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News                                                                                                   AgriTech indiA  January 2018       7


          agriculture needs a reforms

          package


           Only an overhaul resembling the industrial
           liberalisation of 1991 will work

          By Puja Mehra

              ith rural economic anxieties acquiring
          Wa political voice, the expectation is that
          the Budget will focus on agriculture. For some
          time, the country has been in denial over the
          extent of the mess in the sector.
            Farm incomes are unattractive for a variety
          of reasons; the absurdity of policies features
          among them. The overriding objective of price
          stability, over time, has tilted farm policy in
          favour of the consumer, the numerically larger
          vote bank. Trade and price controls are highly
          restrictive, and mostly anti-farmer. Protection
          afforded to the inefficient fertilizer industry   food prices inflation, from 2009 to 2013. The
          ensures that input costs are high. The farmer   culprit, though, was poor management of food
          is forced to sell in the domestic market where   stocks. The government had been raising MSPs
          prices tend to be lower than global agricultural   to reduce the gap between low domestic and
          prices. Research papers have quantified the   high global agricultural prices. The launch
          degree of anti-agriculture bias in the system.   of the National Food Security Mission and
          Farmers’ economic viability is rarely the   a global food prices crisis necessitated hikes
          primary consideration, although political   more aggressive than were originally planned.
          rhetoric would suggest otherwise. Increasingly   The high MSP ensured that the increase in food
          though, incompetence and politics have   grain production in the four-year period, 42
          ensured that policies are failing to serve even   million metric tonnes, was more than double of
          consumers.                         what had been targeted. But the high MSP also
            Agri-markets are not free. Governments   edged out private traders, forcing a scale-up in
          seek to influence prices, to smoothen them   procurement. Wheat and rice stocks surged but
          out. In the absence of state intervention, prices   were not used to dampen market prices.
          soar in bad weather years and plunge in good   Former Chief Economic Adviser Kaushik
          weather years, hurting consumers and farmers.   Basu has written about the mindset behind the
          The levers in governments’ hands are import   reluctance to release stocks to cool rising prices.
          and export controls, buffer stocks management   The argument was that selling at a price lower
          and Minimum Support Prices (MSPs).  than the purchase price (MSP plus carrying
                                             costs) would inflict losses on the exchequer
          About MSPs                         and add to the fiscal deficit. Since procurement
            Prime Minister Narendra Modi is under   spending is a sunk cost, not selling implied
          pressure to deliver on the 2014 poll promise of   even higher fiscal losses. International wheat
          higher MSPs. The centrality of MSPs in vote-  prices were 30% lower than in India, yet
          bank politics is well-known, but the economics   consumers were forced to pay more.
          of it is not sufficiently appreciated. The MSP,
          the price at which the government offers to   A bias
          procure from farmers, is an economic policy   Agricultural economist Ashok Gulati’s
          tool which requires technical acumen.  calculations show that even after four years of
            A sensible policy would be to buy from   systematically aggressive hikes, Indian MSPs
          farmers when market prices are depressed   of rice and wheat are less than support prices
          and sell stocks in the open market when   in China and other Asian countries, betraying
          prices are elevated. In the first scenario, if   India’s bias in favour of consumers.
          the MSP is pegged higher than the market   This bias explains the deepening economic
          price, the procurement will raise the market   divide between the farm-dependent and the
          price, boosting farm incomes. In the latter,   rest of the population, reflected in insecurities
          by offloading its stocks at a price lower than   of even traditionally land-owning people.
          the market price, government can cushion   The narrative is that the bulk of agriculture
          consumers against excessive inflation. The   is not sufficiently productive to be able to
          buyers of the subsidised sales (an efficient   gainfully engage young rural Indians and so
          Public Distribution System) are directly   policy attention must be on building industry.
          benefitted, but as the sales also lead to lower   China’s experience challenges such notions.
          prices in the open market, all consumers gain.  The Chinese economic reforms were kicked
            Procurement works effectively only if trade   off in 1978 with an overhaul of agriculture. As
          controls and stocks management are aligned   farm prices were decontrolled, real per capita
          with it. How these tools tend to be deployed   incomes began rising and, in just six years
          in a counterproductive manner was evident   Chinese poverty levels halved, from 33% in
          in the example of pulses in 2016-17. Despite a   1978 to 15% in 1984. In contrast, India’s 1991
          bumper harvest, after a steep MSP hike and   reforms bypassed agriculture altogether and
          good rains, export controls and stocking limits   instead focussed completely on industrial
          for private traders were retained and a record   liberalisation. Indian poverty halved in 18
          volume of imports allowed to be shipped in.   years from 45% in 1993 to 22% in 2011.
          The resulting glut sent the market price down,   The Budget presents an opportunity to
          below the MSPs, rendering it pointless. The   revisit strategic choices. Nothing short of
          looming losses set off farmer protests seeking   an overhaul of agriculture, resembling the
          even higher MSPs.                  industrial liberalisation of 1991, will work.
            The United Progressive Alliance
          government’s MSP policy was blamed for the     Puja Mehra is a Delhi-based journalist.

          ...Continued from page 1
          From Modi, Manmohan, Vajpayee to Rao,
          here is who generated the lowest agri growth


          ten-year performance (7.9%). So, there is a   (exports minus imports). It first climbed from
          significant gap that the Modi government must   $3.6 billion in 2004-05 to $25.5 billion by 2013-
          bridge before it can say that it has performed   14, a seven-fold increase during the Manmohan
          better than any government in the past.  Singh period, but then collapsed to just $8.2
            Needless to say, each regime faced varying   billion by 2016-17, a fall by two-thirds. This
          economic environments, both external and   does not auger well for Indian agriculture as
          internal, in which they had to perform. And   well as farmers. One of the points made during
          it is always a mixed bag of these conditions   the PM’s meeting with economists was that one
          that one inherits, and they have to make the   should focus on Doubling Farmers’ Incomes
          best of it over a five-year period. Blaming the   (DFI) by 2022. The NSSO data on farmers’
          previous regimes or external environment is   incomes shows that during 2002-03 to 2012-13,
                                             farmers’ real incomes increased by 3.6% on
          not useful. If the Modi government was hit by   compound annual growth rate basis.
          back-to-back droughts, it also got a windfall   The Dalwai Committee report on DFI
          of thousands of crores as savings from lower   points out that real incomes of farmers’ need
          import bills for crude oil when crude prices   to increase at CAGR of 10.4% to achieve the
          fell by more than 50%. Tumbling global   target. It gives detailed recommendations,
          commodity prices also helped tame inflation at   which are hard to implement in the run up
          home. So, no excuses of droughts can be given!   to elections in 2019. By using the Dalwai
          With just one year more to go, even if the agri-  Committee methodology, we have estimated
          GDP growth jumps to, say, 4% in 2018-19, the   real incomes of farmers during 2012-13 to 2016-
          five-year average will still be 2.3%, the lowest   17, and the CAGR comes to just 2.5%. To jump
          since reforms started. That’s not what farmers   from 2.5% to 10.4% is the real challenge. Can
          were hoping for.                   the Modi government do this vault jump? Only
            Poor agri-performance during the Modi era   time will tell.
          is also reflected in shrinking agri-trade surplus      Courtesy: Financial Express
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