It is fun to write an invited piece on the government?s decisions on the Alagh Committee on the role of the CACP in a WTO trade dominated regime. I write from memory since the report was submitted in 2005 and I was not given access to it later, since it was a classified document. But Krishi Bhavan did me the favour of placing a summary in Parliament in answer to an unstarred question.
First let?s note the mercies. Most of the recommendations on market based cost account categories to be used and where more work is to be done like credit periods, have been accepted. Also concepts and policies not very common in the early part of this decade when this work was done?like futures management and distribution costs, the need to accept flexibility in markets beyond the APMC and newer groups like SHGs, producer companies and so on ?have been reinforced. A remarkable advance is the acceptance of competitive agriculture as the bedrock for policy recommendations.
Let?s get a needless controversy out of the way. Commerce ministry officials have reportedly told some press persons that the committee recommended that tariffs on cotton and edible oils should be set above bound limits . This is factually incorrect. The report has consistently argued that pricing should be integrated with the trade policy regime. It has been severe on the commerce ministry for fudging data on cotton and sugar imports to argue that such imports were low, but even the summary shows time and again the commitment of the group to work out WTO compatible regimes (para 35 for example). This is the essence for many of its road maps for different crops, where tariff and monetary policy combined with some support protect efficient agriculture in India.
Treatment of rents is one issue that has caused me sleepless nights. The Ricardian principle that rent is unearned is much too ingrained in me as a teacher. But we ultimately took the position that in a trade dominated regime, opportunity costs are worked out by the market and by competitive forces so rents if any should be market determined. Anyway a government that has taken on the mantle of assuring land to its friends has little face to ignore the rental cost of an agrarian economy where leasing is increasingly common. I am the first one to accept that this is an arguable point, but ignoring rent means that the larger issue of unearned surpluses has to be the cornerstone of all policies and not only for hitting the hapless farmer when he can benefit from faulty policies on land use and water development and the scarcity of land which follows.
Finally the real differences. Apparently the government, or parts of it, does not want tariffs to be integrated with price policy in agriculture. It therefore does not agree with the Alagh Committee?s real concern that integrated policy should be followed to give incentives for a competitive agriculture. The report takes crops, works out the efficient farmer set and shows how within tariff bounds, with some monetary policy built in (the Venugopal Reddy simulation), it is possible to hold the farmer?s hand for the transitional period in which he moves over to a lower cost per unit of output, not land, or in which global trade is modernised following Kamal Nath. The report describes this in terms of ?efficiency pricing? or other variants of long-range marginal cost pricing, fully aware that it is not talking of industry. Anybody who reasons against this needs to do serious home work.
There seem to be sections of government that don?t want this. We don?t know why. Turf battles could be one reason. Policy coordination is always easy in a textbook and a report but normal persons don?t like to give up power. Only the exceptional become more powerful by shedding power and coordinating for the larger good. Another reason could be the fear of rule based systems for these can dilute the power play in weak coalition regimes. There is a trend in not having a chapter on perspectives in the Eleventh Plan and not accepting the challenge of creating a medium term environment for competitive agriculture. But then you are in real trouble, for to have MSPs and separately free imports is like pouring water in a leaking bucket. You did this at great cost a few years ago in the grain crisis period. Finally there could be the fear of the unknown.
But we are traveling in uncharted territory. After the dithering of the nineties, we are doing a superb job in the WTO. I am sure whatever the first reaction, having accepted a trade dominated regime, we will finally accept the challenge of the rational transition to it. The friendly ghost of the Alagh Committee will keep on coming back and will be exorcised only when we are fully competitive in our agriculture.
?The author is a former Union minister and was chairman of the expert committee to examine the methodological issues in fixing minimum support price