Farmer as the permanent victim

On the general plane it has to beadmitted that even to a person like me, who has always believed that opening up of the economy has to be accompanied by strategic preparation and reform and must be phased and sequenced, it is high time trade reform was accelerated. Considering that the process started in the mid-eighties, how long can we talk of phasing? Having said that we must accept that it has been a jump in the right direction but in the dark.

The argument has been that the country’s agricultural policy has taxed goods, inputs, capital goods on agriculture and the aggregate measure of support has been negative. The weak empirical base of this argument has been pointed out by a number of economists including Deepak Nayyar and me.

International prices of agricultural goods and inputs with which these calculations are made are notoriously volatile. A foreign economist who built up this argument now argues the opposite but in India the old prejudices continue.

The new exim policy does make major changes in the economic environment forthe agricultural sector. Protection to Indian agriculture has been drastically reduced. First state processing industries of agriculture as defined by the FAO and some of the fastest growing sectors of the Indian economy like poultry, milk, fish, vegetables and fruits, all growing at 5 percent annual plus, have been removed from the banned and restrictive lists and put on OGL or easy access for imports. Many of these “concessions” have been given before the strict requirements from the trade negotiations.

The idea obviously is to hasten the competitive pressure on the agricultural sector of the Indian economy. This would presumably encourage the diversification of agriculture from low yielding grains to faster growth of non-grains like cotton, sugar, tobacco and vegetables. Tree crops including fruits and non-crop-based agriculture like milk, poultry and fish would perhaps be pushed into competing with other economics and prepare for exports.

I am not sure if any long-term thinking has gone into allthis, otherwise the basic competitiveness of Indian agriculture, given its small peasant base and labour advantage, would have been the kingpin of the whole strategy. Just as the convertibility of the Indian rupee was sustained by the strength of its workers, artisans and small industry, as some of us had predicted in the early nineties, the intention must be that the strength of the Indian kisan will see through this phase of reform.

So far so good. The real issue is not the main line of advance. It is the preparation we make for it. It is here that there is a complete air of unreality about the whole operation and a complete willingness of sarkari and industrial India to let the kisan take on the costs of the whole policy.

Mature policies simply don’t work this way. One would have thought trade reform would have been accompanied with a policy of strategic support for the domestic sectors. This is the way mature economies work. The speed with which the developed countries push inanti-dumping steps, conduct detailed research on trade policy strategies and support their own market and technology institutions should give us a lesson, but does not.

The classic modelling exercises of Engco and others have shown that the OECD countries have solidly consolidated their net positions as they go in for the next round of reform and we are going in like lambs to slaughter houses. Apart from woodenness, what is it that stopped the government from simultaneously with the trade policy announcing a reform and support package for specific sectors?

Take the example of poultry. It has grown very fast. Poultry shares have done well in the current phase. This is obviously a sector which can take on the world. The story on dairy products as the Dudhwala kept on reminding us is worse.

Meanwhile the world is getting to tighten the screws on India. They said we are taxing our agriculture and our people feel for the argument wrongly. They said we are over subsidising oilseeds and a former APCchief showed that Indian costs were lower than imports, but he wasn’t listened to. Now that India has opened up, the right policy taken for the wrong reason, they are showing that their earlier calculations have no relevance any more and India subsidises its agriculture. Some of our economists will build up as in the past the arguments used against India and our bureaucracy and political leadership will go as in the past to negotiations without any preparation. Finally we will again want the farmer to bear all the costs.