Not by maximalism on minimum crop prices

Not by maximalism on minimum crop prices

A day after thousands of farmers marched to Delhi demanding higher prices, loan waiver and free power for irrigation, the Cabinet approved a hike in the minimum support price (MSP) for wheat and other rabi crops. The notion that raising MSP would alleviate agrarian distress is flawed. Rather, hefty hikes could push domestic prices out of sync with global prices, making farming inefficient. Policy should follow what is best for Indian farming. To raise farm incomes, the focus should be on investment, improved productivity, creating market linkages, freeing farmers from the stranglehold of middlemen and organising farmers to capture a larger share of the value added to their produce before it reaches the consumer.

Unfortunately, political expedience has trained farmers to believe that state handouts are the route to prosperity. Inputs — fertiliser, canal water, electricity for lift irrigation, farm credit and insurance — are subsidised. Yet, distress persists. The subventions are also wasted on excessive usage of inputs. Distorted incentives leading to inappropriate crop choices, value capture by middlemen, incomplete logistical linkages and insufficient investment in infrastructure mar the sector. The easiest way to correct misaligned incentives is to use the funds for subsidies to build infrastructure that would create efficient market linkages and give cash support to farmers in proportion with the land they hold. This would allow them to respond to market incentives, mediated through prices discovered on efficient commodity futures and options markets.

Productivity-enhancing investment, releasing farmers from the clutches of informal moneylenders via extension of the formal sector, and a predictable international trading regime — these call for a change in political culture.