Topic 1 : Macron vs Putin
Introduction: French President Emmanuel Macron’s suggestion that NATO should consider sending troops to Ukraine to bolster Kyiv’s defences against Russian occupation forces generated a chorus of protests within the alliance, including from Europe’s most influential nation, Germany.
Russia’s warning to NATO
- Russian President issued a dire warning: Any NATO troop deployment in Ukraine would not only lead to massive military escalation but also to Russian use of nuclear weapons.
The reason behind French anxiety
- The European controversy over Macron’s remarks reflects the deepening dilemmas of NATO in addressing the current stalemate in the Ukraine war that entered its third-year last month.
- A year ago, Europe was betting on a successful military counter-offensive by Kyiv to push Russian troops out of Ukraine.
- Those hopes have dissipated as Russia got its defences together and is now taking offensive actions.
- Without enough weapons and ammunition, Ukraine has had one arm tied behind its back.
- Meanwhile, the pressure from the Republican Party across the Atlantic insists Europe must take responsibility for the Ukraine war.
- Caught between an aggressive Russia and an isolationist America, Europe’s moment of reckoning has come.
- France’s Macron, who leads the only serious military power in Western Europe, was responding to that challenge when he said NATO should not rule out the possibility of sending troops to defend Ukraine.
- Much of Europe is paralysed by the fear of escalation and is not prepared to confront the geopolitical consequences of a Russian victory, whichever way you define it, in Ukraine.
Ukraine war and Europe’s ability to defend itself
- The debate initiated by Macron is unlikely to subside, for Europe and NATO have to find a way of preventing further losses for Ukraine.
- The Russian invasion of Ukraine has mercilessly exposed European illusions about a post-conflict continent and revealed its unpreparedness to defend its territory.
- European measures to ramp up the production of weapons and munitions, like the Russian mobilisation of its industry for a war economy, will not only take time but is also deeply unpopular in a continent reared in the lap of a generous welfare state.
Putin is playing hawk and dove simultaneously
- Meanwhile, NATO has to come to terms with Putin’s nuclear threats that have succeeded in deterring the West from deploying the full range of military means to counter Russian aggression.
- Even as he threatens nuclear escalation, Putin is inviting NATO for talks on nuclear arms control.
- He is also calling for negotiations to end the war and setting the terms for peace that demand a pro-Russian regime in Kyiv and a neutralised Ukraine.
- By simultaneous military and political moves, Putin hopes to deepen European political divisions.
Conclusion: Caught between an aggressive Russia and an isolationist America, Europe’s moment of reckoning has come.
Topic 2 : A fair deal for farmers
Introduction: Protesting farmers have put forward 12 demands. Of these, at least two have large economic implications. It is a real challenge before the government to find a way forward for those two demands.
What are those two prominent demands?
- The first is the legalisation and increase of the Minimum Support Price (MSP) at C2+50 per cent profit for 23 crops for which the government announces the MSP.
- The second is the assurance of minimum 200 days of employment under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) with a daily wage rate of Rs 700.
The feasibility of increasing MSP prices
- The comprehensive cost (C2) includes, besides paid out costs and imputed wage for family labour (A2+FL), imputed rent on owned land, and imputed interest on owned capital.
- If the government accepts this formula of Cost C2+50 per cent, then our calculations show that the MSP levels for 23 crops will go up, on an average, by 25 per cent over the 2023-24 MSPs.
- Within this basket of 23 commodities, MSP increase will vary across crops.
- While safflower MSP will go up by 40 per cent, sugarcane’s FRP will go up only by 3 per cent, wheat by 9 per cent, and mustard by 8 per cent, as their existing MSPs are already well above cost A2+FL plus 50 per cent margin.
- For other crops, MSP increases would be: Sesamum (37 per cent), sunflower (32 per cent), soybean (31 per cent), groundnut (26 per cent), paddy (31 per cent), jowar (33 per cent), maize (29 per cent), ragi (30 per cent), tur (28 per cent), moong (27 per cent), urad (35 per cent), gram (25 per cent), and lentil (14 per cent).
- Commercial crops’ MSP will also go up: Cotton (24 per cent), copra (31 per cent), and jute (21 per cent).
The spillover effect of increasing MSPs
- These MSP hikes would change the relative prices of these crops and could prompt shifts in cropping patterns.
- Wheat and sugarcane are likely to lose area, while paddy surpluses may go up significantly.
- This may force higher MSP hikes in wheat and sugarcane than indicated by C2+50 per cent formula.
- Price hikes in commodities like soybean and maize, which are basic feed material for poultry, fishery and dairy, will push the prices of livestock and fishery products, thus leading to high food inflation.
- Additionally, the magnetic pull of stable and legal MSPs of 23 crops may attract many producers of horticulture, which can create shortages of fruits and vegetables.
- This would lead to higher inflation in fruits and vegetables too.
- Thus, overall, it seems that food inflation may go up by 20 to 30 per cent.
The legalisation of MSP
- Making MSPs legal will be more problematic for farmers.
- Take the case of rice whose MSP will go up by 31 per cent under the new MSP formula.
- All exports of rice, about 22 MT, would become unviable adding to domestic supplies.
- When MSP of paddy goes up by 31 per cent and sugarcane by only 3 per cent, paddy will start substituting even sugarcane and many other crops in kharif season, creating a glut in the domestic market.
- And when supplies may far exceed demand, traders will not touch the excess supplies for fear of being harassed and fined.
Commodities out of MSP regimes have performed better
- In any case, it is worth reiterating that the value of the MSP segment (23 crops) constitutes less than 28 per cent of agricultural output.
- More than 72 per cent of agricultural produce faces market prices and is performing much better than rice, wheat and sugarcane, in which MSP/FRP is most effective today.
- The average annual growth rates during 2010-11 to 2021-22 have been 9.1 per cent for poultry meat, 6.3 per cent for eggs, while combined poultry (meat and eggs) has grown by 8.3 per cent per annum.
- Fisheries have grown at 7.7 per cent, milk at 5.5 per cent, and horticulture at 4.5 per cent.
- These are all non-MSP segments of agriculture.
- Even within the MSP crops, pulses grew at 6.6 per cent, and oilseeds at 3.8 per cent, where government intervention is very meagre.
- Slowest growth is in sugarcane (2.9 per cent), paddy (3.1 per cent), and wheat (2.4 per cent), where the government intervenes heavily.
- These trends clearly indicate that agriculture is moving where the demand is surging fast.
The feasibility of increasing days of employment in MGNREGA
- The other demand of farmers for 200 minimum days of employment under MNREGA at a wage rate of Rs 700 per day poses a significant fiscal cost to the government.
- Currently, the budgeted amount for MNREGA stands at Rs 86,000 crore (Revised estimates 20223-24), which is based on an average of 48.7 days of employment per household at a weighted average daily wage of Rs 236.6.
- If we consider a minimum daily wage of Rs 700, and for 200 days, the estimated budgeted amount would be more than Rs 10.4 lakh crore.
- This will be a huge fiscal burden for a central budget that hovers around Rs 47 lakh crore.
- If one adds to this the demand for pensions and loan waivers, it will simply blow out the budget.
- So, all these demands seem to be asking for the moon, which is not feasible for any government to agree to.
What could be agreed for the agitating farmers?
- The farmers deserve a better deal for prices of their produce.
- The first policy change that is needed to give them a fair deal is to remove export controls, stocking limits on traders, and stop unloading rice and wheat below the economic cost of FCI.
- Second, the government must strengthen and free up futures markets, options, warehouse receipt systems, and encourage FPOs to be part of organised value chains on digital commerce.
- In brief, “get the markets right”. Government should intervene only when there is a sudden price crash.
- For that, an augmented stabilisation fund could be used as a last resort, and not the first instrument.
- What this means is eliminating the urban consumer bias, that always wants lower and lower prices, often at the cost of farmers.
- This mindset in policy making must change.
Conclusion: The farmers' demands will lead to a huge fiscal burden on the government. The government must listen to the farmers emphatically. It must shed consumer biases and allow the farmers to export, and store their product for better price discovery.