Farmers, markets and mandarins

Twenty years ago I had met a young farmer who grew cane. He had built a pucca house and he had bought a motorcycle. His father was alive....

Twenty years ago I had met a young farmer who grew cane. He had built a pucca house and he had bought a motorcycle. His father was alive. In his area, cane was largely grown in those days by farmers with more than two hectares and with a tubewell to supplement the canal water.

The agricultural university had come out with a new variety and, if the farmers got their fertiliser quota, they made money. As the shadows lengthened, the old man explained to me in his measured tone that if the cane price was right and the factory bought it, some silver ornaments could be bought for the rainy day. But if the price fell and the factory, even after harassing them, didn’t buy all the cane, it would go for gur.

The recovery was lower and since all the farmers had more cane, the gur price would go down. Eating the Parle glucose with homemade butter and drinking the chai made in milk, I made a mental note that I must tell my teacher Larry Klein at the Wharton School that I could generate alagged supply response to price and a business cycle in an Indian village.

Story continues below this ad

As I grew into positions of authority I tried to help the cane farmer, but while some amelioration was possible, the problem could never be fully solved. By the mid-eighties most of the farmers in the village were growing cane.

In 1985, I remember getting clearance from Rajiv Gandhi, during his visit to the US, to announce a more appropriate’ cane price to a delegation of coops in Ahmednagar. At a large satkar bhoj, they were pleasantly tickled at this dispensation from Washington.

But the cane farmers kept on growing, water was getting scarce and the technology was not really keeping up. By now my farmer friend had a jeep, the family had grown and the house was bigger. But he would complain. Why cant he get a fair deal? Why couldn’t I help? He wouldn’t be convinced that it was difficult to get a holistic view with sugar directorates at the central and state levels.

I was happy when sugar capacity was delicensed and itwas decided that government would buy sugar from the open market for the ration shops. Finally we seemed to be getting out of control. In 1982 I had argued that sugar zones should be reduced and eliminated in two or three years and an efficiency package put into operation. Half my recommendations as APC chief were accepted. You can always have a half-reform which will make you worse, an economic law, the theory of second best, tells us. Last year I had argued against capacity decontrol if price control or support was to continue, because if you maintain an unrealistic price and decontrol investment you will definitely make matters worse. The dream merchants were not happy at this anti-reform’ view but I had my way. This time I was happy at both the capacity and price decontrol.

Story continues below this ad

My happiness is shortlived. It turns out that the zonal cane price will still continue. The farmer who uses his land, water and fertiliser better will get no incentives. There will be no reorganisation of production, not even amovement towards it. The states will continue their mischief by advising prices and demarcating cane areas, but that was expected. In the north my friend will still be at the mercy of the cycle and in the coop land no further incentives for efficiency and diversification. I have been around for thirty years and constantly learn from our inability to structure the market fairly for the farmer and the artisan.

I discuss this with an old friend in one of the bhavans. He turned on me and said that sahib people like you always tell us to phase reform. I said the need is not only to phase but phase and sequence’ reform.

Sequencing doesn’t mean postponing decisions. It means taking all the relevant decisions together and in time. Without sequencing the price reform, you are only encouraging corruption. When Rajasthan introduced the tatkal scheme where farmers paid a reasonable tariff rate in rural areas I worked for investment backup to the rural electricity transmission and distribution system,since the reform at the lowest level was there and there was no need to wait for the restructuring of the whole SEB, to finance the rural power system. I was criticised for accepting “island of reform”.

But why make those who are willing to pay the price wait until you have done your job? In rural Ajmer, Udaipur and Chittor, there were more than 15,000 farmers in each district who had agreed to pay Rs 1.45 for each unit of power supplied to them and it was the duty of the power utility and those who backed it to develop the systems to give them effective supplies.

Story continues below this ad

We have been able to develop a strategy for industrial and trade reform. It is in its best form a sequencing and phasing strategy. The level-playing field argument goes back to a study we did for India’s machinery industries in the mid-eighties. It argued that the hopelessly inefficient fellows have to restructure in three years or get out. Reform must be for a sector and connected sectors together, or even the good boys will suffer, becausetheir foreign counterparts don’t suffer from their systemic disadvantages.

Sometimes our reforms get out of sync because of wrong advice. On other occasions, the interest groups start throwing stones and we duck. A reform of three years takes ten. But there is a direction, and movement, which transcends governments. But, alas, this is not true to agriculture. One hopes the draft of the agricultural policy document will meet the need.