From Plate to Plough: In the last four years, agri-profitability fell rather than increased; and FCI paraphernalia expanded and deepened rather than getting reformed and shrinking
Next month, the Narendra-Modi government will complete four years in power at the Centre. Now, would seem an opportune time to look back at the promises he made and evaluate his performance through these four years. We restrict our analysis to the agri-food space that impacts the largest number of people in the country, and is possibly the segment prime minister Modi aimed to address most when he called for ‘sabka saath, sabka vikas’.
Modi set expectations of the farming community soaring even before he got elected as the prime minister. In October 2013, he asked Indian peasantry to donate their used farm implements to build the Statue of Unity of Sardar Vallabhbhai Patel—who was instrumental in representing farmers nationally and was behind the setting up of the first dairy cooperative in Gujarat. Building his statue with metal from used farm implements was an ingenious and innovative way that helped Modi to connect seamlessly with Indian peasantry and certainly helped him in his ensuing election campaign.
The BJP election manifesto of 2014 made explicit promises for helping agriculture to flourish. Of the many, we pick two promises here and selected others will be covered in subsequent articles.
According to the manifesto, in the agri-food space, if elected, the government would ensure (1) farmer profits at 50% over costs of production; and (2) “radically transform Food Corporation of India (FCI)” by “unbundling FCI operations into procurement, storage and distribution for greater efficiency.”
On the first promise, it took the PM four years to act. In these four years, instead of growing, profit margins for almost all major crops fell! On one hand, bonuses given prior to May 2014, on paddy and wheat procurement in states like Chhattisgarh and Madhya Pradesh, were withdrawn, and on the other, minimum support price (MSP) increases (3-4%) fell short of increases in costs. Tumbling farm prices in 2016-17 and 2017-18 further squeezed margins. The 2017-18 peasants’ agitation finally shook the government, who then started evolving their thinking on fixing MSPs at 50% above cost. Then started the mystery about cost-base—was it supposed to be A2+FL (paid out costs plus imputed family labour) or C2 (comprehensive cost)? A2+FL is about 38% lower than C2. Farmers expected their profit margins to be 50% above C2, but it seems the government may use A2+FL as the base. This amplifies the resentment amongst peasantry as many feel let down. With one year to go for Lok Sabha elections, it will be crucial for the Modi camp to rebuild the lost trust of the farming community. Will that be done through loan waivers, interest-free loans or other instruments is for all to see.
On the second promise, however, the government moved swiftly. Within three months of resuming office, in August 2014, PM Modi set-up a High-Level Committee (HLC) to restructure the FCI under the chairmanship of Shanta Kumar, the former Union minister for food in the Atal Bihari Vajpayee government. With this action, PM Modi set the right tone and ignited expectations of a radical change in India’s food management system. The HLC submitted its report in January 2015. Inter alia, it recommended four things: (1) bring rationality in FCI procurement operations by moving away from Punjab, Andhra, Chhattisgarh to eastern states (Bihar, Odisha, UP); (2) reduce population coverage under the National Food Security Act (NFSA) from 67% to 40%, increase monthly grain entitlement of beneficiaries and gradually introduce cash transfer in PDS, by first targeting cities with more than 10 lakh population and extending it to grain-surplus states, giving option between cash and grains to others; (3) FCI’s grain stocking and movement operations be outsourced to the private sector, FCI’s conventional storages be modernised by private players; and (4) introduce direct cash subsidy to farmers and deregulate the fertiliser sector.
It has been three years since the report was released, and barring scattered instances of DBT, food and fertiliser pilots, there is not much change in FCI’s role and functioning. In fact, the recent announcement of raising MSPs by 50% above A2+FL will further deepen roles of FCI and NAFED. This will inevitably raise the country’s food subsidy bill and expand NAFED’s losses because of pulses and oilseeds purchases. The biggest disruption, however, will be the large-scale efficiency losses in agri-markets.
India’s pivotal programme for food security, the public distribution system (PDS), is being praised to have benefited from the government’s digital drive and DBT mission. Aadhaar-linking of ration cards, regular update of beneficiary list, and use of Point-of-Sale (POS) machines in ration shops is said to have led to deletion of 2.75 crore bogus ration cards (of the 24.3 crore total ration cards), and reduced grain pilferage. Evidently, this should lead to progressively reduced grain off-takes from the central pool, leading to a contained food subsidy bill. However, since 2013-14, PDS grain off-takes have grown from 46.7 MMTs to 54.4 MMTs (2017-18). Food subsidy bill has gone up from Rs 92,000 crore (2013-14) to Rs 1,69,000 crore (BE 2018-19). But the real devil is in the detail. There are unpaid FCI food subsidy bills that have been accumulating over the years, and as of March 31, 2018, they stood at massive Rs 1.34 lakh crore! Additionally, there are outstanding bills of DCP states for which no reliable estimates are available. Upon adding all, the country’s real food subsidy bill is already touching about Rs 3 lakh crore.
The conclusion is, alas, that the two promises remain largely unfulfilled as on day. In the last four years, profitability of cultivation fell rather than increased; and FCI paraphernalia expanded and deepened rather than reformed and shrunk. Further, Indian peasantry feels having lost its growth momentum as the average agri-GDP growth rate in first four years of the Modi government (2.4%) is less than half of what was experienced during the last four years of the Manmohan Singh government (5.2% in 2010-11 to 2013-14).
We hope PM Modi realises the gravity of the situation and reverses this trend, and wins back the trust of Indian peasantry.