Tags:
Journalism of Courage
The official announcement of a drought this year questions the myth that we are no longer vulnerable to the vicissitudes of nature. Growth in agriculture this year has been projected at best to be nil, with a decline being more likely in case the rabi harvest is not too satisfactory.
The drought afflicting the country is significant because it affects the income and living conditions. Several states have approached the Centre for funds and it is estimated that central drought relief assistance would be to the tune of Rs 7,000 crore. There is also a move to increase the procurement price of some foodgrains by Rs 5-20 a quintal. Now, all these numbers will add up to a higher fiscal deficit and if tax collections are lower because of lower growth, the fiscal deficit ratio will be higher than projected.
Increasing procurement prices is perceived as a measure to increase the income of farmers who are compensated for their lower output. This means that only those who produce a positive output will be rewarded and those who perhaps lost their entire paddy are excluded from the relief chain. Further, the small farmer seldom sells directly to the government and the final intermediary would be the beneficiary of higher procurement prices.
Therefore, what is suggested in such a case is direct action through cash payments, assuming of course that the money doled out reaches the farmer. At a more ideological level, higher procurement prices raises some nasty economic issues. By increasing the price today, the market mechanism is tampered with, which means that the true cost is not reflected 8212; an issue that assumes importance given the large buffer stocks we have.
The related issue is that these higher prices will have to be carried forward the next year too, which means two things. The first is that more grain will be produced provided the monsoon is good enough, as there is incentive to 8216;grow more to earn more8217;. The second is that the government is only fueling inflation because by increasing the price of foodgrains, an irreversible decision has been taken. Given that inflation is already an issue on the supply side with the global economic scenario indicating an upward movement in oil prices, the increase in procurement prices would mean the self-infliction of inflation.
We need to have in place a comprehensive drought relief programme which can be implemented whenever a crisis occurs instead of such piecemeal measures. Direct intervention of the government through cash transfers is preferable to loan waivers and artificial price changes. That is the point.
