Government is objecting to legalization of MSP in the interest of monopolists


Forced to bend before the undaunted spirit of the struggling peasants who continued a yearlong movement braving all odds, the BJP government has repealed three Black Farm Laws and withdrawn the sinister Electricity (Amendment) Bill 2021. However, as regards legalization of Minimum Support Price (MSP) i.e. the floor price of procurement of the agricultural produce, which has also been in the charter of demands of the historic peasant movement, the government has not yet come to a decision. Instead it has promised to form a committee of all stakeholders, including farmers’ representatives, ministers and government officers to discuss the issue. But already, from quarters of vested interest, some arguments are being floated against legalizing of MSP. These arguments are also getting support from a section of the mainstream media and thereby creating confusions. Hence, it is necessary to examine the pros and cons of this demand and whether it is justified or not.

What is MSP and what is its present status
Let it be clear at the outset that MSP is nothing new. In fact the governments, both central and of the states, have been announcing crop-specific MSP from time to time. The MSP represents a promise from the Centre that it will step in and buy these crops if their market prices fall below a certain level. In July 2018, the Cabinet Committee on Economic Affairs announced an increase in MSP for 14 crops grown in the kharif (summer) season, including paddy, cotton, soyabean, pulses and millets at 50% more of the cost of cultivation. The government also promised the farmers MSP for 23 crops. In a press release, the Ministry of Agriculture called this a ‘‘paradigm shift’’ and a ‘‘historic’’ decision. But it was only an announcement. There was no legal guarantee. Secondly, the 50% rise was not based on full cost of cultivation. In 2006, the National Commission on Farmers led by noted agricultural scientist MS Swaminathan, recommended, among others, that MSP should be at least 1.5 times C2. What is this C2? Let us clarify. The Commission estimated the cost of production for various crops, using three definitions. The first is A2, which represents the actual amount farmers spend on growing a crop each season. This includes cost of agricultural inputs such as seeds, fertilisers, pesticides, and wages for agricultural workers. The second definition, A2+FL, represents the actual input costs plus the implied economic value of family members working on the farm, which offsets the wages the farmer might otherwise have paid as well as other expenses incurred by the peasants towards healthcare, education of their children, entertaining family guests etc.. The third definition is C2, which represents A2+FL and the value of capital assets, including rent and interest on the land. The MSP that the central government had announced with much fanfare was 50% above A2+FL and not C2. The peasants have been demanding fixation of MSP at 1.5 times C2. But the government is reluctant to give legal guarantee to this MSP. The government authorities would have no answer if they were asked how could the handful of industrialists be allowed to fix the price of the produced goods by taking into account the cost of entire production plus maximum profit margin? If that is viewed as legitimate, why should the peasants, who constitute around 60% of the country’s population, be denied guaranteed price of their crops based on fair calculation?
Secondly, it was found that though the government verbally assured of MSP for 23 crops, it was mostly made effective for paddy, wheat and some pulses and that, too, mainly in the northern states of Haryana and Punjab. For farmers in other states, there was no certainty of government procurement at MSP. In fact, over the decades, only 6% of farmers are stated to have benefited from the existing MSP which, let it be reiterated once again, is not legally mandated but optional.
It is pertinent to mention here that one of the main reasons for monoculture farming in India’s Northern states, where the focus is only on water-guzzling paddy and wheat, is also rooted in the limited implementation of MSP, as mentioned above. This has considerably depleted groundwater reserve. Farmers in Punjab and Haryana had been forced to grow paddy despite its pernicious ecological consequences because of the government assurance that it would buy their whole produce at MSP. Had the tilt towards monoculture farming been averted and conditions created for encouragement to multi-crop farming by guaranteeing procurement at MSP, the problem of diminishing underground water could be addressed, soil health could be improved, and other pollution related issues like stubble burning (mostly associated with the paddy crop) could have been brought under control.
Moreover, the BJP government also launched in September 2018 ‘Pradhan Mantri Annadataday Sanrakshan Abhiyan’ (PM-AASHA) – an umbrella scheme aimed at ensuring remunerative prices to the farmers for their produce. But in just the first three weeks of the season, the farmers reportedly incurred losses of Rs 1,149 crore due to PM-AASHA scheme’s failure to ensure MSP. According to a report in The Hindu, agricultural ministry officials admitted that the scheme would make no difference to the farmers’ income.
Thirdly, while calculating MSP at present, the Commission for Agricultural Costs and Produce (CACP), the government agency, is found to have left important cost-factors out, like actual input costs and the value of labour. They treated the peasants as unskilled labour and then only counted 156 working days, instead of 365. The CACP also do not factor in soil fertility losses, cost of hiring a tractor and other debt and interest costs. It is also alleged that lobbies of agri-giants like Cargill, Walmart, Metro Cash and Carry etc. are not allowing implementation of the Swaminathan report because if the peasants received a fair price, the profit margin of these agri-multinationals would dwindle.

Arguments by ruling quarters against MSP legalization

The central government says that it already spends about Rs 2.5 lakh crore for buying crops from the peasants. If MSP is legally guaranteed, the government would have to shell out around Rs 17 lakh crores. Also if any private enterprise purchases agricultural produce at a price less than MSP, the government would have to pay the balance as subsidy. Apart from expenditure required to procure the crops, the government would have to spend a huge amount of money to create the facilities required to store the procured grain.
However, the peasants estimate that cost would maximum be around Rs 9 lakh crore to procure every grain of the 23 crops currently under the MSP regime; and that moreover, the entire produce of the farmers does not come to the mandis (crop selling markets). Because, the farmers hold back part of their produce for their own personal consumption as well as for being used as seed and cattle feed. For instance, not more than 74% of the total wheat production enters the market for sale. It is about 90% in case of paddy. The figure varies for other crops as well. Hence, the total procurement value of all 23 crops that actually enter the market would not be not more than Rs 7 lakh crore, say the peasants. Also, it has to be kept in mind that public investment cannot be viewed as expenditure. It generates employment, raises incomes and thereby drives the economy. The industrial sector, as we all know, is turning more and more capital-intensive as against labour intensive to maximize profit by lowering cost of production. So, there is hardly any scope for absorbing people uprooted from the rural areas in industry. That is why preventing displacement of the peasants from agriculture is a necessity of the ruling class in capitalist India.

Bogus claim that legalized MSP would entail very high expenditure from exchequer

The anti-peasant pro-corporate stand of the Modi-led BJP government is evident from just one instance. During its first term at the Centre, the government provided tax exemptions to corporate entities amounting to a whopping Rs. 4.32 lakh crore, according to Budget documents of various years. If one adds tax loss of Rs 1.46 crores in 2019-2020 and Rs 1,65,837.97 (estimated) in 20-2021due to slash of corporate tax rate to 22%, it would be Rs 7, 32 lakh crores. Also the government is spending thousands of crores of rupees in constructing new parliament house, sky-high statues, construction of temples, renovation of Hindu pilgrimage sites, procurement of special jet planes for the Prime Minister and around Rs 44 lakhs towards salary and allowances of each of the 545 MPs per year. On the contrary, the government has slashed fertilizer subsidy by over 45% and food subsidy by more than 50% in the current fiscal. The combined net profit of the listed companies was up 57.6 per cent to Rs 5.31 lakh crore in financial year 20-21. On the other hand, more than 4 lakh peasants have committed suicide having being denied remunerative prices for their produce and enmeshed in debt trap. 83 crore Indians survive on Rs 20 per day whereas India’s 100 top billionaires saw their fortunes increase by Rs 12,97,822 crore since March last year when the Covid-19 pandemic hit the country. This amount is enough to give 14 crore poorest Indians a cheque for Rs 94,045 each. In this country of gross inequality, can MSP be viewed as government sop or it is the bare minimum for saving the peasantry from devastation and destitution?

Bugbear of rise in inflation
Another argument against the farmers’ demand is that if the Union government makes MSP a legal mandate to ensure that private players or government agencies buy the crops at least at the fixed price anywhere in the country, there will be a price rise and increased inflation in general. The demand to legally guarantee MSP for all 23 crops would make whoever procures the crops, Union or state governments, bankrupt. Absurd! Then what is the role of the government in so far as regulating the functioning of the economy is concerned and in making sure that no one mints unreasonable profits, as is the case at present? Secondly, is the skyrocketing inflation in our country demand-pull (i.e. prices are rising because demand in terms of buying power of the people is more than supply) or cost-push (meaning cost of production plus maximum profit margin loaded on the rice)? where purchasing power of the people at large is falling constantly due to dipping income and soaring poverty? Let alone the aforesaid 83 crore poor, the number of Indians in the middle class – those who earn between Rs 724 to Rs 1,449 per day – shrunk by roughly 3.2 crores in the last one year. On the other hand, if the supply was less, how could there be stockpiling of unsold goods or stagnation? Why were over 40,000 tonnes of food grains damaged in FCI godowns in last 6 years? Even the International Monetary Fund’s (IMF) Chief Economist admitted that India is in deep recession. A significant fall in spending and consequent drop in production generally lead to a recession. In fact, India is now in ‘stagflation’-a new feature of dying capitalism which negates the classical theory of demand of supply. Now both inflation and stagnation are simultaneous features of crisis-ridden capitalist economy. Moreover, even today, the private players and the hoarders buy crops from the peasants at virtually throwaway price and then sell those in retail market at huge profit. For example, the potato grower peasants get hardly Rs 4 to 5 for a kg while the same potato is available in retail market at around Rs 25. The Multinationals like Pepsi sell potato chips at Rs 10 per 5 gms. Do these not cause inflation? In these cases, profit greed of the businessman is key factor of pushing up inflation. But assuring MSP to peasants are for saving their life and livelihood. Can these two be viewed at par?

Will MSP only swell the purse of a few rich peasants?
Some economists from the stable of the ruling dispensation also argue that MSP only fattens the purse of a few rich farmers. This is another distortion of truth. Yes, a lucky few manage to sell most of their produce at the government-mandated floor prices while others fail to do so. But why? Because the system deprives the peasants from selling at MSP. Earlier there was an Agricultural Produce Market Committee (APMC), a marketing board established by state governments in India with a stated objective of ensuring the peasants a safeguard from exploitation by large retailers, as well as preventing the farm to retail price spread from reaching excessively high levels. Not that this body does much to safeguard the interest of the peasants, yet this body does have some control over the licensed merchants and thus some kind of pricing mechanism, notwithstanding many a limitations, does operate to have at least a semblance of regulation.
But the government, on the pretext of protecting the interest of the small and marginal peasants by allowing them to have access to ‘‘direct and free markets and organized retailing’’, decided to establish private markets or yards besides APMC yards, open direct purchase centres, promote private public partnership (PPP, a euphemism for backdoor privatization) for management and development of agricultural market as well as develop contract farming arrangement. So APMC Act started being amended paving the way for private players to make foray into agriculture produce procurement sector. And within no time, the agri-giants, at the outset, began tempting the peasants with prices higher than those of APMC yard to not only corner the produce, but also wean away the primary producers from the APMC approved merchants. To a significant extent, they have done that. Once they accomplish that fully, and render the APMC yards defunct, the APMC licensed merchants would be wiped out from the scene. That is what the government aimed at when it talked of ‘‘downsizing of distribution chain’’.
After that, the monopolist and multinationals have started baring their tooth and claw, calling shots and dictating the price to suck off the last drop of blood from the peasants. They are also forcing the peasants to grow crops that would earn them maximum profit in either agri-processing business or export market. In the name of contract farming, another kind of savage onslaught is unleashed. Hapless peasants have no choice but to comply.
Legalization of MSP and stringent control of the administration over compliance with the stipulations would benefit the poor peasants more. If the BJP government had seriously meant welfare of the peasants, it would have strengthened MSP-based procurement instead of dismantling it. It would have set up an adequate number of APMC mandis. India needs five times the number of APMC currently functional instead of disempowering them. It would have fixed the APMCs and tried to reduce the control of the middlemen.

Weird logic that legalized MSP will make Indian crops uncompetitive in international market
Some pedants are giving another logic against legalization of MSP. They say that it would make Indian agricultural produce uncompetitive in international market as the government would incur more cost in procuring crops. Incredible indeed! Can international competitiveness be a factor while making a policy decision to benefit the abjectly poor peasants who somehow eking out a bare living? Secondly, what percentage of agricultural produce is exported? Hardly 10 to 15% and that too by keeping the countrymen starved. Can that be a consideration against legalization of MSP by any stretch of imagination?

MSP would be an insurance against vagaries of demand-supply fluctuation

Those who are conversant with the reality of Indian agriculture know that the peasants begin sowing, armed with the knowledge of the previous season’s demand. Even the most enlightened farmer, who keeps track of global trends, will still have to commit to a certain acreage at the point of sowing. If supply or demand trends change during the weeks needed for the crop to grow, there is nothing that the peasant can do about it. This is why supply and demand can never match in agriculture. They always confront each other with a seasonal lag. In such a situation, assured prices alone can provide security against any such vagaries of disbalance and fluctuation. Otherwise, a sudden glut can cause peasants to go bankrupt. And we know this happens every year in places where peasants are unable to access the few APMC mandis or get MSP. They are unable to pay the loans they had taken at the beginning of the season. Private lenders, microfinance agencies and banks come banging at their doors. At times, the peasants are humiliated so much and suffer from so much of despondency that they end up killing themselves.

Remedy lies in government procurement through hassle-free system
Remedy to this problem lies in government procurement at MSP with a system that the poor peasants can have easy access to the procurement centres on due dates without intervention of any middlemen. This can never happen if private procurers and big agri-businesses are allowed to reign supreme. Even if any private house undertakes procurement, it would be bound to pay MSP. The very logic that opening up agricultural trade to private houses and abolition of MSP would enable the peasants to have a wider range of buyers to choose from and bargain better price, is a hoax. In the stage of monopoly capitalism, such ‘free market’ ceased to be in place. There is only a handful of big enterprises which amass fabulous wealth and virtually wipe out all small contenders by flexing money and political muscle. Monopoly seeks to establish exclusive control over the market and dictates terms. In such a situation, it is indeed frivolous to claim that poor peasants would be able to bargain with such giants and elicit better price. Let us recall what great Lenin had said: ‘‘A monopoly, once it is formed and controls thousands of millions, inevitably penetrates into every sphere of public life, regardless of the form of government and all other details…monopoly is the exact opposite of free competition…Monopolist capitalist combines, cartels, syndicates and trusts divide among themselves, first of all, the home market, seize more or less complete possession of the industry of a country…It goes without saying that if capitalism could develop agriculture, … if it could raise the standard of living of the masses, who are everywhere still half-starved and poverty stricken,… if capitalism did these things it would not be capitalism;’’ (Imperialism, The Highest Stage of Capitalism)

Hoax of so called reform
So, it is clear that the BJP-led Indian government, as trusted caretaker of the ruling monopolists and multinationals, is weaving a ploy to open up agriculture to corporate penetration and control at the cost of the interest of the exploited peasants as well as the oppressed countrymen at large. They had to beat a retreat at the outset because of the determined resistance of the brave struggling peasants who also, from their intuition, have been able to understand that this government is working at the behest of the monopolists. The very reluctance on the part of the government to give legal guarantee to MSP is also stemming from the intention to allow the private players to dominate in procurement of agricultural produce with the government being relegated to the back. Some quarters avidly following latest capitalist wordbook are arguing that backing out from ‘privatization’ would impede reforms. This is another deception. Leave alone other fields, what has been the fallout of reforms in agriculture? The government earlier had liberalized the agricultural input sector i.e. production and distribution of inputs like seeds, fertilizer and pesticide and allowed the agri-giants to take that over. What has been the result? Cost of agricultural inputs has risen astronomically. Just in last May, there had been 45-60% hike in the price of various fertilizers which entailed cultivation expenses to grow by at least Rs10,000 to Rs12,000 per acre. To facilitate monopoly intrusion in fertilizer production, the government even downed shutters on many units of the Fertilizer Corporation of India. Similarly prices of seeds and pesticides have also gone up substantially. Combined effect of this steep rise in the cost of agricultural inputs following entry of the private agri-giants has made the peasants back-broken. On the one hand, they are to bear the continuously rising cost of cultivation while on the other hand, they are not getting remunerative prices for their produce and more often than not forced to distress sale. This has been the endowment of much-touted agricultural reforms (read reckless corporatization or slashing of any kind of subsidies and minimum government control). So, is not the demand for legalization of MSP fully justified on each count?

Legitimate demand of all-out state trading
It is pertinent to mention here that our Party for last six decades has been demanding all out state trading in food and all other essential items. We have been arguing that there ought not be any private house intervention in both procurement and distribution of food articles like rice, paddy, vegetables etc. The government would buy the stuff at appropriate support price from the peasants directly and then distribute those either free or at affordable price to the common people through its own distribution outlets. The entire public distribution system (PDS) or ration shops should be converted into government outlets. Then and then only unbriddled price hike, hoarding, black marketing, price manipulation through stock market speculation and creating artificial scarcity in food and other essential commodities can be curbed.
But no government whether of the Congress or BJP or CPI (M) or any other party paid any heed to our suggestion. Because all of them, overtly or covertly, are working in the class interest of the ruling monopolists with a view to staying afloat in the race for power. So, as global imperialism-capitalism is now espousing for liberal opening of all sectors to private houses and progressively reducing government control over trade and commerce, Indian capitalism is also following suit. Naturally, the political parties wedded to the task of serving the ruling monopolists are avidly pursuing the path of privatization including agriculture and are averse to adopt any policy that might disturb the process. Hence, the disinclination towards legalization of MSP. But if the fighting peasants remain firm in their unity and solidarity and maintain the pressure of organized movement, the BJP government could be compelled to accept the demand of providing legal guarantee to MSP.

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