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'Introduce Regulated Negotiable Warehouse Receipt System'

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Dr Ashok Gulati, Chair Professor, Agriculture, Indian Council for Research on International Economic Relations (ICRIER), and former chairman of the Commission for Agricultural Costs and Prices (CACP), on what he expects from Budget 2014, the first Budget by the Modi government.

What are the key issues in the agriculture sector that requires the finance minister’s immediate attention?
The biggest challenge before the government is to raise the agricultural productivity and bring the real prices down, but still improve the farmers’ income.  For improving the productivity we need to introduce more technology and enhance irrigation facilities. With these interventions alone, productivity can go up at least 50 to 100 percent. The BJP manifesto says that irrigation should reach every farm holding. Though a very ambitious target, its direction is right. So that (the manifesto) has given a clue that water will be the priority for the government. It could mean more allocation for check dams, re-orientation of MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) to improve irrigation, harvest water and a host of such measures. All of these are linked to improving the profitability of the farmer.

BJP manifesto talks about ensuring farmers a minimum 50 per cent profit over the cost of production. Is it achievable?
People often misread this manifesto. The promise that farmers profit will be 50 per cent over the cost of production does not, and cannot, mean the minimum support price (MSP) announced by the government will be 50 per cent more than the cost of production. If your cost is higher, you productivity will be lower. Profitability can only improve by raising productivity. So the increase in profitability will come through the measures that are outlined to increase productivity and not through an increase in MSP.

BJP has also talked about a ban on futures trading of essential commodities as a measure to tackle inflation. What should be the government’s approach?
One thing is certain. Futures trade in commodities is a messenger of early price discovery. And in that sense, is an ally of the farmer, and is needed. However, it should not be misused. So we need to have proper regulatory oversight. I would even go further to say that we should introduce negotiable warehouse receipt system, within a proper regulatory framework, so that there will not be receipts, without physical stocks. It’s a governance issue. You punish the culprits, the system will work.

Do you think the budget can help the growth of the much needed supply chain infrastructure development in agriculture?
Capital subsidy is needed to build backend infrastructure. We should emulate the way we built supply links for Amul milk. It was government money that helped build the backend infrastructure. Such investments should be given a five-year tax holiday. An organised structure to deliver the product to the front-end can reduce at least 25 per cent wastage while still having your kirana stores and vendors in the supply chain. Vendors should be part of the distribution chain. The government should look at promoting vendors with refrigerated storage facilities fitted with solar panels. They can even function on behalf of a big retailer – the hub and spoke model. We need budgetary sops to encourage tens and thousands of such supply chain networks. It can be co-cooperatives or corporate. These people should be allowed to deal directly with the farmer.

What should be the government’s approach towards minimum support prices (MSP)?
The government needs to review the open end procurement and reduce the number of commodities for which you have MSP. If you have three or four products, it is fine, but you don’t have the infrastructure to support procurement of 23 items.