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Reliance on MSP alone won’t ensure food security or improve farm income. It must be backed by fair and competitive markets.

The discussion over agricultural price policies has now been very extensive and the pressures for arriving at a key framework for such a policy has been intensified by the withdrawal of the three Farm Bills that sought to provide a framework for price policies as part of a policy for the management of the entire supply system of the markets for agricultural produce.

One of the issues that has come up in this debate is the possibility of a Minimum Support Price with legal/ legislative backing. A legally binding MSP will mean that no one can buy from the farmers at a price below MSP. Any violation can become a punishable offence. There is of course a reason for such a demand. 

Prices which farmers receive tend to get depressed when there is abundant production and may fall even to levels at which farmers would not recover the cash expenses incurred by them. One reason for the weakness in agricultural prices in the face of abundant production is the lumpy nature of agricultural produce that arrives in the markets and the demand being not necessarily so lumpy.

The need for transportation and storage to manage such situations and the costs involved affect the returns to farmers. Production level well beyond the market demand cannot be sustained unless there is a compensation beyond the market price to the producers.

In the absence of such a mechanism production may not reach the desired level. It must be accepted that MSP is only a mechanism to reduce the inherent market risks in farming but cannot be the mechanism to manage the transitions needed to address medium term issues such as the changes in farming practices or changes in cropping pattern. Transition from one type of cropping pattern to another does involve costs to the producers. 

Procurement operations

The role of MSP in an environment in which procurement operations are undertaken to meet the needs of foodgrain under the Public Distribution System is different from a situation when it is used as a price stabilisation mechanism. The distinction between a procurement price and MSP needs to be understood. MSP is a price stabilisation tool assuring farmers a minimum support. Procurement price can have multiple goals and can be fixed taking into account many other considerations.

We had argued earlier that ( BusinessLine November 29 2017) when market prices go below the MSP what needs to be procured in such situations is the additional output over what is normally absorbed by the market. It is not necessary to procure all the output. Any procurement by the government would also need to have a disposal strategy. Selling the excess stocks back in the market subsequently would affect the prices to the farmers. The longer term concern regarding the demand for the specific farm produce — within the country and exports — is an issue that requires to be dealt with separately.

The present system of procurement has come to mean the so-called MSP is essentially the procurement price although additional payments such as the bonus by the State governments may further increase the price received by the farmers.

The present recommendations on the MSP consider a wide range of expenses incurred by the producers including a provision of a margin (which is substantial at 50 per cent under the Swaminathan Committee recommendations) for the farmers in addition to the cash expenses and other imputed expenditures. Its origin lies in the need to provide an ‘incentive price’ to the farmers to produce the crop and in the times when there were supply shortages.

Fixing an MSP at a level where the government alone becomes the dominant or only buyer would distort the markets and render it fiscally unsustainable given the fact that even when the government is buying about a third of rice and wheat produced the food subsidies are seen to be unsustainable. Again the issue is not one of a one-time intervention but one where such interventions may recur frequently unless the supply system adjusts to the emerging demand conditions.

MSP announced by the Central government for paddy (rice) and wheat have increased by 5.9 per cent and 5.3 per cent respectively average per year in the period from 2016-17 to 2020-21. During this period the government procured 35-49 per cent of production of rice and 25-35 per cent of production of wheat. The upper end of the procurement rates occurred in the more recent years.

Thus in substance we argue that we should not blur the distinction between MSP and procurement price. In the case of wheat and rice the system of procurement has a long history. MSP in the case of these agricultural products has been elevated to the level of procurement price. It may be difficult to change the situation as there is also a commitment to a public distribution system. 

In the case of other food commodities a legally binding MSP can be introduced. In such a situation MSP must strictly cover only costs and if necessary a small margin. That should limit the price uncertainty induced by the markets. As mentioned earlier a very high margin over costs will result in the government becoming the only procurer and such a situation would become unsustainable.

Reliance on MSP alone would not be appropriate for ensuring either food security or improving farm income. The institutional arrangements to ensure fair and competitive markets are also essential for the MSP to play its role in providing a protective price environment for the farmers.

Rangarajan is former Chairman Prime Minister’s Economic Advisory Council and former Governor Reserve Bank of India. Bhide is Senior Adviser NCAER. Views are personal 

Rather than bank on crop residue and used oilseeds the focus must shift to a few feedstock crops to produce biofuels

India’s transportation sector contributes about 10 per cent of total national greenhouse gas (GHG) emissions. Out of which road transportation contributes about 87 per cent of the total emissions. Clearly achieving net zero emission by 2070 implies road transportation needs significant overhaul. While EV or hydrogen fuel cell based transportation may be the mainstream in the long run biofuel is expected to play an important role in the near future. With this in mind Transport Minister Nitin Gadkari announced on November 11 2021 that flex-fuel engines will be made mandatory in the coming days.

The advantage of flex-fuel engines is that it can run with 100 per cent biofuel unlike a standard engine which develops problem if blending ratio goes above 20 per cent. The flex-fuel or flexible fuel is basically biofuel made with a combination of gasoline methanol or ethanol where blending ratio may shift from zero to 100 per cent.

The aim is to gradually shift to fuels which are import substitutes cost effective indigenous and pollution-free. The entire automobile sector in Brazil runs on flex-fuel engines. The blending varies depending on the availability of biofuel feedstock and price of global crude oil. As a result international crude oil price does not pinch them anymore.

While the idea of pushing towards flex-fuel auto-engine is a novel one the stark reality is that we do not have the feedstock even for 20 per cent bending ratio. Currently the supply is enough to meet about 8.5 per cent blending ratio. The government has decided to step up domestic manufacture of biofuels by 10 per cent every year and has advanced the target of blending 20 per cent ethanol in petrol to 2025 from 2030. But there is no way that the target can be achieved by 2025.

Moreover increasingly India is using its large inventory of foodgrains of low quality (due to improper storage) to produce biofuel. Earlier they were used for fodder for animals. But the tendency is now to use them for producing ethanol. Surely this is not a sound proposition as these foodgrains were procured at higher prices.

 Biodiesel production involves four distinct stages — (i) cultivation of oilseeds bearing plants from which seeds would be harvested; (ii) trading of seeds which involves procurement of seeds from the individual farmers and selling them to the processing factories; (iii) oil extraction from the seeds and transforming the extracted oil to biofuel through the process of trans-esterification; and (iv) blending this biofuel with the petrol/diesel and its disposal to individual consumers through retail outlet.

Originally India’s biofuel programme identified a few oilseeds whose cultivation was encouraged to meet feedstock supply. However this policy is now discarded in the new biofuel policy. Increasingly the focus is now of adopting second generation biofuel process namely producing biofuel from used vegetable oil crop residue.

Most of the latest plants that are now being built are capable to use crop residue used vegetable oil or oilseed to produce biofuel.

While the policy seems to be sound on paper very little has been achieved. Only two bio-refineries with capacity of 500000 litres/day of ethanol from spoilt and surplus foodgrain have been constructed by Indian Oil Corporation out of the 12 new bio-refineries to be built across 11 States in the country.

The best option

To have a long-term solution to stubble burning in northern India notably Punjab Haryana and Western UP the idea is to construct a bio-refinery so that the same can use crop residue to produce ethanol. However no plant has come up so far as it may not be economically viable given the current taxes/incentives schemes.

Gathering crop residue during harvest time is a costly proposition unless the farmers are given enough incentive to bring the crop residue to the proposed plant after harvest. Also gathering a steady supply of other feedstock during non-harvest time is also an issue that entrepreneurs worry about. Somehow the incentive scheme is not tilted in favour of production of biofuel.

Most countries which have been successful in promoting biofuel have banked on some crops as feedstock. Most also have undertaken genetic engineering on the crops so that the yield is maximised. Take the case of Brazil. Most of its ethanol is produced from sugarcane directly for efficient extraction.

On the other hand India uses by-products (molasses) from sugar production to produce ethanol. This is not an efficient process with low yield. Of course the sugar producers gets better price of their by-products.

It is best that India identifies feedstock undertakes genetic engineering on the plants if it plans to use biofuel in a big way in the transportation sector. The use of used oil and crop residue for biofuel can at best supplement biofuel production but can never fulfil the target what India needs if it wants to replicate Brazilian experiment with biofuel.

No doubt support for feedstock producers as well as the biofuel production value chain for a sustained 3-5 years is needed if the sector has to take off. Will the government bite the bullet in the coming Budget?

The writer is Professor NCAER. Views are personal.

Data reveals that the poor dedicate more time — about 142 minutes — to social and community activities higher than the average time spent by the overall population.

As Omicron looms large and we go into a new phase of restrictions on socialising it is important to understand why Indians find it hard to stay away from group activities weddings and other gatherings. The Covid-19 pandemic has altered our lives and one of its biggest impacts has been the way we socialise and the amount of time we dedicate to community interactions.

In this backdrop it would be beneficial to analyse the amount of time Indians spent on community participation and socialising. We used
data captured in the Time-Use Survey 2019. The survey conducted during the pre-Covid period inter alia captured information on the amount of time spent by an individual in social and community related activities — celebrations of cultural and historic events rites/events such as weddings funerals births collective religious practise and similar rites; community social functions such as music dance civic and related responsibilities; cultural events and shows sports events playing games hobbies and other pastime activities.

Using data from this survey conducted during 2019 we found some interesting and intriguing results.

Indians spent on average about 132 minutes in socialising and community participation (including sports and games) during 2019. Males spent on average about 138 minutes (more than the average time spent by the overall population on such activities as compared to the time spent by females which stood at 122 minutes. Most of the time was spent participating in community rites/events (non-religious) such as weddings funerals births and similar rites of passage. Interestingly a lesser work participation rate for females does not translate into them being more socially active. This survey also showed that females spent on average about 10 times more time as compared to males in performing ‘unpaid domestic services for household members’ which perhaps adversely affected their social participation.

Surprisingly the youth in the age group of 6 to 18 spent on average about 146 minutes on community activities and socialising which lowered gradually as we move upwards in the age bracket. It is another matter whether the time spent was optimum but it clearly belies the assumption that today’s youth tend to socialise less. The 18 to 25 age group and 26 to 60 age group spent about 127 minutes and 114 minutes respectively in social and community activities. This working age population which faces long working hours is left with little time to actively participate in community life and to socialise. With ‘work from home’ gaining momentum it would be interesting to see how it impacts community participation and social activity.

Noteworthy the population above 61 years of age spent almost the same amount of time (about 145 minutes on average) as the youth between six and 18 years in social and community activities. It is encouraging that the elderly population is spending more time in community and social activities as compared to the overall population.

The survey also revealed that the population in the lowest quintile (poorer section) spent more time on social and community activities — on average about 142 minutes (more than the average time spent by the general population). However as we moved up the income/economic ladder we found a gradual reduction in time spent in community and social participation. For instance the population falling under the 2nd 3rd 4th and 5th quintiles spent on average about 135 129 127 and 123 minutes on such activities respectively a clear indication of less social and community life for the richer and well to do sections of society. This is also clearly supported by the fact that the rural folks spent on average about 133 minutes in such activities while the urban population spent less at 126 minutes.

Findings suggest that if you are a young or an elder male residing in a rural set up and belong to the poorer section of society the chance that you will spend more time in community and social activities is very high than other sections of the population. Is it a pointer to some factors relating to their socio-economic status?

The characteristics of our social and community interaction also define how we react to the physical restrictions and lockdowns. As social beings it is our natural instinct to repel any such restrictions. Hence we often witness large crowds and gatherings during relaxations.

Participation in social and community activities is highly under-rated as a contributing factor in enhancing our physical and mental health. It is now increasingly becoming apparent that such participation have a positive correlation with our own and society’s overall well-being.

D. L. Wankhar is a retired Indian Economic Service Officer and Dr. Palash Baruah is Senior Research Analyst National Council of Applied Economic Research (NCAER) New Delhi. Views are personal.