Another drought year, and no reforms to ease pain
The impact of two back-to-back drought years—assuming the Met is right—can badly dent the Modi mystique if the government is not able to respond adequately. Since a bad monsoon will also increase pressure on the government for loan-waivers and supposedly pro-farmer policies like raising MSP by a larger amount or not cutting fertiliser subsidies, it will also test Modi’s appetite for larger reforms—higher MSPs benefit only a fraction of farmers, but the delayed announcement of the rice MSP could be linked to this. Thanks, largely, to the collapse in global commodity prices, especially crude, the Modi government weathered the last crisis of unbridled inflation and rising subsidies with ease, but this time around, it is its performance that will count. And, in the farm sector, the record has been poor, especially after various committees suggested a series of quick agriculture reforms.
If the Shanta Kumar report promised dramatic restructuring of the FCI-led ration shop system where 50% of grain is stolen, the PK Mishra committee on crop insurance suggested a more modern system of dealing with farm distress. Though Modi has stressed upon getting the existing bureaucracy to deliver, it has not delivered much in the farm sector. In FY15, the government announced a plan to sell off 15 million tonnes of cereals to both dampen inflation and reduce the huge cost of FCI’s stocks, but under 4 million has been sold. At even the enhanced buffer norm of 42 million, the extra stock on July 1 will cost FCI R50,000 crore extra; much more could be saved if, as Shanta Kumar had recommended, the government reduced buffer stocks to 10 million and moved towards buying rice/wheat futures. If the government is not quick in offloading stocks this time, or importing pulses and edible oil quickly—and cutting high import duties on this—its ability to control food, and then generalised, inflation will also be hit. In the case of deregulating cartelised mandis, while some progress was made in Delhi’s Azadpur—there has been none in Mumbai’s Vashi—land was not made available for alternative mandis for farmers, as a result of which little has changed on the ground.
And while farmers continue to flock to get compensated for the damages due to untimely rains, the government has not created either the physical or financial space to set up a system for assessing damages and providing early compensation. In an ideal situation, drones or on-ground all-weather stations should be used for assessing crop damage linked to weather fluctuations, after which compensation could be given in 2-3 days. Former CACP chairman Ashok Gulati had estimated a government-funded annual premium cost of R15,000 crore if two-thirds of the farm area was insured against flood/drought. His solution was to fund this through a cess on farm equipment and on agriculture exports; and to move towards diversifying farmers away from water-guzzling crops like rice by giving direct farm subsidies—the fiscal space for this, however, was to come from FCI reforms which haven’t happened. With the lack of reforms likely to bite soon, the question is whether the government has the ability, and appetite, to deliver on them now.