Protecting Indian Farmers: Abandon Cash Transfers, Save MSP System

If the Direct Benefit Transfer food programme makes its way to more states, the MSP regime will not be safe.

On 26 May, the farmers at the Delhi borders will complete six months of their protest against the three contentious farm bills. The farmers have decided to observe it as a ‘black day’, and have demanded that the central government resume talks with them. The last round of talks between the two parties was held on 22 January which ended in a stalemate. In their eleven rounds of talks, the farmers have remained adamant about the repeal of the three laws and a legal guarantee for Minimum Support Price (MSP).

The government had offered to stay the implementation of the three laws for one or one-and-a-half years — a demand subsequently rejected by the farmers’ groups. On MSP, the prime minister, finance ministers and the agriculture minister have said, multiple times, that the MSP procurement system will remain as it is.

Modi Govt’s Push for Cash Transfer for Food Subsidy — And Its Implications

While there is little evidence to suggest that the Bharatiya Janata Party-led central government will give in to the farmer’s demands and withdraw the three laws and make MSP a legal right, if by some stroke of luck it were to happen, farmers might still face the same threats that arose from the three farm laws in the first place.

The Modi government’s push for cash transfer for food subsidy instead of giving subsidised food grains – something the discourse around farm bills has missed — endangers the MSP-supported food procurement system, apart from also threatening food security (which is beyond the scope of this piece) in the country.

Procurement under the MSP system is inextricably linked to the allotment of subsidised food grains through the Public Distribution System (PDS). The Modi-led central government, however, is out to quietly dismantle this PDS system. On 7 February 2020, the Minister of State, Ministry of Consumer Affairs, Food & Public Distribution, Danve Raosaheb Dadarao, told the Rajya Sabha that states are now free to implement the scheme for the cash transfer of food subsidies (subject to the fulfilment of certain conditions regarding the preparedness for its implementation — which mostly concerns the seeding of bank accounts of recipients with their Aadhar).

The central government had first proposed replacing food subsidy with cash in a letter to states dated 10 February 2015, based on a recommendation made by a committee on the Food Corporation of India(FCI), which was chaired by former Food Minister Shanta Kumar.

While the states did not show much interest in the proposal at the time, the BJP government went ahead with notifying the Cash Transfer of Food Subsidy Rules on 21 August 2015 without due accountability.

The scheme, which can also be viewed as Direct Benefits Transfer for food grains, was then implemented in Chandigarh, Puducherry and urban areas of Dadra and Nagar Haveli after a quiet rollout by the central government in 2015. In 2017, the government had also launched a cash transfer scheme for food subsidies in Nagari block of Jharkhand on a pilot basis for ten months.

How the DBT Food Programme Works

Under the Aadhar-enabled DBT food programme, beneficiary households who are entitled to get subsidised food grains as part of the PDS, usually priced between Rs 1-3 per kg, from ration shops, instead get the subsidy amount in their bank accounts with which they can buy the grains at non-subsidised rates from the market. If implemented at a larger scale, these changes in the PDS are bound to erode the MSP procurement system slowly, and hence merits a closer look.

The subsidised food grains, such as rice and wheat, that are otherwise distributed by ration shops in most states and union territories under the PDS, is the produce that is bought by the government from farmers at Minimum Support Price.

If the government slowly stops distributing food grains in all ration shops, following the Chandigarh-Puducherry model, and gives cash to beneficiaries instead, the government will also invariably stop buying food grains from farmers at MSP — which is the most important instrument for the protection of farmers’ incomes so far. Buying grains from farmers at MSP will become unfeasible for the government if these grains cannot be offloaded and distributed to targeted households under PDS.

Issue of Govt Buying Food Grains at MSP to Export

If the government does not distribute food grains under PDS, but wants to keep procuring grains from farmers at MSP, the only options it will have is to either export the grains or store them infinitely — both solutions considered impractical by experts. “It will simply be immoral for the government to store food grains in a country such as India where thousands of people sleep empty-stomach every day,” said Dipa Sinha, Assistant Professor (Economics), Ambedkar University, Delhi, who is also associated with the Right to Food campaign.

The government buying food grains at MSP to export is seen as a ‘trade distorting’ exercise and is not allowed as per the regulations of the World Trade Organization (WTO). Complaints have been raised on multiple occasions against India in WTO by other countries, for crossing the subsidy ceiling in procurement of grains at MSP.

“DBT in food subsidy and procurement of grains at MSP cannot go hand in hand. If the government pushes for cash transfers for food subsidy, it will not be able to procure grains at MSP and even if it does, what will it do with it? On the other hand, WTO rules only allow India to buy food grains for distribution under PDS for food security under its green box measure. Procuring food grains otherwise is seen as an exercise to tamper with international prices,” Reetika Khera, Professor of Economics, IIT Delhi, had told this writer in an interview in 2018.

If the DBT food programme makes its way to more states, which is a real possibility given the BJP’s penchant for cash transfers, the MSP regime will not be safe with or without the repeal of the new farm laws.

If MSP were to become a legal right, the guarantee it will offer will have no value if the government stops procuring grains altogether. It is, hence, imperative that, along with the repeal of the farm laws and making MSP a legal right, farmers also demand that the central government roll back the cash transfers scheme for food subsidies completely.

(Priyanka Ishwari is a research assistant with the Research Department of the Indian National Congress. The author however, has written this in an independent capacity.

This is an opinion piece, and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)