The following piece by C V Madhukar appeared in the September,2011 issue of Governance Now magazine. The debate in Parliament in response to the recent Anna Hazare led agitation demanding a strong Lok Pal Bill was a fine hour for the institution of Parliament.  What was even more important about the debate is that it was watched by thousands of people across the country many of whom have lost faith in the ability of our MPs to coherently articulate their point of view on substantive issues. Of course, in many cases some of these impressions about our MPs are largely formed by what the media channels tend to project, and without a full appreciation of what actually happens in Parliament.  There is now a greater awareness about an important institutional mechanism called the standing committee, and other nuances about the law making process. The Lok Pal agitation brought out another important aspect of our democracy.  There are still many in India who believe that peaceful protest is a powerful way to communicate the expectations of people to the government. Our elected representatives are prepared to respond collectively when such protests are held.  There is a negotiated settlement possible between the agitating citizens and our political establishment within the broad construct of our Constitution.  All of this means that the safety valves in our democracy are still somewhat functional, despite its many shortcomings. But the way the whole Lok Pal episode has played out so far raises a number of important questions about the functioning of our political parties and our Parliamentary system.  A fundamental question is the extent to which our elected MPs are able to ‘represent’ the concerns of the people in Parliament.  It has been obvious for some time now, that corruption at various levels has been a concern for many.  For months before the showdown in August, there have been public expressions of the disenchantment of the people about this problem.  Even though several MPs would say privately that it is time for them to do something about it as elected representatives, they were unable to come together in a way to show the people that they were serious about the issue, or that they could collectively do something significant about the problem.  The government was trying in its own way to grapple with the problem, and was unable to seize the initiative, expect for a last minute effort to find a graceful way out of the immediate problem on hand. In our governance system as outlined in our Constitution, the primary and most important institution to hold the government accountable is the Parliament.  To perform this role, the Parliament has a number of institutional mechanisms that have evolved over the years.  The creation of the CAG as a Constitutional body that provides inputs to Parliament, the Public Accounts Committee in Parliament, the question hour in Parliament are some of the ways in which the government is held to account.  Clearly all of these mechanisms together are unable to adequately do the work of overseeing the government that our MPs have been tasked with.  But it is one thing for our MPs to be effective in their role holding the government to account, and a very different thing to come across collectively as being responsive to the concerns of the people. For our MPs to play their representation role more convincingly and meaningfully there are certain issues that need to be addressed.  A major concern is about how our political parties are structured, where MPs are bound by tight party discipline. In a system where the party leadership decides who gets the party ticket to contest the next election, there is a natural incentive for MPs to toe the party line, even within their party forums.  This is often at the cost of their personal conviction about certain issues, and may sometimes be against what the citizens could want their representatives to do. Add to this the party whip system, under which each MP has to vote along the party line or face the risk of losing his seat in Parliament.  And then of course, if some MP decides to take a stand on some issue, he needs to do all the research work on his own because our elected representatives have no staff with this capability.  This deadly cocktail of negative incentives, just makes it very easy for the MP to mostly just follow the party line.  If the representation function were to be taken somewhat seriously, these issues need to be addressed. The 2004 World Development Report of the World Bank was focussed on accountability.  An important idea in the report was that it was too costly and inefficient for people to vote a government in and wait till the next election to hold the government accountable by voting it out for the poor governance it provides.  That is the reason it is essential for governments and citizens to develop ways in which processes can be developed by which the government can be held accountable even during its tenure. The myriad efforts by government such as social audits, monitoring and evaluation efforts within government departments, efforts by Parliament to hold the government accountable, efforts of civil society groups, are all ways of holding the government to account.  But over and above accountability, in an age of growing aspirations and increasing transparency, our MPs must find new ways of asserting their views and those people that they seek to represent in our Parliament.  This is an age which expects our politicians to be responsive, but in a responsible way. Even as the Lok Pal Bill is being deliberated upon in the standing committee, civil society groups continue to watch how MPs will come out on this Bill.  There are plenty of other opportunities where MPs and Parliament can take the initiative, including electoral reforms, funding of elections, black money, etc.  It remains to be seen whether our MPs will lead on these issues from the front, or will choose to be led by others. This will determine whether in the perception of the public the collective stock of our MPs will rise or continue to deplete in the months ahead.

Minimum Support Price (MSP) is the assured price at which foodgrains are procured from farmers by the central and state governments and their agencies, for the central pool of foodgrains.  The central pool is used for providing foodgrains under the Public Distribution System (PDS) and other welfare schemes, and also kept as reserve in the form of buffer stock.  However, in the past few months, there have been demands to extend MSP to private trade as well and guarantee MSP to farmers on all kinds of trade.  This blogpost looks at the state of public procurement of foodgrains in India and the provision of MSP.

Is MSP applicable for all crops?

The central government notifies MSP for 23 crops every year before the Kharif and Rabi seasons based on the recommendations of the Commission for Agricultural Costs and Prices, an attached office of the Ministry of Agriculture and Farmers’ Welfare.   These crops include foodgrains such as cereals, coarse grains, and pulses.  However, public procurement is largely limited to a few foodgrains such as paddy (rice), wheat, and, to a limited extent, pulses (Figure 1).

Figure 1:  Percentage of crop production that was procured at MSP in 2019-20

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Sources:  Unstarred Question No. 331, Lok Sabha, September 15, 2020; PRS.

Since rice and wheat are the primary foodgrains distributed under PDS and stored for food security, their procurement level is considerably high.  However, the National Food Security Act, 2013 requires the central and state governments to progressively undertake necessary reforms in PDS.  One of the reforms requires them to diversify the commodities distributed under PDS over a period of time.

How does procurement vary across states?

The procurement of foodgrains is largely concentrated in a few states.  Three states (Madhya Pradesh, Punjab, and Haryana) producing 46% of the wheat in the country account for 85% of its procurement (Figure 2).   For rice, six states (Punjab, Telangana, Andhra Pradesh, Chhattisgarh, Odisha, and Haryana) with 40% of the production have 74% share in procurement (Figure 3).  The National Food Security Act, 2013 requires the central, state, and local governments to strive to progressively realise certain objectives for advancing food and nutritional security.  One of these objectives involves geographical diversification of the procurement operations.

Figure 2:   85% wheat procurement is from three states (2019-20)

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Sources:  Department of Food and Public Distribution; PRS.

Figure 3:   76% of the rice procured comes from six states (2019-20)

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Sources:  Department of Food and Public Distribution; PRS.

Is MSP mandatory for private trade as well in some states?

MSP is not mandatory for purchase of foodgrains by private traders or companies.  It acts as a reference price at which the government and its agencies procure certain foodgrains from farmers.

In September 2020, the central government enacted a new farm law which allows anyone with a PAN card to buy farmers’ produce in the ‘trade area’ outside the markets notified or run by the state Agricultural Produce Marketing Committees (APMCs).  Buyers do not need to get a license from the state government or APMC, or pay any tax to them for such purchase in the ‘trade area’.  These changes in regulations raised concerns regarding the kind of protections available to farmers in the ‘trade area’ outside APMC markets, particularly in terms of the price discovery and payment.  In October 2020, Punjab passed a Bill in response to the central farm law to prohibit purchase of paddy and wheat below MSP.   Any person or company compelling or pressurising farmers to sell below MSP will be punished with a minimum of three-year imprisonment and a fine.  Note that 72% of the wheat and 92% of the rice produced in Punjab was purchased under public procurement in 2019-20.

Similarly, in November 2020, Rajasthan passed a Bill to declare those contract farming agreements as invalid where the purchase is done below MSP.   Any person or company compelling or pressurising farmers to enter into such an invalid contract will be punished with 3 to 7 years of imprisonment, or a fine of minimum five lakh rupees, or both.   Both these Bills have not been enacted yet as they are awaiting the Governors’ assent.

How has MSP affected the cropping pattern?

According to the central government’s procurement policy, the objective of public procurement is to ensure that farmers get remunerative prices for their produce and do not have to resort to distress sale.  If farmers get a better price in comparison to MSP, they are free to sell their produce in the open market.  The Economic Survey 2019-20 observed that the regular increase in MSP is seen by farmers as a signal to opt for crops which have an assured procurement system (for example, rice and wheat).  The Economic Survey also noted that this indicates market prices do not offer remunerative options for farmers, and MSP has, in effect, become the maximum price that the farmers are able to realise.

Thus, MSP incentivises farmers to grow crops which are procured by the government.  As wheat and rice are major food grains provided under the PDS, the focus of procurement is on these crops.  This skews the production of crops in favour of wheat and paddy (particularly in states where procurement levels are high), and does not offer an incentive for farmers to produce other items such as pulses.  Further, this puts pressure on the water table as these crops are water-intensive crops.

To encourage crop diversification and thereby reduce the consumption of water, some state governments are taking measures to incentivise farmers to shift away from paddy and wheat.  For example, Haryana has launched a scheme in 2020 to provide Rs 7,000 per acre to those farmers who will use more than 50% of their paddy area (as per the area sown in 2019-20) for other crops.  The farmers can grow maize, bajra, pulses, or cotton in such diversified area.  Further, the crop produce grown in such diversified area under the scheme will be procured by the state government at MSP.