Opinion Against the grain

The challenge for the government in agriculture,to put it very simply,is three-fold. First,to ensure good production of all crops. Second,to ensure that farmers get remunerative prices for their produce. And third,to see that consumers get enough quantity of food at reasonable prices. The government,through various policy interventions,dabbles in all but the outcomes are far from satisfactory.

Consider first the issue of production. The deficient and uneven rainfall this season has exposed the continued dependence on the monsoon for good agricultural output. India remains heavily under-irrigated — just over 40 per cent of the total area under cultivation is irrigated — despite considerable evidence of higher crop yields in areas which are irrigated. Unfortunately,public investment in irrigation has been stagnant for many years. There has also been much said,and precious little achieved,about a second green revolution to raise the moribund productivity of Indian agriculture. The most readily available technology,which can perhaps enable this change,is genetically modified (GM) technology. Despite scientific evidence in favour of GM,the support of experts like M.S. Swaminathan,and the obvious success on the ground of Bt cotton (the only GM crop sown in India),the government has hitherto gone slow on GM. Now,the agriculture ministry has indicated the introduction of three GM vegetables in the next three years. But that may still be too slow. GM offers enormous benefits not just in terms of higher yields but also in terms of greater resistance to pests (avoiding the use of environmentally damaging pesticides) and most crucially greater resistance to drought.

The challenge of ensuring a remunerative price to the farmer should in normal circumstances be left to the market mechanism. But,given the sensitivity of fragile livelihoods in agriculture,if prices fall below a certain minimum level,the government can step in to procure the produce at a minimum support price (MSP). What has actually happened since the tenure of UPA-I is quite different. There has been massive rise in MSP — a 70-80 per cent rise in wheat and rice for example — which has in fact converted the MSP from a safety net device to the market setting price. Private traders are almost completely crowded out of the market and have to offer prices above the MSP to corner a limited share. It is,of course,plausible to argue that there is nothing wrong with this,as farmers are getting a good price for their crops.

However,consistently rising MSP — which has now become the “populist” norm — has perverse side effects. First,it raises not just the actual price of foodgrains,but also raises future price expectations. This may in fact be one of the reasons that food price inflation continues to be high even though overall inflation is negative. Second,it is important to remember that most small and marginal farmers (the majority) are net buyers of food and any policy which raises the price of food counter-productively makes them poorer than they already are. Third,higher MSP also raises the economic cost of crucial foodgrains,which puts a heavier burden on the government’s food subsidy bill. This is important in the context of the proposed Food Security Act.

Peculiarly,the government has consistently prevented farmers from getting equally good returns in a non-distortionary,market-friendly fashion. At the moment,all export of rice and wheat is banned. There are various other restrictions on exports. Importantly,the government has not invested any money in developing cold chains and proper supply chains to help farmers who produce perishable food crops,in particular to export to profitable markets. Surely,some of the funds wasted on MSP can be channelled to this,or to irrigation. The government has also been reluctant to allow farmers the opportunity to get crucial price signals from futures markets — think of the number of times futures trading in key agricultural commodities has been banned by the UPA on the pretence of inflation control. There is no evidence of prices falling after a ban on futures,just as there is no evidence that there was undue speculation in the futures market.

The problem with the pricing regime has direct implications for the final consumer. At the moment,the consumer is bearing the brunt of high prices,a problem exacerbated by expectations of a deficient monsoon. The government has enough buffer stock to feed everyone; but the problem is,at what price? The thing with food subsidy,as it operates currently,is that everyone who has a ration card can avail of it through the public distribution system — the government ends up subsidising the poorest among the below poverty line (BPL) families by 80 per cent of the cost of wheat and rice,rest of the BPL families by 70 per cent of the cost,and above poverty line (APL) families by 50 per cent of the cost. If the new Food Security Act is an addition to these existing schemes,it will add a huge burden to the government’s subsidy bill. If it replaces the existing schemes — as it ideally should — it may mean a sharp rise in prices for APL families,a powerful political constituency.

The government is caught between a rock and a hard place — the only way out is for the government to focus its intervention on raising crop yields,and to get out of the business of price intervention

dhiraj.nayyar@expressindia.com