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- IASbhai Daily Editorial Hunt | 16th Feb
- EDITORIAL HUNT #323 :“Farmers and Taxation in India | UPSC”
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IASbhai Daily Editorial Hunt | 16th Feb
EDITORIAL HUNT #323 :“Farmers and Taxation in India | UPSC”
Farmers and Taxation in India | UPSC
R. Ramakumar is Professor at the Tata Institute of Social Sciences, Mumbai
Farm laws and ‘taxation’ of farmers
To show Indian agriculture as being net taxed to argue for the farm laws has poor conceptual validity
SYLLABUS COVERED: GS 3:Agriculture
In India if the milk sector can grow without MSP and with private corporates, why cannot other agricultural commodities? Comment -(GS 3)
- Net Taxation
- PSE and its estimation
- Important definitions
- Concerns and possibilities
- A case of Milk Trade
- Way Forward
- NET TAXATION : Over the past three decades, a major rationale offered in favour of liberalising Indian agriculture was that farmers were “net taxed”.
- PROTECTIONISM : It was argued that this “net taxation” existed because protectionist policies deprived farmers of higher international prices, and the administered price system deprived farmers of higher domestic market prices.
- OTHER ARGUMENTS : If there were more liberal domestic markets and freer global trade, prices received by farmers would rise.
- OECD DATA : In contrast, PSE was +18.2% in the Organisation for Economic Co-operation and Development (OECD) countries, +19.6% in the European Union countries and +9.5% in the U.S.
- GETTING THE MARKETS RIGHT : The farm laws would weaken restrictive trade and marketing policies in India and “get the markets right”.This, in turn, would eliminate negative support and raise farmers’ prices.
PSE AND ITS ESTIMATION
- PRODUCER SUPPORT ESTIMATE : The Producer Support Estimate is estimated using a methodology advocated by the OECD.
The PSE has two components.
- The first is market price support (MPS).
- The second is budgetary transfers (BOT).
- MPS DEFINITION : MPS is that part of the gross transfers to producers arising from “a gap between domestic market prices and border prices of a specific agricultural commodity”.
- BOT DEFINITION : BOT includes all budgetary expenditures on policies that support agricultural production.
- PREVIOUS VALUES : The PSE for Indian agriculture in 2019 was ₹-1,62,740 crore, or -5.5% of the value of production.
- MPS FORMULA : The MPS for a commodity is calculated as the product of its annual production and the difference between its international and domestic prices.
SPECIFIC CONCERNS AND POSSIBILITIES
- CONCERNS : The international price is considered a benchmark with no reference to the actual possibilities of domestic producers obtaining that price.
- CONTROLLING PRICES : A crop produced in large quantities can also be essential for domestic food security. Hence, it may not be regularly exported. Yet, its MPS will be negative.
- ILLUSIONARY CHANGES : The short-term changes in MPS may be illusory if they result from short-term fluctuations of international prices or relative exchange rates, or shocks to global demand or supply.
- PRICING MONOPOLY : Such fluctuations are more pronounced in agriculture because international agricultural markets are infamously imperfect, narrow and dominated by monopolistic multinational companies.
- MARKET PERCEPTIONS : The international market for most agricultural commodities is small, while countries like India are large producers.
- MARKET VOLATILITY : These fluctuating PSEs mean nothing in terms of taxation or subsidisation of producers. They only mean that international prices were volatile.
- IN SUMMARY : the MPS is a wrong measure of taxation in agriculture because the international price is no “true price” to be accepted as a benchmark.
- NEGATIVE MPS : Further, a negative MPS, by itself, implies neither a state that squeezes revenues out of farmers nor the absence of absolute profitability in agriculture.
THE CASE OF MILK TRADE
- RESTRICTIVE MARKETS : Proponents of farm laws use the OECD estimates of MPS and PSE to show the perils of restrictive markets.
- HIGHEST MPS FOR MILK : The MPS for milk was ₹-2,17,527 crore, which accounted for about 47% of the total MPS in agriculture.
- HEAVILY TAXED : Thus, if we go by the OECD estimates, milk was one of the most heavily “taxed” agricultural commodities in India.
- MILK PRODUCTION : In reality, the MPS for milk turned negative because the average domestic price for milk rose from ₹25,946/tonne in 2015 to ₹28,988/tonne in 2019.
- PRICE VARIATIONS : The average international reference price for milk rose faster from ₹24,905/tonne to ₹39,884/tonne in 2019.This led to a rise in the price differential from ₹1,041/tonne in 2015 to ₹10,896/tonne in 2019.
- ASSESSMENT : The reason is that the OECD methodology, either for milk or for other commodities, does not offer any realistic assessment of the extent of taxation or subsidisation.
THE LACK OF LOGIC IN DEBATES
In the debates, it is telling that these advocates
(a) Use the OECD estimates to highlight the overall negative MPS for agriculture as a problem;
(b) Conveniently remain silent on the negative MPS for milk; and
(c) Argue in the same breath that milk producers have benefited from the growth of private firms.
SOURCES: THE HINDU EDITORIAL HUNT | Farmers and Taxation in India | UPSC