Frequently Asked Questions on Farmer protests

Image by Paul Brennan from Pixabay

Why can’t the government support farmers?

The government does. A lot of money is budgeted and spent by the central and state governments on farmers and on rural areas.

Why can’t the government increase the price it pays farmers under MSP?

How does the system of Minimum Support Price (MSP) work? The government announces a price for many crops. This announced price is higher than the market price. However, this price is effective in raising the price for farmers only if the government purchases the crops. The government does not have sufficient machinery — procurement and storage places, ability to grade and sort, etc. to buy grains other than wheat and rice. Hence, most of the procurement is in these two grains.

Who does the food subsidy benefit?

Does the food subsidy go to farmers or consumers? Both do but it is not clear how much benefit either of them gets. The price at fair price shops is much lower than what it is in the market. However, the market price is higher than it would otherwise be because of MSP. Indeed that is the purpose of MSP.

Why can’t the private sector be forced to purchase on MSP?

As we discussed, the government buys the grain at a high price and sells it at a much lower price. The difference is funded by money from taxes and from borrowings. If the private sector is also forced to buy at high prices and sell at much lower prices, then one of the following will happen.

  • The private sector would need to be given subsidy by the government. This will increase the subsidy bill by a humongous amount. Additionally, it is extremely likely that there would be corruption and inefficiency in the private sector operations and this loot of taxpayer funded subsidy would line the pockets of unscrupulous business people.
  • In case such a subsidy is not given by the government, the businesses will need to borrow money or put in their own money to fund the difference between the high purchase price and the low selling price. Such a business would be bankrupt in a very short time.
  • If the businesses are forced to buy at a high MSP and sell it at an even higher price then the food prices in the country would rise very sharply and would become the most expensive in the world. Additionally, unscrupulous businessmen would evade such a law and a black market would develop for food grains. Such a market would drive all ethical business people away from this business.

Why do small farmers make very little money?

A few years ago, we did a comprehensive analysis of income of small farmers and identified a simple framework for increasing farming incomes. The farming incomes can increase if farmers grow more crops and / or get more money for the crops they grow.

Image credit: Www.AskHowIndia.org

Who is right, the government or the agitating farmers?

If after reading such a long note, you are still asking this question then you were not paying attention.

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Yogesh Upadhyaya

Yogesh Upadhyaya

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Entrepreneur. Economist. Investor. Actor. Technophile. Policy wonk. Comedian. I love to explore places where these worlds intersect.