The community of economists is very incestuous and so, as the level of expertise in North Block goes up, we find them closer to us than the rough and tumble of policy in the dirt on the ground. This is happening since last year and is great.
The average level of competence in economics in the US remained constant as one good Indian economist went from the North Block to Washington and another came from Ithaca to the North Block.
It leads to good teaching, good economic journalism and?at a philosophical level?you can?t hold back good ideas all the time. Also, the entire community can say we told you so and all of us, including me, sleep soundly thereafter. The civil servant and politico are also happy. They hate the Johnnies who want rules and orders to be changed and spell them out in sections and with commas.
That subsidies do not imply price control warms the cockles of the heart of people like me. But last week it was decided that nitrogen would be controlled at the level of groups of firms, a second best alternative for the expert committee I chaired, which wanted a single price for all companies as its preferred variant. Also, it was decided that there would be an inter-ministerial committee to keep a watch on the prices of other fertilisers. Another set of committees has wanted the reform of energy prices, with Kirit Parikh and Vijay Kelkar throwing in their weight behind that. Raw sugar import and release of stocks is controlled and so it goes on. I am all for rule-based systems. Even if an official committee is set up to target a desired price, we have used in the past rule-based systems for it to function. Such systems mimic market behaviour rather than take calls on case-by-case discretionary methods, which are both inefficient and allow for corruption. We need now to regroup, take into account the developments since the Survey was sent to the press and start all over again. For starters, one hopes the Finance Commission?s idea of making subsidies explicit in the deficits would be a good beginning.
There are some very good insights into the economy in the Survey, which may be useful in the budget debates. In some comments, for example, the price situation is well analysed. The Survey makes the point that the ?hype? on the kharif failure affected prices. Considering that rice and wheat output and procurement are both higher, the Survey has a more nuanced discussion on inflation. This column has been saying since August that the big rainfall failure is in areas with full irrigation and so the impact will be low. Earlier finance ministry forecasts of a minus two to four per cent fall in agricultural supply are now behind us. January?s food stocks have been the highest in the last six years. Inflation is a more complex issue. It merits lamenting the decline in private investment in agriculture but does not get into the issue of the incentive mechanisms for revival of the agricultural sector. With rabi prices clearly falling as we move into harvest times, this is a serious issue.
The Survey has a minor mistake when it says that only food prices have gone up in the WPI and says in the same breath that energy prices have also gone up by ten per cent. But, it very correctly shows that?using the national income deflator?the inflation in food prices is only six per cent. There are now reports of the prices of rabi oilseed-based oil and pulses falling in retail markets as are potatoes and vegetables. The reports on wholesale and farm harvest prices are more distressing. Tur dal in western Maharashtra village markets that I visited in the week beginning February sell at Rs 27-30 per kg, which was just above the MSP. West Bengal has sent an SOS on potato prices. UP mills are rejecting cane at the going price for crushing. I have argued for a medium-term stance on agricultural prices and would argue for an exercise of mild tariff possibilities for the kharif crops now that the damage to rabi is done. Frankly, the discussion on agriculture revival in the Survey is weak.
The Survey has a good description of Plan schemes in agriculture. But the Eleventh Plan says that the district plan should determine each district?s final resource envelope, production plan and the associated input plan. Annual targets at the start of the fiscal year should be fixed and funds for relevant schemes ensured, with implementation reviewed every quarter both at district and state levels. This has not happened at all as IRMA?s state of panchayat report shows and Finance Commission members have argued in favour of plugging rule-based assistance.
The Central schemes are in a departmental mould. There is nowhere an understanding of the resource-conserving strategies of the Plan and their centrality in achieving growth targets. In fact, the actual growth of agriculture is resource-wasting. We looked for the largest increase in area in paddy. It was in Gujarat in recent years. The state is very water scarce. It accounts for 4.57 per cent of the cropped area of the country but 28.5 per cent of the area increase in recent years, in terms of area under water-guzzling paddy on account of the Narmada project. Sugar area is going up in the driest areas in the Deccan and so is dairying, which is also a very water-intensive activity.
Neither the technology extension nor the economic policies underlying the agricultural plan have made any progress. Dryland crops like oilseeds are crippled by cheap imports. Lack of reform in pricing of inputs hits resource use. The mid-term review has to show the practical steps to be taken in preparation for a steeply upward climb. Given the real resource scarcities the country is facing, there is no other way to achieve a higher agricultural growth rate.
The author is a former Union minister