Updated: May 27, 2019 9:33:00 am
Kudos to Prime Minister Narendra Modi, BJP President Amit Shah and their battery of dedicated karyakartas (party workers) for the BJP’s historic victory in the Lok Sabha elections. Despite a few intemperate speeches during the campaign, the elections, on the whole, make us feel proud of our democracy.
Political pundits are sure to analyse why economic factors, including demonetisation, the GST’s teething problems, slow growth of industry, rural distress and joblessness, did not have a bearing on the outcome of the elections. But one thing seems clear: Indians prefer a “strong” prime minister. In some sense, the BJP’s victory is a victory of the Modi brand — the party’s election pitch, after all, centred on the prime minister.
With victory in his pocket, what should PM Modi deliver to the nation? First and foremost, perhaps, humility is the need of the hour. The PM needs to go back to his 2014 election slogan, ‘Sabka Saath, Sabka Vikas’. In his “thank you” speech, he gave a welcome indication of doing so: PM Modi mentioned that he will forget the bitterness of the election campaign and work with all the states and parties, without any ill will. That is reassuring.
Second, the PM has to hit the ground running on the economy. The macro-economy is facing headwinds. Industry is in the doldrums and agriculture is in poor shape. The prime minister has no time to rest because expectations from him have soared even higher.
We focus here on the agri-food sector and discuss agri-marketing, a low-hanging fruit. In subsequent pieces, we will focus on more demanding aspects of agriculture.
In 2016, PM Modi gave a clarion call to double farmers’ real incomes by 2022-23. At that time, the timeframe for that task was seven years and it required a growth rate of 10.4 per cent per annum. Three years have passed and one does not see any acceleration in farmers’ incomes compared to the trend line of 3.7 per cent during 2002-03 to 2015-16. So, in the remaining four years, PM Modi has to increase the farmers’ real incomes by 13 to 15 per cent per annum. This seems almost impossible with the set of policies he has followed in the last five years. Agri-marketing reforms, therefore, should be the top priority in the government’s agriculture agenda.
PM Modi has to ensure that the Model Agricultural Produce and Livestocks Marketing Act of 2017 is implemented by all the states, in letter and spirit. Just sending a letter to the states will not ensure effective implementation. Such an approach was attempted by the late Prime Minister Atal Bihari Vajpayee in 2003 but it remained largely on paper. Recent attempts to implement the Act in Maharashtra show how strong the opposition to it is by mandi commission agents and other vested interests.
If PM Modi is serious about reforming agriculture, he needs to urgently set up an Agri-marketing Reforms Council (AMRC), on the lines of the GST Council, to carry out agri-marketing reforms in states in a synchronised manner. This is a low-hanging fruit and can be harvested in the next six to 12 months. This council will also have to review and prune the Essential Commodities Act of 1955, revamp the livestock marketing and the warehouse receipt systems and revitalise the agri-futures markets.
The agri-vision for New India should be based on building competitive and inclusive value chains for several products, on the lines of AMUL’s model for milk. Food processors, organised retailers and agri-exporters should be encouraged to bypass the mandi system and buy directly from farmers’ groups. The AMRC should be led by the Union agriculture minister, who should be supported by the chief ministers of the agriculturally-important states. The experience gained in implementing the GST reforms should be tapped.
PM Modi needs to give the agriculture portfolio to someone who is well respected for his understanding of farm-related matters and can also carry his voice in the Cabinet. The only sustainable and efficient way to ensure remunerative prices for farmers is through structural reforms in agri-marketing. The path of higher minimum support prices (MSPs), based on cost A2+FL as announced for 23 commodities, has serious limitations because it bypasses the demand side of the equation. The grain stock with the Food Corporation of India and NAFED is already higher than the buffer stock norms of these commodities.
In this context, lessons from China could, perhaps, be of some use. After 2008, China increased the MSPs of key commodities such as rice, wheat, corn and cotton significantly. China’s list of MSP commodities is smaller than ours (we have 23 commodities under MSP). The stocks of grain with the government system in China touched almost 300 million tonnes, leading to massive inefficiency. From 2016 onwards, China set out to reform its agri-pricing support system. First, the MSP support for corn was withdrawn, then the government’s cotton procurement was reduced and now the MSP for wheat has been reduced. Interestingly, and simultaneously, China moved from price support operations to direct income support on a per acre basis. In 2016-17 alone, China gave direct income support of 21 billion dollars to its farmers.
Seen this way, PM Modi’s move toward a direct income support scheme for farmers is a step in the right direction. If he ensures this shift is one from price policy to income policy and reforms the current agri-marketing system, he will have effected a fundamental structural reform in agriculture with high pay offs in the years to come.
This article first appeared in the print edition on May 27, 2019 under the title ‘First, the low-hanging fruit’. The writer is Infosys Chair Professor for Agriculture at ICRIER.
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