Big-ticket items in the agri-food space—food and fertiliser subsidies—have largely remained untouched
WHEN the Narendra Modi sarkar took over the reins in Delhi in May 2014, the biggest challenge in the agri-food space was to tame food inflation, which was hovering in double digits. Prices of food articles were up by 9.5% in May 2014 over May 2013; potato prices were up 31% and onion prices were showing surging signs in most major consuming centres. On top of this, monsoon rains were erratic in June-July 2014, and finally ended up at 12% below the Long Period Average (LPA). The government realised that this could be a party spoiler, and so it had to act fast, literally hit the ground running. This was Modi sarkar’s first litmus test.
A slew of measures were announced by the government to contain the damage from surging food inflation. It not only restricted exports of onions but also imported onions and dumped them in major onion markets at prices below import cost. It also used the stick and raided many onion traders/hoarders. The message was clear that the government will not be a passive spectator but will move fast. In July, it took a major decision to liquidate 15 million tonnes of foodgrain stocks, and in September the APMC was changed in Delhi to allow trading of fruits and vegetables outside the Azadpur mandi. As this fire-fighting to contain food inflation was going on, good luck seemed to descend on the Modi sarkar in the form of tumbling global commodity prices—from crude oil to corn to cotton, all started slipping down. This came in very handy to finally bring down food inflation within reasonably comfortable range, and in April 2015 the consumer food price index increased by only 5.1% over April 2014. How much it was due to domestic policies of the government and how much it was due to global price slide, will remain an issue for discussion and debate. But the fact remains that, in May 2015, food inflation is not as burning an issue as it was in May 2014.
The flip-side of this scenario was the impact on farmers. Although government did not declare 2014 as a drought year—presumably to allay the fears of food inflation—practically with 12% below normal rainfall, it was a drought.
Falling global prices of agri-commodities led to a slowdown in exports of several commodities, notably cotton.
Domestic prices started crashing and it goes to the credit of the government that it put the Cotton Corporation of India (CCI) into action, which procured more than 9 million bales at minimum support prices and gave a breather to cotton farmers. This was a timely action, and without CCI’s proactive role there could have been a spate of farmer suicides in the cotton belt. That disaster was averted. But farmers’ price realisation in most agri-commodities declined significantly—by 15-25%—whether it was basmati rice or cotton or corn, and so on.
So, for the farmer, it was not a good year. Farmers suffered a drought in kharif and unseasonal rains in March-April 2015 hit the crops badly, which otherwise could have been a bumper rabi. This double whammy of poor and erratic rainfall during kharif and rabi, and lower price realisations, has hit farmers hard. Although the Modi sarkar has raised the compensation for farmers by 50% in one go, and also lowered the trigger point for compensation from minimum 50% damage to one-third damage, yet it is far from being sufficient to take care of farmers’ interests.
Moreover, our procedures of assessing damages and compensating farmers are so slow and often corrupt that farmers remain at the receiving end. Creating a more robust crop insurance system with the help of modern technology that uses satellites, drones, enhanced and upgraded all-weather stations and rainfall loggers, digitisation of farmers plots, and dovetailing these with Jan-Dhan accounts and Aadhaar’s UID, remains a challenge for the Modi sarkar.
Overall, while consumers have heaved a sigh of relief from high food inflation, farmers have come under distress due to nature’s fury and falling global prices. The overall agri-GDP in FY15 may fall flat.
The big-ticket items in the agri-food space have not been touched much in the first year of the Modi sarkar. These are food and fertiliser subsidies. Of the budgetary allocations to five key ministries (agriculture, food, fertilisers, water resources and food processing) which impact agri-food outcomes, more than 85% of resources go as subsidies on food and fertiliser. The PDS suffers from large leakages (over 40%) and fertilisers are being smuggled and used for non-agriculture purposes due to low pricing of urea. Massive inefficiencies continue to dog the food management system, from excessively high stocks to high costs of operation of the Food Corporation of India (FCI). The PM set up a high-level committee under Shanta Kumar—the former Union minister for food—to look into the functioning of FCI and streamline the food management system. While the panel has submitted its report, it has yet to see any solid action by the government. Even the PM’s directive to liquidate 15 million tonnes of grains in 2014-15 has not been implemented in its true sense; actual open market sales by FCI have been less than one-fourth of this amount.
This is the unfinished agenda, along with streamlining fertiliser subsidy and raising investments in water management, which should be on high priority in FY16, else Indian farmers will remain under stress and Indian agriculture will keep limping.
The author is Infosys Chair Professor for Agriculture, ICRIER
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