FCI should serve its mandate at a low cost: Ashok Gulati

Written by Sandip Das | Updated: Aug 27 2014, 07:23am hrs
From allocating extra foodgrains to states as a means to fight the price rise to setting up a high-level committee to recommend measures for restructuring the Food Corporation of India (FCI), the government has taken various steps for cutting down food subsidy and curbing further spike in agricultural commodity prices. Ashok Gulati, former chairman of the Commission for Agricultural Costs and Prices, and at present chair professor agriculture, the Indian Council for Research on International Economic Relations, spoke to FEs Sandip Das on the measures the government must take to rejuvenate the agricultural sector.

How do you see the inflation graph given the fact that vegetables and cereal prices have moderated in the last few weeks

Food inflation during the NDA period (1998-2003) was 4.1%, which increased to 5.9% during the UPA-1 years (2004-08) and thereafter shot up to more than 10% during UPA-2 (2009-13). The Modi government is just about 100 days old, and the situation on food inflation has changed only marginally. The good news is that it has not worsened even in the wake of impending drought-like conditions in many parts of India.

The government has taken some bold decisions such as liquidating 15 million tonnes of grains from FCI stocks (5 million tonnes of rice and 10 million tonnes of wheat) and suggesting states to delist fruits and vegetables from the APMC Act, but they need to be effectively implemented before we can see their impact on the ground. Food inflation can be tamed by using a liberal import duty. Import duties on most fruits and vegetables are about 30% (apples, for instance, attract 50% import duty), skimmed milk powder attracts 60% (above the in-quota tariff of 15%), and chicken legs (cut pieces) attract 100%. Bringing all of them to, say, 10% can augment supplies and moderate food inflation.

But the government also needs to contain fiscal deficit as it is one of the root causes of expanding demand more than supplies, and putting pressure on food prices. One does not feel optimistic on that front yet, unless the government takes some bold decisions.

What steps the government must take to ensure that volatility in vegetables prices is curbed

One, we need to develop more cold storage facilities so that there is a better matching of supplies with demand, besides saving on wastages. Two, we need to keep imports open at low duties. Three, we need to develop the food processing industry, especially for fruits and vegetables (like freeze dehydrated onions, tomato puree, etc). Given the power deficiency in rural areas, developing a cold chain is difficult and a costly affair. The other two options are open. Compressing the value chain by directly buying from farmer groups can also help.

What should be the key thrust areas in the food and agriculture sector for the next few years

The challenge for the NDA government is the same as was for the UPA. Agriculture must grow at over 4% per annum on a sustainable basis, productivity must rise, and farmers incomes must increase. There are states such as Gujarat, Madhya Pradesh, Chhattisgarh and Rajasthan where agriculture GDP has grown at more than 7% per annum for over a decade (2001-02 to 2012-13), but others such as Uttar Pradesh, West Bengal, Kerala and even Punjab have lagged behind at less than 3%. The all-India picture is at 3.4% over a decade-long period.

In order to raise all-India growth rates in agri-GDP, we need to contain and redirect massive subsidies going to agriculture into investments in agriculture, we need to get the incentives for farmers right by creating a unified all-India market for agricultural produce, abolish export controls, reform APMC Act, and connect farmers organisations to organised retail networks. Much higher investments are needed in agri-R&D and irrigation, if we have to raise productivity of our farms.

What should the government policies be towards the sharp rise in food and fertiliser subsidies

Food and fertiliser subsidy bill has crossed R2 lakh crore per annum. In the current Budget, food subsidy was R1.15 lakh crore, but there are pending bills of R50,000 crore. Similarly, fertiliser subsidy in the Budget stood at R71,000 crore, but there are unpaid bills of R38,000 crore. This is scary in terms of financial burden on the exchequer. Our research shows that if the government decides to give cash directly to consumers and farmers by the UID or the Aadhaar route, it can save at least 25-30% of the subsidy bill that can be ploughed back into agriculture as investments, which, in turn, will help raise agri-growth. But to carry out this cash transfer, the government must ensure that people have bank accounts, and that is where the challenge of financial inclusion comes to the fore. I am happy to see that financial inclusion is high on the agenda of the present government and, with digital India, it can be a game-changer.

Can the government reorient the focus of the MGNREGA and various irrigation schemes

MGNREGA, in its current form, is more a dole than an investment. If we can dovetail this to agri-schemes effectively, where it can help raise agri-productivity and contain rising wage costs, we can convert this dole into an investment, killing two birds with one stone.

Given that the food ministry has announced the setting up of a high level committee for suggesting measures for restructuring FCI, what should be the immediate priority of the corporation

That will be for the high level committee to decide. But the terms of reference send a clear message: we need to reform or restructure FCI in a manner that its rising costs can be contained, that efficiency and transparency can be promoted, and FCI should be able to serve its mandate at a low cost.

Grains stocks with FCI have declined substantially. What kind of procurement policy should we have so that excess grains are stored for longer periods

During my tenure at the CACP, we had recommended to the government that the open-ended procurement policy, especially in states that give high bonus or put high taxes on grain procurement, needs a review. I understand that the FCI has sent some message on those lines to states that are offering high bonus on top of central MSP. Only time will tell whether the central government can effectively tackle this issue, which has been overdue for at least the last three years.

What are your suggestions on crop diversification in the Green Revolution states And the approach for taking Green Revolution to eastern India

Diversification package for the erstwhile Green Revolution states will cost R5,000 crore over five years (R1,000 crore each year). But it will give rich dividends. We need to shift at least 1 million hectares of common rice from north-west to eastern India. I suggest giving R10,000 per hectare to any farmer ready to shift from rice to, say, corn in the Punjab-Haryana belt, where water table is receding by 33 cm each year. Corn saves 75% of water compared to cultivating paddy; it also saves on power, fertiliser and irrigation subsidies. Together they account for over R12,000 per hectare in Punjab paddy. So by giving R10,000 per hectare on corn cultivation, one can save not only water but also input subsidies. It is a win-win situation.

What initiatives should be taken to boost agricultural exports

In 2013-14, India exported agri-produce worth $42 billion vis-a-vis imports of only $17 billion, giving a net surplus of $25 billion. Our agri-sector is quite competitive and we feel proud of that. To exploit export opportunities, I suggest keeping a stable and open export policy across the board, develop effective value chains for various agri-commodities geared to high-value export markets, and incentivise domestic players to build such chains.

What is your opinion on the kharif output given the deficiency in monsoon rainfall this year

It is difficult to guess at this stage and I will go by what the ministry of agriculture is saying based on area sown under different crops: pulses, oilseeds and coarse cereals may suffer a bit, but cotton may be up. I am not much worried about rice as we have ample stocks and the area sown under rice has not declined.