Stalled agricultural reforms may be given yet another push

An off-record conversation with a cabinet minister in the prime minister’s inner circle after the state’s election results showed that agricultural laws repealed by parliament will not be reconsidered. The minister was clear that the government’s stance was unaffected by this year’s election results, under pressure from farmers who opposed the laws last November. And so, unless state governments act, agricultural reforms could end up on the to-do list.

The minister’s assertion that the “political resistance” has led to the Center giving up is difficult to understand. That a government that privatized Air India and lost no political capital to bite that bullet, cannot act on other stalled reforms for fear of political intimidation. The backlash is shocking. Unless it privatized Air India, forced by its strained coffers, instead of pleading guilty to reforms.

The Modi government could take advantage of the opportunity presented by geopolitical developments to streamline India’s inefficient food procurement and subsidy system, and repair both the treasury and its own record on reforms. Besides, it is the only practical way to “double farmers’ income”.

Technically, the Minimum Support Price (MSP) is considered to be a minimum price below which the market price should not fall. But MSP does not behave like a floor-price system in India. Instead, it has become a market replacement price because, year after year, MSPs are set above market-clearing prices for political reasons. Farmers mistakenly believe that higher and higher MSPs are good for them, without realizing that the way it plays out leaves them at the mercy of government procurement agencies, who are inefficient, ineffective and often delay payments.

Why? Since market price signals are not transmitted to farmers, and season after season, they overproduce wheat and rice, resulting in an excess and hence a fall in market prices. Export policies are too flawed to let excess supply out, and governments in Delhi are only increasing the MSP to appear pro-farmer and maintain vote-bank politics. Since the market signals to farmers what and how much to produce, the loop repeats endlessly, increasing the subsidy burden on taxpayers and giving farmers no incentive to diversify crops that the market offers with better prices. will be rewarded. Mountains of subsidized food grains thus obtained either rot or are eaten by rats. Soil, environment, water and food are not healthy.

One way farmers can get a remunerative price for their produce – and in a timely manner – would be if procurement agencies are made to operate a price stabilization fund that will backstop when prices fall below crisis levels. while providing market value discovery. These levels should be calculated independently by them, under the supervision of an independent body such as the Commission for Agricultural Costs and Prices (CACP), but in no way under the authority of the political executive. If politicians are eager to help farmers, which they should be in a democracy, they should do so through income support. Transfer mechanisms for this now exist and are known to be more or less efficient.

Separately, the consumer should be given an option to receive cash transfer in lieu of Public Distribution System (PDS) food grains. This will put an end to the monetization of unwanted PDS food grains by the beneficiaries, which is rampant across India. Beneficiaries are receiving low-grade food grains, which they never asked for, then they sell, sometimes even as cattle feed. By doing this the Center will also get an idea of ​​the actual food requirements of India.

Payment to farmers for their produce may involve two distinct parts: a market stabilization price and an income transfer. The first one should not exceed the previous year’s average price (prices fluctuate throughout the calendar, rising as the harvest arrives and later). The stabilization price should not even require cabinet approval, which would make it free from political considerations. This should be determined by the procurement agency with the approval of the CACP. The CACP can be elevated to the level of a statutory authority in which economists set values, scientists settle matters related to science and bureaucrats oversee issues related to administration, thus eliminating both politics and political discretion. And allow the markets to operate the way they should. The members of the body should be appointed strictly on the basis of domain expertise.

The second component of income transfer to farmers, all agricultural subsidies like water, electricity, seeds, fertilizers etc., and government schemes like PM-KISAN, Rythu Bandu, KALIA etc. should also be covered. The level of income transfer can be adjusted to any level that politicians want, a reasonable mark-up on the cost of production for wheat in the rabi season and paddy in the kharif season, allowing enterprising farmers to exceed this benchmark level and Leaves up to seek returns by crop diversification.

These reforms can ensure that farmers receive the income support they deserve without disrupting market signals needed to sustain a healthy agricultural economy.

Pooja Mehra is the author of ‘The Lost Decade (2008-2018)’