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And now, VGF in agriculture! PDF Print E-mail
Wednesday, 26 December 2012 00:00
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The chairman of Commission for Agricultural Costs and Prices talks to Sunil Jain and Shobhana Subramanian about what he has achieved in terms of getting farm prices right and what he plans to do to get the markets right

 

Thirty medals in badminton, living in a graveyard in Delhi’s refugee camp at the time of Independence, working as a part-time tea-boy for Rs 3.5 a day, to becoming one of India’s foremost agriculture economists, tearing into the government’s flagship Food Security Bill after being appointed to head the official Commission for Agriculture Costs and Prices (CACP) … it’s easy to see why FE wanted to meet Ashok Gulati for a meal.

Meeting Gulati requires a bit of juggling since he’s travelling 3 months in the year—down from 4 when he was at the International Food Policy Research Institute in Washington. After this lunch, he’s off to see the Adani group’s silos in Kaithal, Haryana; to look at how Chhattisgarh has turned around its PDS; and then to Bihar where a temple courtyard has been converted into a procurement area and a temple priest serves as the chief procurement officer.

Gulati’s already waiting as we’re 5 minutes late at the India International Centre, the favourite eating place in the capital for quasi-intellectuals. His intimate knowledge of all things agriculture is evident as, while being served the meal, Gulati tells us that the daal (chick-pea) is definitely Indian—a news report some days ago had talked of vast quantities of Chinese rajma being sold in India—as the size is very small. We’re eating Indian food since Gulati is vegetarian and finds little of interest in the Chinese menu which he first toyed with as he wanted to have some tofu. So it’s baingan ka bharta, jeera aloo, daal, raita and one tandoori roti each—Gulati may have a lean-and-hungry look, but the lean look, he says, is because of exercising regularly (playing badminton with his chauffeur); right now, he just wants to eat light as he plans to work later.

How successful has Gulati been in the job he’s held for the past 21 months? So far, he’s met no opposition (except from FE columnist Surjit Bhalla and others who hold him responsible for inflation) since his biggest achievement has been to hike minimum support prices (MSPs) for agricultural commodities—but what when he wants the government to stop banning exports, open up agriculture markets, or put a tax on agriculture exports? And how do you promote exports if you put a tax on exports anyway? The questions come out a bit jumbled—in a stream of consciousness kind of way.

Gulati remains unfazed, in quite the same manner he has in the face of criticism over his policies fuelling inflation. He cites some facts and figures on how inflation is actually the highest for commodities where there is no MSP—the uncertainty over what profits can be made then keeps supplies low which, in turn, keeps prices up. The logic seems right, the rotis hot, so we’re happy to take his word for it, more so since Gulati’s PhD thesis in Delhi School of Economics was on price policy.

Getting the prices right, Gulati avers, has been the first part of his job. What of the second, of getting the markets right? We’re familiar with the havoc export bans—on sugar, rice, wheat—create, but Gulati recommends a quick trip to Delhi’s Azadpur mandi to see just how badly markets function. The farmer, he says with passion, takes all the risk for 3-4 months, but he can’t sell his produce directly—it is sold through a middleman who gets 10-14% of the price for just conducting an auction that takes all of 5 minutes. If you think the wheat glut is bad, Gulati says while switching back to his original topic of the impact of export bans, just wait and see what will happen to milk whose exports are banned.

Getting the markets right, it appears, is a multi-pronged task. Gulati’s launched a full-frontal attack on the Food Corporation of India (FCI) for being inefficient while procuring grain and storing it—around 18 million tonnes of the 80 million tonnes stock is stored in the open—as well as on state governments who, by procuring so much, have driven out the private grain trade. Imagine how bad things will be when, under the Food Security Bill, procurement will have to be hiked by 25-30%, Gulati’s latest research study on the CACP website asks.

But is he getting somewhere, we persist. Yes, he claims he is getting traction, and we’ll see this in the export policy that will come out against banning exports and instead recommend regulating exports through taxes. Oh, so is that the tax bit? Not really, Gulati goes into a long explanation of how much water gets used up in wheat and rice cultivation … so we’re really exporting our water, hence the suggested export tax.

Will the political class buy into something so obviously academic, something that can’t even be measured accurately? They already have, it appears. Gulati reels out details of the fall in Punjab’s water table (those interested can see GS Kalkat’s interview in yesterday’s FE—Gulati put us on to him, but for reasons of laziness, Sandip Das’ interview appeared before this one!). As a result of which the Punjab government actually has a committee in charge of diversification. Gulati’s calculations—we take his word since the maths is a bit daunting when you’re juggling with a pen in the right hand and trying to eat raita with the left one—suggest that a R10,000 crore investment in oil palm over 5 years will save India imports worth R6 lakh crore over 20 years.

He’s recommending a viability gap funding (VGF) model—if Punjab’s farmers need an income of R1x and growing maize can only give them R0.6x, then give R0.4x as an annual subsidy. In the case of Madhya Pradesh, where the extra procurement bonus is tilting farm production towards wheat, Gulati’s suggestion is to just give a flat per acre subsidy—this will ensure higher farm income but won’t distort the incentives towards a particular crop; he’s recommended the same in Bihar—farmers need incentives but FCI’s MSPs are irrelevant since there is little procurement here. In the case of Punjab where both wheat and rice are fast becoming uneconomical due to the falling water table (you need to use more electricity to pump out water and keep deepening the bore well, and even this can’t last beyond a point), Gulati recommends growing maize that can be used as feedstock for that other Punjabi staple: chicken! Punjab should be doing a lot of dairy, he exults, “we even have a bath in milk before getting married”. At one point during the lunch, Gulati recommends a VGF solution for some state, for growing moong since it fixes nitrogen in the soil—this may or may not be true, but since Professor Google isn’t at hand, the dumb journalists in us decide to let it pass.

Getting export and other controls out of the way, of course, is not an easy job, and Gulati narrates a story to tell us just how long the haul could be. On July 26, 1994—yup, he gave the date—Gulati was called upon by then Commerce Minister Pranab Mukherjee to give a presentation on his report that considered 80% of Indian agriculture to be globally competitive. The media was also present and after Gulati gave his spiel, Commerce Secretary Tejinder Khanna talked of how gloomy the Indian farm situation was. Mukherjee looked confused, as did the gathered media, and going into the marginal productivity coefficients would take forever. So Gulati’s quick response was: “I agree with Tejinder Khanna, Indian agriculture can’t compete, so why not remove all the export controls”! Later, a leading financial daily wrote an edit critiquing Gulati; his boss (SL Rao) sent him a cutting. A few months later, when the rice ban was removed and India exported 5.1 million tonnes of rice, Gulati sent a clipping on this to his boss. In the last 12 months, Gulati tells us, India was the world’s largest exporter of rice and buffalo beef.

The recent export prowess, of course, is due to high global prices; how does India compete when its productivity is so abysmal? The Indian Council of Agriculture Research, Gulati says, has an R&D budget of R2,700 crore a year while Monsanto spends R7,500 crore ($1.5 billion) a year and Pioneer R4,000 crore ($800 million). But why kill ourselves, if they’re spending the money, Gulati argues, let’s make the most of their research. But how, we resort to the old chestnut, do you increase efficiency when extension services are all but dead, how do you tell the farmer what technology to use?

Given the level of explanations Gulati has to go into, this could well be his last lunch with journalists. But the man who wrote a question-answer book for students when he was in college, is made of sterner stuff—“Indian economy before independence: for students, by student” was the title of the book, former colleague Kanika Datta informed us in an interaction she had with Gulati last year, where the 30 badminton medals and part-time tea-boy role were first made public. If that’s true, Gulati counters, how does Bt cotton account for 90% of the crop in the country? As a sop, he concedes the public sector extension is a mess, and talks of the need to get into PPP-extension services, which can give company-agnostic advice to farmers.

Do you think you should be made a minister like Nandan Nilekani, we suggest as an abrupt ending to this tour de force on India’s agriculture. “I just met Nandan,” Gulati says, “and asked him to start cash transfers as an alternative to PDS in 100 places to begin with …” That, of course, is one of the main arguments—why have a Food Security Bill when, to combat huge leakages in government programmes, you are moving to cash transfers elsewhere—in the paper Gulati has just put on the CACP website, as strong a critique of the Bill as can be found anywhere, including among people who don’t work for government.

 
 

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