Amid ongoing standoff between farmers and government over three farm laws, State Bank of India (SBI)'s latest Ecowrap report has suggested five feasible solutions to solve the current impasse, which includes converting the minimum support price (MSP) to floor price of auction on National Agriculture Market (eNAM) and revisiting the current KCC norms.
Here are the five point strategies suggested by the SBI to resolve the standoff over farm bills.
Inserting quantity guarantee clause, instead of MSP
SBI, in its Ecowrap report, suggested that instead of MSP as a price guarantee that farmers are demanding, the government could insert a quantity guarantee clause for a minimum period of 5 years that procurement to production percentage of crops (being currently procured) should at least be equal to last year percentage (with safeguards in exceptional events like droughts, floods etc). This will allay the concerns of the farmers to a great extent.
"Historical trend in case of procurement indicates that only 25-35% of total wheat produce has been procured over the years (with largest procurement happening through Punjab and Haryana). In case of rice, the procurement share is in the range of 30-40% with significant procurement from Telangana, Punjab, Haryana and Kerala," said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
Converting MSP to floor price of auction on eNAM
The government should consider converting the MSP to floor price of auction on National Agriculture Market (eNAM), said Ghosh. However, she added that this will not completely solve the problem as the current data shows that average modal prices in e-NAM mandis are lower than the MSP in all commodities (except Urad).
Strengthening APMC market infrastructure
As per the SBI report, efforts must be made to strengthen Agricultural Produce Market Committee (APMC) infrastructure. "Based on a government report, as per our estimates the monetary loss for cereals is almost Rs 27,000 crore due to harvest and post-harvest losses. The losses for oilseeds and pulses are Rs 10,000 crore and Rs 5,000 crore, respectively," the report noted.
Setting up contract farming institution
The government should establish a contract farming institution in India with the exclusive right to oversee price discovery in contract farming. The contract farming has been instrumental in many countries by providing growers access to supply chains with market and price stability, as well as technical assistance, the report said.
"The experience of Thailand shows market certainty (52%) and price stability (46%) were prime factors due to which farmers participated in contract farming," it said.
"The challenge for our agricultural policy is that small and marginal farmers should not get 'crowded out' from the benefits of the growth process. We thus recommend a similar institution in India be set up as small and marginal farmers should have the necessary wherewithal to deal with large buyers as global experience shows successes in contract farming is often not sustained as large firms initially attract small growers with favourable conditions, but later tightens them," the report noted.
Need for a flexible KCC Scheme
The SBI report proposed for revisiting Kisan Credit Card (KCC) norms saying that it would raise the monthly income of farmers by 35 per cent. It recommend that RBI in conjunction with government introduce an operational flexibility in the structure of KCC and direct the banks to allocate a specific percentage of their loans to particularly agri start-ups to give a boost to agri supply chains in India.
"As our model calculations, for a loan of Rs 1 lakh and with Rs.1.5 lakh Group Insurance cover (150% of loan), the monthly repayment will be Rs 533 only (or Rs 18 per day). We believe that the monthly income of farmer will go up to Rs 12,825 by the end of one year from the current level of Rs 9,500, simply by revisiting the current KCC norms," said Soumya Kanti Ghosh.
The KCC Scheme was introduced long back in 1998 with the objective to provide adequate and timely credit to farmers for their agricultural operation. The Centre provides interest subvention of 2 per cent and prompt repayment incentive of 3 per cent to farmers, thus making the credit available at a subsidised rate of 4 per cent per annum.
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