As food inflation surged to a 15-month high of 10.49% in April and economists blamed it on the ?hefty? rise in benchmark prices of crops in the past few years, the agriculture ministry has maintained that the farmer shouldn?t be asked to subsidise the consumer. Agriculture secretary PK Basu defends the rise in the minimum support prices of crops, saying the supply side remains strong for most commodities and high inflation may have been caused by ?something wrong? on the demand side, which economists need to ponder over. He advocates curb-free exports of farm goods to boost farmers? incomes, pitches for unrestricted inter-state movement of farm items by cutting redundant mandi taxes, and punctures the myth of excessive use of fertiliser in India, in an interview with Banikinkar Pattanayak and KG Narendranath.
The concerns of high food inflation have been lingering for more than two years now, with only occasional signs of moderation. How far are supply constraints responsible for the price rise?
Supply has been adequate in most commodities. We have bumper harvests of rice, wheat and coarse cereals. Pulses production, too, has surged to around 18 million tonnes from below 15 million tonnes two years earlier. Barring a few commodities where there is some shortage, the supply side of almost all items remains comfortable. Even the production of horticulture crops (a key driver of food inflation in the past two years) has been robust and its growth has exceeded the pace of increase in population. Recently, the government had to scrap the benchmark export price of onions to increase exports as domestic wholesale prices fell almost below the cost of production. In some areas, farmers have protested against the low price of milk. So my guess is, with the supply side doing well, demand-side problems could have been stoking inflation. But even then, India is one of the cheapest places for food items. You can have a meal for R10 here, but can you imagine a meal for 20 cents in the US? Even if you factor in the purchasing price parity, food items are still cheaper in India.
Are high MSPs of crops responsible for the protracted bouts of inflation, although they have contributed to rural incomes?
No. Food inflation has been driven more by the items for which the government doesn?t set the MSPs. There is no price pressure in rice or wheat. Moreover, farming has been very unremunerative in India due to a significant jump in costs of inputs such as seeds, fertilisers and diesel, and labour. Around 85% of farmers are still small and marginal, forming a formidable chunk of our BPL population. So if the farmer is getting very good incomes, he would have been better off in the economic ladder as the country develops; but this hasn?t happened as we would have expected. The problem is, as some people have pointed out, we make much hue and cry if the farmer gets R1 more for a kg of rice, saying inflation has risen by 10%, but we are indifferent when price of a product, say a bottle of water, is R15 a litre when the key raw material hardly costs anything.
Only a detailed and scientific study can point out how much food items are contributing to household budgets and how they have changed over the years. We only have anecdotal evidence and some studies on rising food price trends, but larger data are needed to establish facts.
When it comes to productivity increase, biotech crops are being talked about. Given the experience with Bt cotton (there have been conflicting reports of both prosperity and adversity related to Bt farming), how have your views evolved on this issue?
It doesn?t matter if it (the seed) is Bt or non-Bt as long as it?s raising productivity significantly and giving good returns to farmers, without damaging the environment. We need good and high-yielding seed varieties. Most of the cotton crop is in rain-fed areas and if there are scanty showers, obviously the crop will be affected, even if it?s Bt. And farmers will be hit more, as they have incurred more expenses in buying Bt seeds than if they had purchased low-yielding, traditional seeds.
So what is really needed to fight inflation effectively?
Most important is to scale up productivity. If you produce more out of the same land size, the cost of production of each quintal of the commodity will fall, but output will still rise significantly. In such a case, farmers will get more as production volumes have increased, while consumers will get a better deal too as the overall cost of production of each quintal of the item is brought down. We also need more warehouses and cold storages to preserve the commodity, and the farmer must get loans against the warehouse receipt. Then, the marketing, delivery and distribution system should be effective to ensure the items are reaching the needy at reasonable prices.
There have been restrictions on shipments of farm commodities in the recent past, which led to protests by farmers as well as some leaders. What sort of an export policy do you suggest for agriculture produce?
Ideally, all farm commodities should be put under the open general licence for free exports. This is a must to boost farmers? incomes. But if there is an acute shortage of a particular commodity, the government can take some restrictive measures to improve domestic supplies within the broader WTO guidelines. This should be a temporary measure. However, it should not happen that you allow a farmer to plant a particular crop, and when he goes to sell it after the harvest, you curb the commodity?s export even while knowing that the domestic demand is weak. There should be a clear-cut policy on this for the betterment of farmers.
So, do you think farmers should be left with the choice to plant any crop they like?
Ideally that should be the case, as long as the broader aim of maintaining the country?s food security is taken care of. If everybody wants to plant cash crops thinking that the returns are more, what will happen to India?s food security?
You have taken a series of initiatives to promote horticulture crops. What?s the update on that?
We have started setting up clusters under the National Vegetable Initiative (a part of the Rashtriya Krishi Vikas Yojana), which is successful in 7-8 states. This will take care of the pressure on supplies to some urban centres. We have declared 2012-13 as the year of horticulture to step up focus on the sector.
How far are the concerns about excessive fertiliser use justified?
Our fertiliser use is among the lowest in the world. Our consumption per hectare is less than that of even Bangladesh or Pakistan, forget China. Even consumption in key producing states such as Punjab is less than in some other countries. The average is around 147 kg per hectare, which is much lower than the 400 kg in China. We can still double the consumption. In some regions, there could be excessive use of urea, but for the country as a whole, the consumption needs to be raised to sustain high production level. Even pesticide use has come down from 65,000 litres to 45,000 litres in the past 5-6 years, and the use of bio-fertiliser is going up.
Do you think a revamp of the marketing system will help reduce inflation by removing the middlemen?
The middleman was there before too, and inflation was low. But yes, we need reforms and states are at various stages of reforming the marketing system. States like Maharashtra and Bihar have scrapped the APMC Act, states like Punjab have tweaked it partially and some others don?t tax such items. Agriculture being a state subject, the states have to realise that it is in their best interest to reform, and I think they have started thinking about this more seriously now.
We have already initiated the process of formulating a bill on inter-state movement of food items, which aims to cut the mandi tax and effectively reduces the cost of items accordingly. The draft bill is in circulation and we will move the Cabinet soon.
From the point of view of food security, how safe is India?
We are producing enough food items in adequate quantity. We are absolutely secure in that respect. Even in a drought year (2009-10) when around half of the country was affected, we produced 218 million tonnes, which was just a million tonne less than three years before that. We have moved to 252 million tonnes of foodgrains from 198 million tonnes in 2004-05, and the rise is even more substantial in horticulture: from 166 million tonnes to 249 million tonnes. So the supply-side optimism remains robust. Having said that, certain measures need to be taken to assess what ails the demand or distribution side.
