Restricting potato exports means Narendra Modi doesn’t want farmers to gain from higher global prices

By: | Updated: July 29, 2016 7:35 PM

Recalling the Russian scissors policy of the 1920s, where agriculture prices slumped while industrial ones rose dramatically, seems more than a bit odd since, in India, food inflation is rising at a faster pace than that in industrial goods.

In the old-style MSP-world, the best way to address farmer distress was to hike the Minimum Support Price of a crop and to then go and procure it from farmers. (PTI)In the old-style MSP-world, the best way to address farmer distress was to hike the Minimum Support Price of a crop and to then go and procure it from farmers. (PTI)

Recalling the Russian scissors policy of the 1920s, where agriculture prices slumped while industrial ones rose dramatically, seems more than a bit odd since, in India, food inflation is rising at a faster pace than that in industrial goods. Yet, if you look at what is happening to farmer incomes, it is clear the rising food prices are not a symptom of agricultural prosperity – indeed, they are a result of two years of drought and, by and large, it is traders that are reaping the benefits of the supply shortages, not the farmers. In the old-style MSP-world, the best way to address farmer distress was to hike the Minimum Support Price of a crop and to then go and procure it from farmers. Except, that world doesn’t exist – for one, hiking MSPs beyond a point is inflationary and, two, there are just 2-3 crops and a handful of states that have the requisite structure to procure crops at MSP.

The substitute for this, needless to say, is the free market, but India is far from that. While the central government claims to have set up a national agriculture portal which allows farmers to sell their produce across the country, but the reality is that farmers are not allowed to move crops across borders in most states. Exports offer another way out since, like procurement by FCI and other para-statals, they also help determine the market price – if a farmer knows he can sell his wheat to FCI at a certain price, he will not sell it to an arhatiya at a price that is much lower if he can get the grain across to FCI. In recent years, for instance, with India exporting as much as a tenth of its rice production – in terms of the marketable surplus, the proportion is much higher – and half in the case of wheat, these played a big role in determining farmer incomes. Yet, when global commodity prices were at their highs in 2007 to 2010, there was a ban on the exports of both which prevented farmers from getting the benefits of a buoyant global market.

This is precisely what has now been done in the case of potatoes where, instead of an outright ban, a minimum export price of $360 per tonne has been put. The idea, as in the case of an outright ban, is to ensure farmers don’t export potatoes which, in turn, will lower domestic inflation. While that is laughable since we exported under a lakh tones in the first four months of the current financial year – out of a production of over 40 million tonnes – the larger question is why farmers should not be allowed to benefit from high global food prices if miners are allowed to export steel or automobile manufacturers cars. And, if farmers are not to be allowed to take part in global gains, surely there has to be a mechanism to protect them from downturns in prices? Wholesale prices in the Agra mandi were Rs 1,147 a quintal in June, but they fell to as little as Rs 398 in February – there are times when prices fall so low, farmers just dump their produce on the roads. Amazingly, for a party that wishes to double farm incomes in five years, the government still doesn’t get it.

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