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Modi's farm problem PDF Print E-mail
Monday, 02 March 2015 01:20
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Virtually no movement on harvesting reforms

Given the measures taken in the Budget, it is obvious both prime minister Narendra Modi and finance minister Arun Jaitley believe it is critical that Indian agriculture’s fortune needs to be revived. And that is not surprising since all the BJP-ruled states where the chief ministers have been elected to power three times—Gujarat, Madhya Pradesh and Chhattisgarh—are ones where agriculture grew by more than 7% per annum for over a decade. Which is why the BJP’s Lok Sabha manifesto had promised farmers a 50% profitability, and this is why the Budget has all manner of incentives to help agriculture. There is R25,000 crore for the Rural Infrastructure Development Fund and another R75,000 crore of funds for refinancing agriculture credit and another R10,000 crore for rural roads (including spending by states). And that is also why the Budget talks of a national agriculture market, where produce can freely move across states, to fetch farmers the highest price.
Achieving these goals, however, requires a lot of work, of the type there has been little progress on so far. Take a national agriculture market.

Apart from removing the monopoly of the Azadpur mandi in Delhi—when the state was under President’s rule—the NDA has been able to do little. It has not been able to do the same with the Vashi mandi in Mumbai and, more important, while it has removed the Azadpur monopoly, it has not been able to provide the land—and the necessary funds—to create alternative markets in the capital; in which case, farmers continue to remain at the mercy of middlemen in Azadpur. As for a unified market, if, for instance, Punjab and Haryana charge a 14.5% mandi tax on wheat and rice sold in the state, where is the question of them allowing grain to move out to other states since this will mean substantial loss of revenues?

While raising agriculture productivity needs a lot of work on irrigation and on better seeds, it is critical that the government move away from the wheat- and rice-centric production that exists today—this is also critical from the point of view of what it does to the water table. But unless you get away from the current PDS-driven food subsidy system, this vicious cycle cannot be broken—the ration shops require large foodgrain stocks which FCI needs to procure, and that requires the government to announce high MSPs. Which is why the Shanta Kumar committee recommended movement to cash transfers—once this was done, the MSP-driven system could be changed to one where market-prices determined what farmers produced. Given this, it is unfortunate that, at least going by the numbers in the Budget for the food subsidy, the government doesn’t seem to have any plans to move from the current ration-shop system of PDS towards cash-transfers in the current year. That is a golden opportunity to re-orient agriculture that the prime minister has frittered.

 

 

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