Crop-neutral incentive structures are the need of the hour
Policymakers and consumers can rejoice in light of the latest price data. Food inflation, in particular, has witnessed significant moderation. In May 2015, food prices, over last year May, were up only by 2.3% at wholesale and about 5% at retail levels. The increases in minimum support prices for the current season are also kept within 5% for most commodities (paddy MSP at 3.7%). This surely brings a sigh of relief to policymakers combating close to double-digit food inflation just a year before.
However, it should not lead to complacency on the food price front, as prices for essential commodities like pulses have increased by a whopping 23% over the same period. Prices of some pulses, especially urad and tur, increased by 30%. There have also been reports that the retail prices of urad and tur in some selected cities have increased even by more than 50%. All this has happened while India imported 4.6 million metric tons (mmt) of pulses in FY15, up by 27% over the previous year.
Dal-bhat or dal-roti is always considered a poor man’s diet. But dal today seems to have become a luxury which only the better-off can afford. It is an important source of protein for vegetarians, which is slipping away from the hands of the poor. Fearing that pulses price can flare-up further, the government has announced its intention to increase imports. The problem is that urad- and tur-type pulses have very limited international markets, and India sources it primarily from Myanmar, Tanzania, etc. The supplies in those countries cannot increase quickly, and thus the prices are bound to consequently rise. As a result, our pulses import bill, which was already $2.8 billion in FY15, up 33% from FY14, is likely to go up further this year.
Pulses in India are grown on about 25 million hectare of land, largely rain-fed, with only 16% under irrigation. Production hovers between 18-20 mmt. Pulses need much less water, are nitrogen-fixing, and therefore do not need much chemical fertilisers either. They can thus save on large input subsidies (power, irrigation and fertilisers), much of which are normally cornered by rice, wheat and sugarcane as these crops have high irrigation cover and higher fertiliser consumption.
What is the story on rice (bhat)? The May WPI-rice is down 1.8%. Interestingly, even in the drought-like year of FY15, India exported 12 mmt of rice, worth $7.8 billion, breaking all records! In fact, in the last three years, India has consistently exported more than 10 mmt of rice, becoming world’s top rice exporter. Of the 12 mmt of rice exported in FY15, 3.7 mmt was basmati and remaining 8.3 mmt non-basmati. In terms of value, basmati accounted for 57% of the total rice export earnings. India produced 101 mmt of rice from about 43 million hectare, almost 60% of which is irrigated.
The key point to note in the case of rice is the following: Rice needs very high amounts of water for irrigation, roughly 3,000-5,000 litres per kg, depending on where it is being grown. The father of Pusa basmati, Dr VP Singh, tells us that PUSA 1509 consumes about one-third less water than non-basmati due to its short duration of cropping. Also, the consumptive use of water in rice is much less, just 12-15%, while 30-40% of irrigation water is lost through evaporation and roughly half goes back as groundwater with high nitrate content, polluting the potable water. This percolated water has to be lifted time and again through highly subsidised power.
The point to consider from the policy perspective is that a part of the export competitiveness of rice (10-15%) comes from these large subsidies on irrigation, power and fertilisers. Also, there is a government system of procurement of paddy/rice, which reduces the risk for rice-farmers.
Pulses, on the contrary, do not have any such government-procurement support, are devoid of large input subsidies. Most of the pulses are banned/restricted from exports, and imports are allowed at zero-duty, while rice imports attract 70% duty. This seems to be a comedy of errors! The biggest exporter of rice in the world has import duty of 70% on rice!
What is the policy correction that is needed so that rice and pulses get equal and fair treatment in terms of incentives to farmers? Crop-neutral incentive structures is need of the hour. At present, incentives are skewed in favour of rice, wheat, and sugarcane, and consequently nation is overloaded with their stocks. Policies need to be tweaked to get incentives for pulses at par with, say, rice. In order to do this, first, rice import duty needs to be slashed from 70% to just 5-10%, if not zero, so that rice trade is truly open at both ends. Second, direct buying of pulses from farmer groups needs to be encouraged by private sector organised industry/retailer groups, or by a wing within FCI (as Nafed seems to be on a falling wicket) and through warehouse receipt systems. All this, with a view to give a higher share of the consumer’s rupee to farmers as incentives to produce more pulses. Third, although in due course, it is good technology that will increase yields of pulses, and our scientists have to work hard on that; in the short- to medium-run, bringing more of the pulses area under irrigation can help stabilise their yields at reasonably satisfactory levels. For this to happen, policy must reward those who are ready to shift from, say, rice to pulses, especially in the Punjab-Haryana belt, where the water table is depleting fast. This reward could be, say, Rs 7,500-10,000/hectare a for pulse farmers; this could save on input subsidies like cheap power and fertilisers.
High-end technology, of digitised land records, satellite/drone images of changing cropping patterns, and Aadhaar-linked accounts, can be used to ensure that these rewards go only to those who grow pulses.
Only if one can think boldly and put in place innovative policies to create a crop-neutral incentive structure, pulses production in India will increase, benefiting our soil and water (especially in the Punjab-Haryana belt) and reducing pulse imports.
Can the Modi government create a level playing field for dal and bhat through crop-neutral incentive structures? The pay-off will be high, both economically and politically.
Gulati is Infosys Chair professor for agriculture, and Saini a consultant at ICRIER. Views are personal