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Do Farmers Only Want MSP and Not Procurement? Why Their Demand for Repeal is Not Right

By: K Yatish Rajawat

Last Updated: December 18, 2020, 10:58 IST

Image: AP

Image: AP

The government is unwilling to repeal the law and the farmers agitating want nothing less. This stalemate cannot continue.

The negotiation between the government and Punjab farmers has reached a stalemate. The Punjab farmers want the three laws to be repealed. While the laws are not perfect and can be amended, repealing them is not right. Punjab farmers also want a law promising them MSP, assuming that they want it for two crops that they currently grow, not all the 23 crops for which MSP is announced. Do they only want MSP? Don’t they want procurement as well? If they want procurement who will pay for it and where will the procured grains be stored, supplied or sold? As the Punjab government is supporting the farmers, it should also procure, store and redistribute.

The state government can supply it to deficient state or sell it in the open market. Though Punjab should be ready for competition, Madhya Pradesh, an erstwhile deficient state, is the new wheat basket of India. And it is more environment-friendly to produce rice in the east and south of India as these agro-climatic zones are more suited for it. The laws should not be repealed and cannot go back to status-quo just because change is so difficult, but there is space for more complete reforms.

The narrative is one of glorification of farmer as ‘annadata’ versus oversimplification of his role and importance in the economy. Glorification leads to a romantic view of the farmer. Oversimplification allows the world to be divided into givers versus takers, farmer entrepreneurs versus ‘annadata’. Oversimplification leads to extreme position — repeal the laws, amendment is not possible; Punjab farmers represent the farmers across the country. If a farmer in Punjab wants the laws to be repealed, so does the rest of the country. It also oversimplifies the role of corporates as good or mandis as only bad. The role of investment by corporates in agriculture infrastructure or the role of mandis as existing infrastructure is forgotten.

The government is unwilling to repeal the law and the farmers agitating want nothing less. This stalemate cannot continue. There are columnists who have suggested that Prime Minister Narendra Modi should fool the farmers. There are others that say farmers are denying themselves a second green revolution. This extremism of views and selective use of facts to suit the narrative does not help the process of reforms. It only hardens extreme positions.

If the situation of blockade continues, the central government may need to amend the law to delegate not just the MSP but also the process of procurement to the state. This will address regional demands of the Punjab farmers to some extent without the rest of the country having to pay for subsidising them.

The issue is that this delegation to state may also dilute the impact of the law on a pan-India basis and other states may also demand freedom to configure the laws as per their needs. We should really consider this. They did it for real estate act (RERA), a model law that was created and states could configure their own Act, as land is a state subject like agriculture. Some states dropped punitive measures and fines, and their citizens rightfully lambasted them for it.


If procurement is fully decentralised, the redistribution by central government will also have to be dismantled and states will have to run Targeted Public Distribution System (TPDS).

The MSP is not just a price, it is linked to procurement that is paid for by the central government, but procurement done by state agencies and the stock procured is used for redistribution under various schemes of the central government. The redistribution is a process, and it involves storage, logistics and redistribution.

One way out of the current MSP, procurement and distribution conundrum is to look at a reform of the entire process, instead of just the MSP end. The central government can amend the current laws to say that the state government can guarantee MSP to its farmers, it can also procure and distribute under central government welfare schemes. This would be in the spirit of federalism and drive decision-making to states and reduce the command-and-control economy created in redistribution. The only thing is that it will also need procurement to fully decentralised, and for central government is to dismantle FCI’s role in TPDS.

The current process involves the state procuring crops, primarily wheat and rice, based on a cash credit limit (CCL) given by the Reserve Bank of India (RBI) on behalf of the Centre. The Centre pays for the purchase of wheat only after lifting the stocks from the mandis. They make the payment for rice crop after the paddy in bought, milled, and they deliver the rice stock into the FCI godowns. There is a time lag, corruption and leakage, between procurement, lifting of stocks and delivery into the FCI godowns. Punjab government and its agencies have created facilities for milling and storage of rice.

Earlier, most of the wheat stocks were moved from North India only, i.e. from Punjab, Haryana, and sometimes UP and Rajasthan. Lately, the central government has increased in procurement of wheat from Madhya Pradesh (MP), and now almost 33 % of the procurement is done from MP, almost the same as Punjab. In MP, the state procures and FCI takes over the grain for redistribution to poor household under TPDS within the state and for central pool for distribution to deficient states.

Like wheat, the rice is procured from Punjab, Haryana, UP and Uttarakhand. Recently, considerable quantity of rice is also being procured for the central pool from AP, Chhattisgarh, Orissa and even West Bengal as they are now producing more than their own requirement.

The FCI godowns are overflowing with stocks and have no more capacity to store. The stocks have already exceeded three times the reserve buffer requirement. The FCI may buy at MSP but its economic cost that includes storage and logistics is so high that it has made no profit on any crop. If the system is reformed and state governments allowed into storage and redistribution, it will open up the sector for competition and may reduce inefficiencies.

State governments can decide the MSP, store the procurement and earn it from either selling it to the PDS system or other states who want the procured grains.

There are two kinds of procurements — centralised procurement and decentralised procurement (DCP). In centralised procurement system, the procurement of food grains in Central Pool is undertaken either by FCI directly or by state government agencies (SGA). The quantity bought by SGAs is handed over to FCI for storage. Subsequently, the stock is issued against GOI allocations in the same state for movement of surplus stocks to other states. The cost of the food grains procured by state agencies is reimbursed by FCI as per provisional per cost-sheet issued by GOI as soon as they deliver the stocks to FCI.

There are 15 state governments’ that procure, store and distribute (against Government of India’s allocation for TPDS & OWS etc) grains within the state. The excess stocks of rice and wheat procured by the state or its agencies are handed over to FCI in Central Pool. The expenditure incurred by the state government on procurement, storage and distribution of DCP stocks are reimbursed by Government of India. The expenses such as MSP, arhatiya/society commission, administrative charges, mandi labour charges, transportation charges, custody and maintenance charges, interest charges, gunny cost, milling charges and statutory taxes are reimbursed on an actual basis. The cost of excess stocks handed over to FCI is reimbursed by FCI to the state government/agencies as per Government of India costs sheet.

In effect for DCP states, the central government has asked the states to procure and distribute grains on their own. This is good for states that have a high surplus of grains and higher number of people below the poverty line as they need more food grains under the Targeted Public distribution system (TPDS). They can procure and distribute within their own state. As centralised procurement and distribution from the central pool or sending grains from surplus state to deficient state is reducing and will continue to come down to the precarious fiscal position of the central government.

This is where Punjab is suffering as it has a high per capita income than most states and lesser number of beneficiaries under the TPDS. While it has a huge surplus of grains left after procurement that does not go into the central pool anywhere.

The government can create competition by delegating intra-state distribution to bilateral arrangement between states. Instead of interfering in the market and distorting it with supplying subsidised cereals. The amendment should not be just in introducing corporates as a competition to the state, but also allow competition between the states for both procurement and distribution.

It will complete the market reform not just at the mandis level but also reduce the interference of central government in pricing of agriculture commodities.

Disclaimer:The author is a public policy expert. Views expressed are personal.

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first published:December 18, 2020, 10:56 IST
last updated:December 18, 2020, 10:58 IST