Protests in India: Farmers demand price security but analysts warn of economic fallout

06 Mar 2024 --- In the run-up to India’s national elections next month, farmers are protesting against the government and demanding a Minimum Support Price (MSP) for all crops to safeguard them with a minimum profit for harvests. While farmers say the MSP will secure their livelihoods, analysts are concerned by the law’s potential fiscal implications and impact on trade balances.

The protests ramp up pressure on the government to ensure stability and income security for farmers amid changing weather patterns and internationally set grain prices.

Since the start of the protests last month, farming group leaders have been in talks with the government but rejected its proposal to buy pulses, maize and cotton at MSP through cooperatives for five years. 

Farmer unions led by Samyukta Kisan Morcha (Non-Political) and Kisan Mazdoor Morcha are spearheading the movement in response to the delay in the government’s response to their initial calls in November 2023. 

The farmers’ protests come ahead of the upcoming national elections, where Prime Minister Narendra Modi seeks a third straight term. Farmers are considered a crucial voting bloc in India — agriculture accounts for around 18% of the country’s GDP and employs approximately 47% of the population.

The demonstrations harken back to farmer protests in 2020 against the government’s move to introduce controversial agricultural reforms. The movement ended with the government suspending the proposed farm laws in 2021 and agreeing to discussions on guaranteed crop prices.

Farmers are considered a crucial voting bloc in India, with agriculture employing nearly half of the population.But farmers say that despite several reminders, the promises never materialized.

“The struggle has been going on for the last decade and more. However, the Narendra Modi-led BJP government has gone back on all its promises,” Vijoo Krishnan, general secretary of All India Kisan Sabha (All India Farmers Union), which is supporting the issues and right of farmers, tells Food Ingredients First.

“The timing [of the protests] could ensure agrarian issues and the crisis comes into the National agenda which cannot be ignored by any political party.”

The protestors’ additional demands include farmer pensions, waiver of debts, penalization of fraudsters selling fake seeds and pesticides and increasing the number of work days set by the rural employment guarantee from 100 to 200.

The demands unraveled
MSP is the lowest rate at which government procurement agencies purchase crops from farmers. The market intervention — if extended in line with farmers’ demands — is expected to provide a form of social insurance and security to farmers against market fluctuations.

“The demand of farmers with respect to MSP is two-fold: fix MSP with at least 50% margin over comprehensive cost, which includes imputed rent on owned lands and imputed interest on owned capital, besides all paid out costs and imputed wages for family labor,” says Ashok Gulati, professor at the Indian Council for Research on International Economic Relations and previous Chairman of the Commission for Agricultural Costs and Prices, which determines MSP in India.

The second demand is making the MSPs legally binding on buyers, both government and private traders.

Krishnan justifies the demands saying that assuring MSP at 50% more than the comprehensive cost of production can “incentivize farmers to remain in agriculture, generate minimum investible surplus, safeguard food security, ensure freedom from debt, generate purchasing power and ensure a semblance of economic security and well-being for families.”

But Gulati warns implementing the MSP demands for all 23 crops across India is not possible and could result in an “operational nightmare.”

Executing the farmers' demands for all 23 crops everywhere in India is not possible, say Gulati.“If the government tries to do so, its fiscal implications will be humongous,” he tells Food Ingredients First.

Ankit Kumar, senior manager for Trade and Coordination at the Indian Chamber of Food and Agriculture, agrees that fulfilling the farmers’ demands could cause inflationary pressures.

“Budgetary restrictions are an important concern since enacting minimum support prices can put pressure on public coffers, particularly if the prices are set above market rates,” he tells us. 

“These prices can influence the market, resulting in surpluses, stockpiling and ineffective resource distribution. Under such circumstances, maintaining general economic stability becomes difficult.”

Kumar says it is difficult for the government to balance the need to help farmers while ensuring the implementation of sustainable economic policies. Electoral and political dynamics must be considered to satisfy the interests of farmers, consumers and other stakeholders.

Sustainable farming
The farmers’ demands are based on the Swaminathan Committee report by Indian agronomist and agricultural scientist MS Swaminathan, which recommends measures like MSP for crops other than paddy and wheat as well as agrarian reforms, equitable water access, land regulation and credit availability.

The recommendations are aimed at enhancing the productivity, profitability and sustainability of India’s major farming systems, such as reforms to increase the flow of rural credit to farmers and improving the quality and cost-competitiveness of farm commodities.

But Gulati points to a “fundamental flaw” in the report’s recommendations, which were thoroughly examined and rejected by the United Progressive Alliance (UPA) government in 2006. 

Protestors have also demanded withdrawal of police cases against farmers during earlier protests.“Supplies may increase while demand will shrink and surpluses will have to be bought either by the government or remain unsold with farmers as traders will move away if the market is not clearing” he says.

Meanwhile, Kumar points to subsidies and input support as a way to lower farmer production costs, which includes financial assistance for fertilizer and seeds.

“Market intervention, including buffer stocking and procurement, maintains price stability and ensures farmers receive a fair price,” he says.

When determining support prices, he encourages the use of sustainable agriculture methods rather than “overproduction or other practices that are detrimental to the environment.”

Global trade impacts
Even though MSP has the potential to stabilize farmers’ financial condition, Kumar points out that excessive price security can adversely impact exports and trade balances by making domestic produce less competitive in international markets. 

“Depending on the particular situation and the resources at present, governments adopt policies in response to changing needs and difficulties in the agriculture industry,” says Kumar.

For Gulati, raising the crop prices by 25% to 30% means creating multiple “spillover effects” on the economy and threatening India’s growth story.

Building trust
The key issue, according to Gulati, is increasing farmers’ incomes. 

“A new deal for agriculture that promotes diversification of high-value crops, minimizes risks for farmers and is environmentally sustainable is the need of the hour,” he explains.

Excessive MSP can make domestic produce less competitive in the international market, says Kumar.But such goals demand rational policy choices and patience and perseverance from lawmakers and farmers. 

“The foundation has to be built on trust, which is currently very low. Hence, such protests will keep popping up,” he says.

If the demands are not met, Krishnan warns that farmers will continue the protests.

“We will carry forward an intense campaign with the slogan Stop Corporate Loot, Save Agriculture; Modi Hatao Desh Bachao (remove Modi and save the country) and ensure its defeat while putting forth our alternatives that no future government can ignore.”

Currently, the protesting farmers are camping at the border of Punjab and Haryana and are expected to begin marching toward the national capital of Delhi today in a “peaceful manner,” according to farm leaders. The protestors have called on farmers from other Indian states to join them.

Meanwhile, European farmers have also been protesting against government and national measures designed to tackle climate change, which Slow Food, an organization promoting local food and traditional cooking, suggests is marred by “greedflation.”

By Insha Naureen