 for wheat and Rs 3,163 for rice, as this is not paid every year for old stocks held by FCI. Multiply this number by the excess stock of FCI that can be attributed to Punjab; Since 26% of FCI’s purchases come from Punjab, the same proportion can be applied to overstock.

Based on this, it turns out that Punjab farmers get an additional subsidy of Rs 5.6 billion. Add this to the fertilizer and electricity subsidy and you get an annual subsidy of Rs 18,875 crore; Divide this by the 1.09 million farm households in the state, and each household receives an annual subsidy of Rs 173,165.

Yes, as Ecowrap from the State Bank of India pointed out in October, according to the NAFIS survey of fiscal year 2017, the annual average household for all agricultural households in the state was Rs 107,000; While this would have grown in the last four years, the point is that the subsidy the Punjab farmer receives is much higher than what farmers earn in the rest of the country!

Going back to Rajan’s argument about trying to ensure that all farmers receive the MSP, it is clear that private traders will not pay for this as it is not a market offset price; on average mandi prices are 20-50% lower than the MSP for most crops. In which case, the government – FCI? – will have to intervene to buy all the crops. And if the government is paying higher than market prices for 23 crops, why shouldn’t it extend to fruits and vegetables or milk, etc.? Essentially this is a slippery slope and from a tax impact point of view the costs can run to lakhs of crore rupees. By shaking the way they have, farmers in Punjab have only highlighted how spoiled they are, as you clearly cannot give the same facilities to other farmers across the country. It remains to be seen whether holding the capital hostage causes the government to blink.