Opinion Subsidising Farmers in Rich Countries
In an open economy,you subsidize the farmer who exports to you too.
The Ministry of Food and Consumer Affairs has extended the subsidy for pulses by one more year until 31 March 2012. A subsidy of Rs 10 a kg is given to the States for distribution of pulses under PDS. India also imports pulses around a quarter of its total pulse supplies from countries including from Canada,Australia and so on.
India also has a minimum support price for pulses which has been very appropriately raised by the last Chairman of the CACP,Dr. Mahendra Dev before he went back to his academic career as Director of the prestigious Indira Gandhi Institute of Development Research at Mumbai. Dev like Panning Commission member and former Chairman CACP Abhijt Sen and me has been a votary of the integration of domestic price policies with trade policies,but such advice has few takers in Government.
If you are exporting pulses to India you will keep into account the domestic prices and they may be high at some periods but are high in the harvest and marketing season because you have a support policy for them. The idea of support prices is to support the Indian farmer to grow pulses and not get discouraged by low prices,when he sells. You could support the farmer and subsidize the consumer when India was a closed economy .
When you are an open economy and import without tariffs as you do in pulses,then you subsidize the farmer who exports to you too. It would have been fine to levy an equivalent tariff and then import and subsidize. But the Government rejected that part of a report,of a committee I chaired on Price Policy,in a WTO dominated economy. The Government of India as a senior policy making economist said works in self contained silos.
All this becomes particularly counter productive in a period when the Ministry of Agricultures program of raising Indian production of pulses is succeeding as in this year. We know from earlier studies that ten percent increase in prices to the farmer will increase pulses area by fifteen percent and so reduce the need of import.
We have another conundrum. The Ministry of Agriculture price supports pulses and so wants them to be purchased and stored,but the Department of Consumer Affairs operates an imposition of stock limits under the Essential Commodities Act. Now in wheat and paddy price support is done with the help of the private sector arhtias and agents. A similar system could be designed for pulses but is not. It is a Kafkaesque world.
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