Oil rich economies owe much of their prosperity to the succession of oil shocks they administered to the rest of the world. Then, isn?t it surprising that a food price shock for the world shouldn?t do the same for India?s farmers? But, obviously, it is not going to happen. So, once past this inflation episode, it will be difficult for anyone to believe that agricultural concerns dominate our policy responses. At each stage of the current episode, the government has jettisoned the interests of farmers to help other sectors. This has happened sporadically before, but it never went the full distance.
From January to April, prices of most essential commodities rose quite slowly. Government statistics for the week ended May 2, 2008 showed prices of domestic wheat, sugar and gram dal holding steady at all reporting centres across the country. The weekly data from the ministry of consumer affairs, food and public distribution tracks retail prices of wheat, rice, two varieties of dal, sugar, tea, potato and onions, among others. If you see the data for all weeks from February 28 onwards, there is not a single one in which prices of these commodities went sharply off on a tangent. The data also shows the reason for it. State agencies have imported enough cereals and pulses to keep prices soft. Inflation has occurred in land prices, industrial goods and even imported food products, but certainly not in domestic farm prices.
This means that despite a heavy phase of inflation, India?s farmers have not got any advantage, since the terms of trade vis-a-vis industrial goods did not turn in their favour. This is quite different from what happened with the manufacturing sector. Producers of steel, cement and cars used the price rise to jack up their product tags?excessively, as the government believes in some cases. But our farmers have had no such luck. If they harvested cereals, they were forced to sell at minimum support prices to government agencies. Unlike last year, they did not get the advantage of leveraging support prices to negotiate higher prices from private traders, who were asked to stay away from markets. Government agencies also imported enough pulses to force farmers growing the domestic varieties to keep their prices down. And, as this depressed their income, they were forced to cut back on their consumption of other goods. As the National Sample Survey Organisation?s 61st round of consumption data shows, this meant cutting back on education and medical expenses, which account for nearly 50% of rural India?s spend. This also explains the reluctance of states to allow farming to emerge as a regular economic activity. The ban on futures is not for nothing.
There you have it. The government has ensured that the one clear lesson a farmer should draw from this inflationary episode is that the only path to economic progress is to switch professions. It makes little economic logic, but India?s farmers will end this bout of inflation as the only losers. Not for them any of the bounty that rising oil prices brought the Middle East.
This is reminiscent of a period in Soviet history when the central government had deliberately kept prices in shops artificially low to feed its army of industrial workers building steel plants and the like. Is the Indian state?s collective response to the agricultural sector very different?
It also shows that there is little substance to the political argument that over 60% of the Indian population ?depends on agriculture?. If they did, the response to prices would have been different. The correct interpretation is an acknowledgement that 60% live in rural areas. But their response to life choices is quite similar to that of the urban population. India?s farmers are a minority, and their needs are fairly different. So, while political capital can surely be made on farmers? misery, the policy each party wants is firmly tilted towards consumers. Whether they live in urban or rural India is incidental.