Freeing markets the key to getting farms on track
While one of the key reviews prime minister Narendra Modi will hold with his council of ministers on January 27 will be on the progress made in implementing various agriculture-related schemes, the review has to go beyond the strengthening of krishi vigyan kendras or spreading irrigation, vital as they are. The review is important in the context of increasing rural distress after two poor monsoons and a sharp fall in agricultural profitability—as compared to the BJP’s promise of raising farmers’ returns to 50%, that on major crops is down to around 5%. Raising farm profitability was also an issue discussed by agriculture ministers from various states in Gangtok recently—apart from wanting various agricultural schemes to be converged, the meeting concluded by talking of the need to create an enabling environment for boosting private investment. An enabling environment, in fact, is far more important than spending more government money on various schemes—Maharashtra, for instance, spent Rs 81,206 crore in the 2000s to increase irrigation from
3.9 million hectares to just 4.1 million while Gujarat spent Rs 39,369 crore and increased irrigation from 3.3 million hectares to 5.6 million. State-sponsored schemes—like crop insurance—are certainly a good idea, but the real boost can only come from private investment. Indeed, a Kotak report pointed out that state governments spent over Rs 6.5 lakh crore on irrigation and flood control over the past decade, total irrigated area grew by just 1.3% per annum; the bulk of the increase came from privately-owned tube wells, not from state government-led spending on canals or tanks. But private investment is not going to flow as long as various restrictions on crops are not removed.
Today, various states prevent crops from being sent across their borders, states like Haryana and Punjab levy a 14.5% tax on all sales, the FCI-system of procuring wheat and rice has ensured farmers find it most profitable to grow only these crops. Indeed, the supposedly pro-market BJP is acting quite like the Congress when it comes to banning exports, raiding stockists and arbitrarily lowering stocking limits on crops whose prices are rising; oddly, the party even imposed price controls on Bt-cotton seeds even though their price is a small fraction of farmers’ costs. And while enough experts have pointed out that it is only when there is a robust front-end, such as the type that will get created when FDI in retail is allowed and truly large retailers come in, that the back-end cold chain investment will take place—that’s how the large waste in fresh fruit and vegetables will get fixed—the government remains opposed to FDI. Nor has there been any movement on reducing the role of the FCI and on using the savings to give farmers a per-acre annual cash payment—this will be WTO-compliant and will also wean farmers away from predominantly cultivating wheat and rice. It is unlikely, though, that any of this will come up at the meeting on January 27.