Modi’s Farm Laws Masterstroke: Direct Bank Transfer Of MSPs For Punjab’s Farmers

Amidst the ongoing farmers’ protests and increased minimum support price (MSP) procurement for paddy in Punjab, the Narendra Modi government has played a masterstroke by announcing direct online payment of the MSP for the upcoming rabi marketing season (RMS).

Earlier this month, the Food Corporation of India’s (FCI) Punjab office wrote to the director of food, civil supplies and consumer affairs in order to request the land records of farmers to ensure direct bank transfer of MSPs for the approaching procurement season. The land records have been made mandatory for wheat procurement and must be updated before the commencement of the RMS 2021-22.

The letter from the FCI also hints at the corporation wanting to verify the land records of the farmers during the RMS 2021-22 with regards to their purchases.

Punjab is an important state when it comes to MSP procurement of crops, mainly wheat and paddy along with a few other crops in relatively smaller amounts.

In 2017-18, as much as 90 per cent of the produced paddy crop was procured and 66.4 per cent of the wheat crop was procured.

Punjab’s share in national wheat and rice production is 18 per cent and 12 per cent respectively, but in the central pool that year, Punjab’s wheat share stood at 38 per cent and rice’s share was 31 per cent.

Punjab’s critical share is also reflected in the FCI procurement.

For RMS 2019-20, of the 40.37 lakh metric tonne (LMT) wheat procured by the FCI, 15.72 LMT came from Punjab. For the kharif marketing season (KMS) of 2019-20, of the 7.52 LMT paddy procured, 2.24 LMT came from Punjab.

For RMS 2020-21, of the 38.66 LMT wheat procured by the FCI, 14.20 LMT came from Punjab. For KMS 2020-21, of the 6.03 LMT paddy procured by the FCI, 2.69 LMT came from Punjab. However, these numbers do not include the procurement by the state agencies.

Interestingly, the government’s directive to ensure direct MSP transfers to farmers has been long pending implementation. Even in 2012, ignoring the directive of the Union government, the then Shiromani Akali Dal-Bharatiya Janata Party (SAD-BJP) government continued the MSP for farmers through the commission agents and middlemen, or arhtiyas as they are popularly known.

The then state government excused itself by claiming that the machinery to facilitate direct transfers was not available, stating that it was easier to deal with 20,000-odd middlemen instead of more than 1.2 million farmer families. The FCI had also requested the option to directly pay the farmers back in 2012.

In response to the recent FCI request on land records for the farmers of Punjab, the Punjab Arhtiya Association has threatened a strike and stated that they shall stop wheat procurement from April 2021 as a mark of protest.

This masterstroke by the Modi government, via the FCI, addresses three major concerns. One, that of continued MSP procurement, as farmers selling their crop to the FCI, and in the future, even to the state agencies, can expect the complete payment to be deposited digitally into their bank accounts.

Two, the inflated costs for the FCI. The FCI has already experimented with a fixed fee for the middlemen in recent KMS instead of an MSP-linked fee. Given the increase in MSP has a direct impact on the middlemen commission, a fixed fee will aid the FCI in reducing its procurement costs.

Three, it frees the farmers from the clutches of the middlemen. In Punjab, traditionally, the middlemen or the arhtiyas, facilitate the trade between the farmers and the agencies at the mandis. However, under the APMC system, the payment in Punjab still goes to the middlemen and not the farmers.

The middlemen, who also receive their commission within the payment, then pass on the payments to the farmers. However, there’s a catch here. One, there is no way for the government to ensure that the farmers are indeed getting the entire MSP.

Two, for farmers who are dependent on the middlemen for informal credit, the payment is made after the middlemen deducts their interest on the loan given to the farmer. Often, the interest on these informal loans is very high, leaving the farmer with barely enough income, further intensifying the debt cycle.

Given the falling incomes in agriculture, increased costs of living, the farmers are never able to pay back the loans. Worse, unlike banks where there is a proper repayment schedule available, no such paperwork is done by the middlemen and the entire payment process works at the discretion of the middlemen.

Thus, in most cases, the farmers do not even realise how much they owe to the middlemen as principal and interest. The ones who fail to pay back end up losing their lands, which in some cases, pushes many to commit suicide.

Direct MSP transfer puts the farmer back in control of their payments, deposits, and helps them realise the net worth of their produce. Even if they wish to engage with the middlemen for informal credit, the payout of the interest can happen after the payment.

It also opens up opportunities for formal credit for farmers in the future. Direct MSP transfer will help banks gauge the creditworthiness of the farmer, thus allowing them to offer the latter multiple financial services. This could help farmers access loans for several services at a lower rate of interest.

Finally, it spells the end of the middlemen’s curse. While the role of the middlemen in the APMCs will not come to an end, and they shall be paid for their services, they shall no longer be in a dominant position when it comes to lending. The opening up of alternate private mandis in the future will also help farmers diversify their selling options.

While the Punjab Chief Minister has stated that this step by the government at the Centre could further intensify the agitation, it only reflects the political clout of the middlemen. Most of them are not even farmers and work on behalf of the Congress or SAD in the state.

As with the farm laws, this move keeps farmers’ interests before that of anyone else in the value chain. The challenge for the BJP, however, would be getting the word out. For the middlemen, it’s another warning to play fair or face the music.