Editorial 1 : Crown of thorns
Introduction: It’s a chronicle of a coalition foretold. Given the fractured mandate in the February 8 general elections in Pakistan, and widespread perceptions that the army “managed” the polls, it is no surprise that the constituents of the new government are the same players that made up the Pakistan Democratic Movement alliance.
Which party gets what in the new government?
- Shehbaz Sharif of the PML(N) is set to be prime minister once more, while PPP president Asif Ali Zardari will be president, with Rawalpindi’s invisible hand guiding the ship.
- The PPP also gets the Senate chairmanship and the Khyber-Pakhtunkhwa and Punjab governorships while the chief ministers and Speaker of the National Assembly will be from the PML(N).
- Nawaz Sharif will play the grand elder to the alliance.
- Significantly, the PPP has chosen not to join the government — reportedly, it will merely vote with the ruling party on no-confidence and spending bills.
- Given the fragile alliance and the challenges he faces in office, Shehbaz Sharif may not be celebrating his crown of thorns.
Task cut out for new government in Pakistan
- Pakistan is suffering from a prolonged economic crisis — since 2011, its external debt has nearly doubled and its domestic debt has increased six-fold, while growth has slowed.
- It is on the way to a default on its debts, which will take the country even deeper into the abyss.
- Another IMF bailout, and even the economy’s medium-term viability requires hard choices and serious reform.
- The PM-elect will face the brunt of the ire against this inevitable belt-tightening even as the PPP — historically against pro-market reforms — will likely sidestep responsibility.
- Pakistan also faces a severe security challenge on its western frontier with Afghanistan and insurgencies in Balochistan.
- Then there’s the elephant that isn’t in the room.
- Despite Imran Khan being jailed and his party being disbanded, independents contesting with the former PM’s support have emerged as the single-largest block.
- Already, they are pointing to the “stolen mandate” and are likely to keep alive the new government’s crisis of legitimacy.
- General Asim Munir and the army’s support will be crucial for the government — both to manage internal differences as well as to govern.
Is there any silver lining for India?
- For India, the new government in Pakistan may provide occasion for cautious optimism.
- Limited bilateral engagement could help strengthen the security gains of the past few years.
- For one, the 2021 ceasefire along the Line of Control in Kashmir has held, barring a few stray incidents.
- There has also been a drop-in terrorist activity and support to terror from across the border.
- While Pakistan took a maximalist diplomatic position in the aftermath of the abrogation of Article 370, it is possible to open channels on specific issues.
- Given the unrest on its western flank, the army too has an incentive to work towards stability on the eastern front.
- The Sharifs, particularly Nawaz Sharif, have often displayed a willingness to engage with India.
- There was considerable personal warmth between Nawaz and PM Modi during the latter’s swearing-in in 2014 and the surprise 2015 visit to Lahore.
- If Islamabad and Rawalpindi are willing to begin a conversation in good faith, New Delhi should be open to the opportunity.
Conclusion: Pakistan's new PM faces economy in crisis, fractured mandate, shaky alliance. For Delhi, new government is reason for cautious optimism.
Editorial 2 : How to make MSP work
Introduction: The system of Minimum Support Prices (MSP) has remained under pressure since it was started in 1965, especially on issues related to inclusion of crops, the formula or basis of MSP, effective implementation and even its enforcement.
The Journey of MSP
- For almost 50 years, MSP implementation remained largely restricted to a few states and to paddy (rice), wheat and cotton.
- Low growth rate in agricultural income, decline in the terms of trade for agriculture and increase in farmers suicides from the period between 1993-94 to 2004-5 directed attention towards remunerative prices to address agrarian distress.
- The National Commission on Farmers (popularly known as Swaminathan Panel), constituted in 2004, submitted its report in 2006.
- It made a large number of suggestions and recommendations, which also included reforms in the Agricultural Produce Market Committee (APMC) market, contract farming, land reform etc.
- One of the many recommendations of the Commission was that MSP should be at least 50 per cent more than the weighted average cost of production.
- Farmers as well as political parties started vying with each other to champion the implementation of the recommendations of this report, especially those related to MSP.
- So much so, other more valuable recommendations have been overshadowed and farmers are rallying only around this.
What is MSP?
- MSP was originally conceived as a floor price that protects farmers against losses, leaving some margin to incentivise adoption of improved technology and investments in farming.
- The level of margin to be given above cost was left to the Commission for Agricultural Costs and Prices (CACP), guided by a set of terms of reference.
- The MSP proposed by the Swaminathan panel (henceforth called new MSP) made it compulsory to include at least 50 per cent margin over cost.
- The report does not mention any reason for doing so.
- This also took away the power of the CACP to keep MSP relevant to demand-side factors and the open-market situation.
- The second issue related to the cost concept — whether it should be A2+imputed value of family labour or Cost C2, which included imputed value of rent for own land and interest on fixed capital of farmers.
- Logically, margins should be calculated only on the costs incurred by farmers.
- Farmers’ unions are agitating to make MSP legal guarantee and also to fix it by including at least 50 percent margin on cost C2.
- So their demand includes two things — one, MSP which is totally justified and two, a particular level of MSP.
Issues Related to New MSP
- The major issue arising from the new MSP concept is that if demand-side factors do not support the new MSP, the system of marketing will collapse and farmers will suffer.
- According legal status to MSP, as demanded by some groups of farmers, can also be counterproductive as trade is not bound to buy the entire surplus at legal price if they find it impossible to sell the same produce in the open market with required business margins.
- It is argued that the government should buy this produce like it is doing for rice and wheat — a situation that will lead to nationalisation of agricultural trade.
- The third option suggested by some quarters is a system of Deficiency Price Payment (DPP).
- This is a workable approach but this turns out to be very costly if there is a large gap between reference price and the MSP, making it fiscally unsustainable.
- This option, however, has already been offered by the central government to states and some are implementing it.
- Besides the fiscal burden, the main issue of DPP is that if it exceeds 10 per cent, it is open to a challenge in the World Trade Organization.
- If the new MSP in any form is much higher than the open market price, then India’s exports will also be jeopardised.
Progress in new MSP regime
- The BJP government accepted the recommendation of the Swaminathan panel to fix MSP by adding a margin of at least 50 per cent to A2 cost + imputed cost of family labour.
- Since then, rice and wheat are procured at the new MSP by the central government.
- Serious efforts have been made to expand coverage of the new MSP to more states and more crops.
- Extending MSP to 23 crops throughout the country is a humongous task, difficult for the central government alone.
- Therefore, two other schemes, namely, PM AASHA (Pradhan Mantri Annadata Aay Sanrakshan Abhiyan) and Price Deficiency Payment, have been offered to states.
- Thus, an effective mechanism has already been created for implementing new MSP in all the crops. But, there is a need to expand it.
- Ensuring remunerative prices for farmers is essential.
- Some crops and agriculture segments can give better growth through market forces while some require government support through systems like MSP.
- For instance, horticultural crops (not covered under MSP) have experienced more than two times the growth of rice and wheat in the last 10 years.
- This shows that the power of demand-driven factors can be much stronger than government price-support in pushing growth and farmers’ income.
- The new MSP has the potential to stifle such demand-driven growth.
How to make MSP work?
- If the MSP includes a small margin, as was the case before Swaminathan’s proposal, it can be subsumed in MSP.
- However, the new MSP requires a separate treatment of margin.
- It is suggested that the country should follow a system of Assured Price to Farmers (APF), which includes a MSP component and margin or profit component.
- MSP should be equal to cost C2.
- This will include some net return to the farmer.
- Farmers should get some margin over and above C2 cost which should be decided each year by an expert body such as CACP.
- The margin should be kept variable unlike MSP which always moves on a rising trend.
- Giving MSP to include 50 per cent margin over cost C2, as demanded by the agitating farmers, defies any logic and will turn out to be fiscally ruinous for the economy.
- For implementation, MSP crops should be divided into two categories: Crops of all-India importance and crops of regional importance.
- Centre should take responsibility for implementing APF for the first category.
- The responsibility for APF for crops of regional importance should be entrusted to states, with shared funding.
Conclusion: While demand for MSP is justified, 50 per cent margin demanded by agitating farmers will be a burden on the economy. Reforms suggested by Swaminathan panel should be considered instead to reduce dependence on government intervention.