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BW Businessworld

‘Liquidate Grain Stocks At Once’

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Indian agriculture is not dying, but it’s not flying either — it’s barely limping,” says Ashok Gulati, chairman, Commission for Agricultural Costs and Prices (CACP). The man in the advisory hot seat, recommending the price policy of farm products to the government, says that “the time for waiting is over” and shares his prescriptions to make agriculture fly again with BW’s Chitra Narayanan and Joe C. Mathew. Excerpts: 

 
How bad is the monsoon deficit?
It is as if one foot is in the snow, and the other is on fire. In the eastern block, there are floods; the western block has a severe rain deficit. Since the country’s average deficit has been pegged at 19 per cent, and the east is all right, I would say the deficit in the suffering states is between 30 and 70 per cent. The suffering states are Karnataka, Maharashtra, Gujarat, Rajasthan, and parts of Madhya Pradesh. Although there is a large deficit in UP and Punjab, I am not worried about these two states, because there is irrigation. They can tackle it. The others are rain-fed and that’s where the real crisis is.
 
I am still worried about El Nino. IMD is not clear on it. But others are saying that after 15 August there could be El Nino. If that happens, and monsoon withdraws early – by 20 August — then the seeds cannot sprout.
 
So, what can be done immediately?
We need to look at it from the perspectives of the affected parties: the farmer, the agriculture labourer and the consumer. On the farmer side, wherever the situation can be salvaged — Punjab, Haryana and UP — we can do so, provided we give power to them on a priority basis. They can’t carry out irrigation without power. On diesel, it will be too expensive. So within the limited pool of power, you have to decide right away and allocate accordingly. In Punjab and Haryana, I am confident that power can be provided, as the states have the commitment and resources. But in UP, there is a problem. 
 
It is a large state and if the state government gets it right, then at a national level you can manage the crisis quite well. If UP cannot provide power, can it alternatively provide diesel subsidy to the farmer? Something 
has to be given. 
 
If El Nino happens, can farmers be given seeds for short-duration crops, late in the season? Each state has to work this out in each climate zone, decide which seed will work. The Centre cannot do this. It can provide subsidy for this – Rs 800 crore, Rs 1,000 crore, etc.; but then, the states have to get their acts together. Also, other inputs such as fertiliser, seeds and water have to be given. 
 
What about agricultural labour?
On the labour front, NREGA can come in very handy. Many conditions such as 100 days can be waived in drought-prone states to give employment. NREGA can be used to dovetail activities even on farms through the panchayats in a collective manner so that the cost to farmer can be reduced. They can be put to work on immediate water-related projects such as rain water harvesting. So that is the buffer for agriculture labour.
 
What about the consumer?
On the consumer front, luckily there are ample stocks of cereal – rice and wheat. In fact, I want this stock to be liquidated at once. Forty million tonnes of stock that are lying in the open should flood the market. Not only through Public Distribution System (PDS) but also through open market; since there is a global crisis, you can export and make money out of it as well. 
 
The pressure is on vegetables, pulses, oilseeds and even on cotton. Last year, we imported Rs 46,000 crore of edible oil, this year we may have to import Rs 56,000 crore. But we have a huge surplus of agriculture exports (in 2011-12 it was $37 billion, while imports were $17.1 billion) — so it does not matter if we import more. But since the rupee is weak, and there has been a soya bean failure in the US where a drought is raging, I foresee an impact on prices. 
 
The real problem will be with pulses. The market is very thin. They are not that easily available. Except for chickpea, we are going to have to import most other pulses — yellow pea (matara), moong dal, tur dal, etc.
 
The government has to do contingency planning right away, start buying from global markets and release it all in PDS. And abolish stocking limits. The global market is limited. Right now, very limited quantities of moong and urad are available. And if they are not bought in time, we will find within two to three months, prices will jump from Rs 3,000 to Rs 5,000 per quintal at wholesale rate. That means at retail it will jump from Rs 60 to Rs 80 or even up to Rs 100 a kg. You need to act right away.
 
In the longer term, are we moving from the rice and wheat focus to pulses?
Yes, you have to switch gear in favour of oilseeds and pulses now – both are nitrogen-fixing. In fact, if you notice, we have effected a historic increase in Minimum Support Prices (MSP) for pulses and oilseeds. The reason is we want to reposition these. At present, it is too much in favour of rice and wheat. Now we want to bridge or reduce the gap – but then we have to decide at what price and what productivity. We have to work on both the seed side and the price side. Last year, there was a major investment done, and we hope the farmer will shift to pulses.
 
But in the short run, imports will increase. The government has to quietly go to the international market and start buying. When people know there is a shortage, everybody would like to hoard. But the solution is not to pick up the stick and start beating the traders. This is a 1950s mindset: impose stocking limits and put traders in prison. In a market economy, this is not done. Instead, you import bigger quantities and beat the trader with trade so that he incurs loss for hoarding. That’s how a market economy has to be played. If you don’t wake up and import at the right time, and at the right price, there will be hoarding. It will only give rent-seeking powers to the inspectors. And lead to corruption. You have to beat cartelisation with trade. 
 
So is the government doing this?
That’s a big if. These are my recommendations.At present, the government is the biggest hoarder — it is hoarding 80 million tonnes and drying up supplies in the market. Is the Competition Commission of India looking at that? Don’t sit on this heap of cereal. Your cost of operations is so high. You have to get out of this non-real cost.
 
How do you stabilise prices in a market economy? When external shocks like scanty rainfall happen, you need to access trade and do it well in advance. Don’t wake up three months late. The government should have already acted and sent people scouting.  
 
These are short-term measures. What are the long- term solutions for Indian agriculture?
At present, the problem with our agriculture is that three-fourths of the resources going in are going as subsidies — fertiliser, irrigation, power, credit subsidies. Now research shows that if you spend $1 million in fertiliser subsidy versus the same amount on rural roads or water, the return is in the ratio of 1:7. You get seven times more returns on investments than on subsidy. So giving subsidies is patently a wrong approach. And open-ended subsidy is even worse. Subsidies should only be 20-25 per cent of the resources going in. Seventy-five per cent to 80 per cent should be investments. Unless we reform that, things will not change. Currently, Rs 300,000 crore to Rs 400,000 crore is needed to complete irrigation projects. But how much do we allocate? Less than Rs 20,000 crore.
 
Why don’t you spend more on irrigation and go from 45 per cent of irrigated area to 65 per cent. But it has to be done in a transparent manner. 
 
Water will need huge investments – in augmenting water supply, containing the rainfall and recharging groundwater, setting up water institutions (borewells and so on), as well as on pricing of water. Today we are a water-scarce country – but what are we exporting? Rice! Do you know one kg of rice costs us over 3,000 litres of water. We give away this rice for one rupee in some states. Is this the cost of water – one rupee for 3,000 litres of water? Set up policies – no digging for water until you have a licence. Create a law.
 
We also need to invest in R&D, better seeds, and fix better remuneration prices. In 10 commodities, our MSP was lower than the cost of production. That’s why we recommended a big increase. How can the farmer feel incentivised if MSP is below the cost, and you put an export ban. You block exports, strangulate the market by not allowing movement from one state to another, set stocking limits – these are the various instruments to tax the farmer. You end up distributing poverty – but not prosperity. 
 
I would say raise MSP by 10 per cent whenever you impose an export ban. It has not been done. MSP also has no meaning unless you have an effective machinery to support it.  In the East, in Assam, and Bengal, paddy prices are fixed, but there is no procurement machinery to pick it up at the cost. So what’s the use? 
 
In China, only rice and wheat are on MSP; occasionally corn and cotton gets support. We, on the other hand, have 24 items on MSP.  You cannot do justice — at the most 5-7 items should have a support price.
 
(This story was published in Businessworld Issue Dated 13-08-2012)