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Correspondent

23 August 2024 at 4:29:04 pm

Chaos Diplomacy

Donald Trump has always understood one thing better than most modern politicians that markets respond to perception. In the grinding drama over Iran, the American president appears to have weaponised uncertainty itself. One day he hints at a diplomatic breakthrough with Tehran and signals the reopening of the Strait of Hormuz which causes investors to breathe a sigh of relief. However, hours later, he reverses course by declaring there is “no rush” for a deal and that restrictions will remain...

Chaos Diplomacy

Donald Trump has always understood one thing better than most modern politicians that markets respond to perception. In the grinding drama over Iran, the American president appears to have weaponised uncertainty itself. One day he hints at a diplomatic breakthrough with Tehran and signals the reopening of the Strait of Hormuz which causes investors to breathe a sigh of relief. However, hours later, he reverses course by declaring there is “no rush” for a deal and that restrictions will remain until Iran bends fully to American conditions. The markets wobble again Trump’s defenders may argue that unpredictability is a negotiating tactic. Henry Kissinger once cultivated strategic ambiguity during the Cold War. Richard Nixon perfected the so-called ‘madman theory’ to keep adversaries guessing. Yet Trump’s oscillations differ in both scale and intent. In recent weeks, analysts and ethics experts in the United States have raised uncomfortable questions about whether political messaging is increasingly shaping market volatility in ways that benefit insiders, speculators and politically connected traders. When geopolitical brinkmanship begins to resemble a financial instrument, public trust in democratic institutions erodes. Nearly a fifth of the world’s oil passes through Hormuz. A closure or blockade affects fuel prices in Mumbai as much as manufacturing costs in Shanghai or inflation in Berlin. Trump’s repeated shifts between escalation and reconciliation have had grave implications for India, which imports more than 80 percent of its crude oil requirements. Any prolonged instability in Hormuz translates directly into higher import bills, inflationary pressures and stress on the rupee while ratcheting prices of essentials. India has spent years carefully balancing its ties between Iran, the Gulf monarchies and the United States. Tehran remains important for connectivity projects such as Chabahar Port and for India’s access to Central Asia. But allies and adversaries alike are forced into a perpetual state of recalibration because American policy itself appears unstable. Trump’s Iran manoeuvring reflects a dangerous transformation in global politics, which is the merger of geopolitics with spectacle capitalism. International crises are increasingly consumed like market-moving entertainment. This may generate short-term leverage for him or even produce tactical victories at the negotiating table. Iran, under immense economic strain, reportedly agreeing in principle to surrender its highly enriched uranium stockpile is no small development. Yet diplomacy built on volatility carries long-term costs and lead to the weakening of institutions. Markets become addicted to chaos and chaos, once normalised, rarely remains controllable. The world’s largest economy cannot afford to conduct foreign policy like a reality television script, with cliffhangers designed to manipulate sentiment every news cycle. Great powers are supposed to provide stability, not amplify uncertainty for strategic theatrics. Trump may believe that time is on America’s side. But for an anxious global economy already strained by wars, inflation and fragmentation, time spent trapped in manufactured uncertainty is becoming increasingly expensive.

The Price of Plenty

In India’s farm policy, arithmetic often collides with reality. Nowhere is this more evident than in Maharashtra, where the official logic of Minimum Support Prices (MSP) struggles to keep pace with the lived economics of cultivation. As the 2025–26 agricultural season unfolds, fresh evidence from the state’s Agricultural Price Commission suggests that the gap between what farmers spend and what they earn is widening.


At first glance, Maharashtra appears an agricultural powerhouse. Its farms span roughly 165 lakh hectares, covering more than half the state’s land. But beneath this impressive expanse lies a structural fragility. Barely a fifth of this land enjoys assured irrigation. The rest depends on the caprices of the monsoon. In such a setting, farming is less a business than a gamble, with rainfall serving as both benefactor and executioner. The average landholding, a modest 1.34 hectares, offers little cushion against adversity. A delayed monsoon or a brief dry spell can swiftly transform anticipated profits into mounting debt.


Tightening Vice

Costs, meanwhile, are rising with disquieting speed. For the 2026–27 season, machinery rentals are projected to increase by nearly a fifth. Fertiliser prices have surged even more sharply. Diammonium phosphate (DAP) and muriate of potash (MOP), both essential inputs, now command prices of Rs. 27,000 and Rs. 34,000 per tonne respectively. Though urea remains subsidised, this offers only partial relief. Labour, transport and other ancillary expenses continue their steady ascent. The cumulative effect is a tightening vice, leaving farmers increasingly reliant on credit.


Against this backdrop, the MSP regime appears curiously detached. Designed to provide a safety net, MSP is calculated using the A2+FL formula, which accounts for paid-out costs and the imputed value of family labour. This framework, administered by the Commission for Agricultural Costs and Prices, has long served as the backbone of India’s price support system. Yet in regions like Maharashtra, where farming conditions are harsher and risks more pronounced, its limitations are becoming apparent.


The alternative, known as the C3 cost framework, offers a more expansive view. It incorporates not only direct expenses and family labour but also the rental value of land, interest on owned capital, managerial input and a notional profit margin. When MSP is evaluated against this broader measure, the inadequacy of current pricing becomes stark.


Consider paddy. For the 2025–26 season, Maharashtra’s calculations suggest a remunerative price of around Rs. 4,783 per quintal. The central MSP, however, stands at just Rs. 2,369 - barely half the estimated cost under the C3 framework. Similar disparities exist for other crops, including pearl millet (bajra), a staple of the state’s rainfed regions. They represent tangible income foregone, and, in many cases, the difference between viability and distress.


Such estimates are grounded in extensive fieldwork. Four of Maharashtra’s agricultural universities - located in Rahuri, Parbhani, Akola and Dapoli - collect data from nearly 2,800 farmers across diverse agro-climatic zones. Their findings capture the granular realities of cultivation: fluctuating input prices, regional variations in yield and the hidden costs that seldom find their way into official calculations. This evidence lends weight to the argument that a one-size-fits-all MSP is ill-suited to India’s heterogeneous agricultural landscape.


Raising MSPs to reflect C3 costs would undoubtedly improve farm incomes, but it also carries fiscal and market implications. Higher procurement prices could strain government budgets and distort cropping patterns. Yet ignoring the problem risks perpetuating a cycle of indebtedness and disinvestment in agriculture.


Reducing Costs

One promising avenue lies not only in recalibrating prices but also in reducing costs. Maharashtra’s push towards natural farming is instructive in this regard. By minimising reliance on chemical fertilisers and external inputs, such practices can lower expenditure while enhancing soil health. For rainfed areas, where irrigation constraints already limit productivity, this approach offers a measure of resilience. It shields farmers, to some extent, from the volatility of global input markets and the vagaries of supply chains.


Still, cost reduction alone cannot bridge the gap. What is required is a more nuanced MSP framework that accounts for regional disparities, incorporates a fuller spectrum of costs and remains responsive to changing economic conditions. This need not entail a wholesale abandonment of the existing system but a shift from uniformity to flexibility, from abstraction to empiricism.


Ultimately, the debate over MSP is not merely about numbers. It is about the social contract between the state and its farmers. Ensuring that farmers receive prices commensurate with their costs is not simply an economic imperative; it is a moral one.


(The writer is a member of Maharashtra Agriculture Price Commission. Views personal.)

 


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