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Indian Economy

Starting Monday, the Madhya Pradesh government will attempt an agricultural reform that could be a pilot project for the country. Instead of procuring produce from farmers at a minimum support price (MSP), the government will pay them the difference between market price and MSP.

This is half a step forward—potentially less distortionary and working around the state’s infrastructure shortcomings—but it is not a comprehensive solution. The entire concept of mandatory trading at government mandis must be dismantled. The current government has moved towards this with a model law, but it hasn’t gone all the way. That will only be possible in conjunction with a complete shift from the public distribution system to direct benefits transfer—not to mention easing foreign direct investment rules in the sector and widespread access to institutional credit for farmers. And much depends on the willingness of states to follow the centre’s lead.

Except for one-offs like New Zealand, no country has managed to crack the agricultural subsidies code. India still has a long way to go.

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