The agriculture solution

Written by The Financial Express | Updated: Apr 14 2014, 09:52am hrs
Were the BJP to come to power, the agriculture ministry offers it the best chance to not just fill big holes in the budget, but also to cater to its primary base of tradersindeed, it is ironical that the party has not cared to think about this all these years. The latest price policy for kharif crops of the Commission for Agricultural Costs and Prices (CACP), ranking states in terms of their being market-friendly, brings out the possibilities quite starkly. The states that distort the market the most by way of putting curbs on private trade or by way of high taxes are ranked the lowestnot surprisingly, the large producer states like Punjab and Haryana are among the least freePunjab, for instance, levies a 14.5% tax on rice purchases in the mandi and, at R3,600 crore in FY12, these added up to 18% of the states own taxes. As a result of this, in even BJP-ruled states like Chhattisgarh, there is virtually no paddy left for procurement by the private sector. Were the new agriculture minister to put a cap on procurement from states that levy large taxesand are, therefore, low on the CACP indexthis would both save money as the taxes are borne by the Food Corporation of India (FCI) and even free up space for private trade.

The huge excess stock with FCIthe result of an open-ended procurement policydo two things. First, with limited floating stock in the market, they drive up food inflation. Two, from the point of view of the exchequer, they block valuable funds. Just offloading 10 million tonnes of wheat will generate around R20,000 crore for the exchequer in terms of the price it will fetch as well as the reduction in carrying costs. Do the exercise for the excess stock FCI holdsat least twice what is requiredand, according to ex-CACP chief Ashok Gulati, you could get around R1 lakh crore. Were a more rational policy of cash transfers to be adopted, FCI would need even less stocks, but if the next government were to strictly implement even the current stocking normsthat needs eliminating the current open-ended procurementthis would go a long way in easing the budget as well as making the sector more competitive. And also keep inflation in check.