Funding a Punjab crop diversification plan critical

By: |
December 4, 2020 4:41 PM

But onus of this lies on state government since it has to ensure this happens once Centre pays its share of costs

The current unease amongst farmers and intermediaries is on account of increased risk perception. The farm sector engages over 50% of the workforce and contributed 16.5% to GDP in FY20.Telangana Chief Minister as well as TRS chief K Chandrashekhar Rao are also going to support Bharat Bandh that has been called for on December 8.

With the central government and the agitating farmers – this also includes the Punjab government – failing to resolve the issue when it was not so full-blown, it is clear there is no clear winner, no matter how the impasse ends. The central government cannot afford to have the capital blockaded or the agitation spreading – truck operators have threatened to join in support of the Punjab farmers – but the farmers won’t go back till they get some meaningful concessions. As for the farmers, even if the centre gives them a written promise to continue its unlimited MSP-based procurement from the state – and hope that farmers from the rest of the country don’t demand this as well – they will continue to lose.

Should the central government cave in to the demands of the farmers, the larger lesson to anyone who wants concessions – think of all the caste groups who want more reservations, to begin with – is that holding the capital to ransom is a sure shot way to get what you want.

While MSPs for wheat and rice are raised from time to time, there is a limit to the hike since, once prices rise above market-clearing levels – with wheat MSP above global prices, even exports are no longer an option – the government is left holding stocks it cannot possibly liquidate; FCI has around 30-40 million tonnes of extra rice and wheat already. That is the reason why, with the bulk of Punjab farmers continuing to grow wheat and rice – the smarter ones have switched to citrus and other crops/livestock – the state’s agriculture GDP growth has plummeted. Agri-GDP grew by 5.7% a year in 1971-72 to 1985-86 versus India’s 2.3%; both Punjab and India grew at roughly the same 2.9-3% in 1986-87 to 2004-05, but in the period since then Punjab’s agri-GDP grew at just 1.9% versus India’s 3.5%. So as Punjab’s farmers continue to get MSP support, and this keeps them wedded to rice and wheat, they will keep losing out to those, in Punjab and elsewhere, who grow more lucrative crops.

This slowing agriculture growth in a state that once used to be the most dynamic in the country is the real issue, not the survival of the mandis though this is one of the issues the farmers have flagged; their argument is that, once new mandis are allowed, the existing APMC ones will die. The fact that, even after spending billions of dollars, online retailers have such a small market share is surely proof of the resilience of traditional market structures. It is, however, quite natural that the existing mandis, those that operate from them, and even the Punjab government that earns so much from them, should be worried. Punjab collected Rs 1,750 crore by way of mandi taxes in FY20 and a similar amount by way of a rural development cess that is also imposed on sales in mandis. And though the arhatiya hardly has a role in the state when FCI is doing almost all the procuring – in private trade, the arhatiya takes responsibility for both payments to farmers as well as the quality of the produce – arhatiyas earned a commission of Rs 1,460 crore in Punjab in FY20!

Any long-term solution to Punjab’s crisis – no matter what the central government agrees to over the next few days – has to centre around this issue of moving the farmer to more value-added activities. Interestingly, for those who argue that there wasn’t adequate consultation with farmer groups – or even with political parties including the BJP ally Akali Dal – before the new laws were passed by Parliament, it is worth keeping in mind the issue of the need to wean Punjab from wheat and rice was something the Johl committee had recommended way back in 1986! As for the issue of whether non-APMC markets are needed, the Congress party had this in its last manifesto and, as it happens, the first real move, to move fruits and vegetables out of the purview of the APMC, was taken when the UPA was in power.

Moving farmers addicted to the certainty of wheat and rice won’t be easy, but the trick lies in replicating the assured markets that MSPs offer. Ideally, given its water consumption, the best bet is to move acreage from rice to maize which is used not just for poultry but also as animal feed; as animal feed, it even raises milk productivity dramatically. Essentially, what is required are gap-payments to farmers to move to alternative crops that either take a longer time to fruit – citrus for instance – or that offer lower value initially. Indeed, experts argue that once 25-30% of the rice acreage – rice is grown on around 3 million hectares – is moved to maize, this will ensure other industries come up in Punjab, like those making various corn products or milk processing; in a paper on getting Punjab back to a high-growth path, Ashok Gulati, Ranjana Roy and Siraj Hussain had pointed out that just 3.6% of Punjab’s gross cropped area was devoted to fruits and vegetables versus 8.3% at the all-India level. Once alternate crops become viable as support industries come up, more diversification will take place on its own.

It is not clear how large the gap-payments need to be, but many feel it chould be around Rs 4,000-5,000 crore a year for 3-4 years at the most. Not all of this needs to be paid for by the centre; the state will save on electricity subsidies given maize uses around a tenth of the water rice does; the restoration of the water table is another big positive. The centre, in turn, will save from the mountains of dead stock that FCI buys from Punjab – Rs 5,600 crore a year (https://bit.ly/3oomni8) – as well as on fertilizer subsidies.

Ideally, then, the centre and the state need to sit down and work out a realistic level of payments that need to be made as well as work that needs to be done, like helping set up processing units in the state, for instance. Whether the Congress party fuelled the agitation or not, or whether it has attained a momentum of its own is irrelevant; for any solution to work, Punjab CM Amarinder Singh needs to regain the charge since only the state administration, can deliver on the diversification promise, apart from being held accountable for it.

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