Opinion Ashok Gulati writes: The reform and welfare India needs
MSP framework needs a revisit. The competitive populism to give free food, power, or highly subsidised fertilisers, or pocket money in the name of Ladli Behna, is a race to the bottom
The Food Corporation of India has mountains of rice stocks that are almost three times the buffer stock norms. (Illustration by C R Sasikumar) 
-
Share -
-
-
Pricing of agriculture outputs or inputs is no different from the pricing of other products. In a market economy, they are decided by the free play of demand and supply. Many a time, governments intervene to control prices, often messing up the system leading to huge inefficiencies. This does not mean that governments don’t have any role. Their major role should be to make sure that markets work well. For that they need to invest in information symmetry and physical infrastructure. They can also invest in facilitating the building of efficient value chains through institutional innovations that minimise the price spread between farmers and consumers. They can help promote futures markets and options that try to minimise the risk, and help farmers make planting decisions based on what future prices are likely to be, rather than basing them on last year’s prices. This is the forward-looking scenario that will align well with what India chose to be with respect to the 1991 reforms.
One of the seminal contributions of Manmohan Singh was freeing up industrial policy from governmental controls and the Licence Raj, freeing up the exchange rate, and gradually reducing import duties and opening up trade. This gave India a new direction. He did not touch agriculture as he thought it was a state subject. Singh did try to raise urea prices by 30 per cent in one go because he felt that it was absurd to keep them frozen over long periods of time when costs were rising. It was resisted by many in the Congress party, who feared losing their vote base.
If agriculture is truly a state subject, as most activists cried when the NDA government brought in farm reforms, then why are they asking the Centre to make the minimum support prices (MSPs) legal? Let the states who want to make it legal choose and pay for the consequences. The Centre should leave agri-market reforms, including the MSPs, to the states.
It may be worth recalling that the MSP system was introduced by the Centre with the setting up of the Agricultural Prices Commission (APC) in January 1965. It was meant to focus primarily on wheat and rice as India was hugely short of basic staples. India was importing 10 million tonnes (MT) of wheat in the mid-1960s under PL 480 from the US against rupee payments. It did not have enough foreign exchange to buy food from the global markets. Food aid from the US came with political strings, a taste of which was experienced when food shipments to India were suspended for 72 hours by Lyndon Johnson as India issued a statement in favour of Vietnam when the US was at war with the Southeast Asian country. In 1966, India also imported high yielding varieties of wheat seeds from Mexico (18,000 tonnes), which ushered in the Green Revolution. It was in that backdrop that the policy of MSP for wheat and paddy came into existence. India’s population was roughly about 500 million in 1965.
Today, India is not in the same situation as it was in the mid-1960s. Despite having 1.43 billion people, India is giving free wheat and rice (5kg/person/month) to more than 800 million people. India is the largest exporter of rice in the world. The Food Corporation of India has mountains of rice stocks that are almost three times the buffer stock norms. The basket of crops under MSP has expanded over time, largely due to political pressures. MSPs were always supposed to be indicative prices, and the government would come to procure only if there was a serious crisis. The legacy of open-ended procurement of wheat and rice in some states, notably in Punjab and Haryana, has continued till day. It has created an imbalance in the production basket. Too much rice is being produced primarily because of free power pricing and highly subsidised fertiliser prices. This is leading to groundwater depletion, soil degradation, and greenhouse gas emissions — an ecological disaster.
The entire MSP framework needs a revisit. Not in the direction of making it legal but freeing up prices of products as well as that of major inputs like fertilisers and power. Land markets also need to be opened up, starting with land lease markets. A highly regulated land market, and the pricing of inputs and some outputs (rice and wheat), with massive procurement, is leading to huge inefficiencies in the system. Part of this problem stems from the Public Distribution System that gives free wheat/rice to almost 57 per cent of the population even as the government claims that it has lifted 248 million people out of poverty in the last 10 years. It has become a chicken and egg problem. Since India has locked itself in free grain distribution, it has to procure roughly 60 MT of grains each year to feed that system.
most read
Given that India has digitalised much of the food system, both at the consumer’s end and the farmer’s end, it will be much more frugal and efficient to move towards direct cash transfers to targeted beneficiaries, who really deserve support. The extremely poor need to receive large subsidies and those above the poverty line require lesser support. Similarly, the aggregate input subsidy support should be provided to needy farmers on a per hectare basis. This should be accompanied by freeing up the pricing of food as well as inputs like fertilisers and power. The efficiency gains and savings are going to be large, which can be ploughed back into agri-R&D and extension, education and skills, irrigation and water management, physical infrastructure of roads and markets in rural India, etc.
That is the nature of reforms that India needs for realising its dream of Viksit Bharat by 2047. The competitive populism to give free food, power, or highly subsidised fertilisers, or even pocket money in the name of Ladli Behna is a race to the bottom. It is not welfarism, but a bribe for votes.
Gulati is Distinguished Professor at ICRIER. Views are personal
-
Share
-
-
-
Share
