Extend economic stimulus packages and growth incentives to agriculture, a la industry

A front page report in a national daily the other day, in a way, corroborated what I have been saying all along-Agriculture has been deliberately kept impoverished all these years.

As long as agriculture remains an easy tool in the hands of economists and policy makers to tame inflation, only a miracle can pull farmers out from the deep morass they find themselves in. Blaming their stars for the situation they are in, farmers can rarely understand how they are in reality victims of a flawed economic design that ensures they somehow survive at the bottom of the heap.

To the proposal for a hike in Minimum Support Price (MSP) for kharif crops, the Niti Aayog, the Department of Expenditure in the Ministry of Finance and the Ministry of Commerce, had raised apprehensions citing rising inflation as a concern among other issues.

According to a report in Indian Express (Aug. 29), while the Ministry of Commerce raised objections citing obligations under World Trade Organisation (WTO) norms for public stockholding, the Ministry of Food and Civil Supplies talked of additional financial burden as a result of the price increase. In short, it seems every concerned ministry had a problem with the projected rise in MSP.

The Union Cabinet eventually cleared the kharif season MSP approving a rise in prices varying between six and 10 per cent. Given that the cost of production as calculated by the Commission for Agricultural Costs and Prices (CACP) had also risen in the same proportion, the MSP announced barely covered the increased cost that the farmers had incurred during cultivation.

Add to it the macro-management policies of the Reserve Bank of India (RBI), which ensures inflation remains within the prescribed band of 4 plus/minus 2 per cent; farmers are left with little choice but to continue their struggle to find ways to at least recover the cost of cultivation. Considering that only 14 per cent of the total produce is procured by government agencies, the remaining 86 per cent of the country’s crop harvest remains at the mercy of markets. And if the markets were in any way benevolent towards farmers, the country wouldn’t have seen increase in farmers ‘agitations’ demanding legal sanctity for MSP.

The MSP that the government announces twice in a year, separately for the rabi and kharif seasons, has always been under the scanner. While the CACP fixes prices based on the all-India weighted average for the cost of production and overall demand supply situation, and also looks at the global prices, the methodology has been questioned time and again.

Interestingly, as per another news report (Indian Express, Aug. 31), at least nine State governments had asked the Ministry of Agriculture and Farmers Welfare to revise the prices upwards citing different reasons for the increased cost of production in their respective States. This is not the first time that some States have sought higher prices. In fact, my understanding is that for several decades now State governments have been sending the cost of production and the recommended price as worked out by public-funded agricultural universities.

For instance, Punjab had suggested a price of Rs 3,234 for paddy this year, against the final recommended price of Rs 2,183 per quintal. Kerala had suggested a price of Rs 3,600 per quintal for paddy; Odisha Rs 2,930; Chhattisgarh Rs 2,800; Tamil Nadu Rs 2,300 and West Bengal Rs 2,500. Similarly for other kharif crops, these States had made price suggestions that were comparatively higher than what was finally announced.

With food items forming roughly 45 per cent of the weighted average in the Consumer Price Index (CPI) all eyes remain on containing food inflation. Any sporadic jump in prices of any of the food commodities draws media hype. Take the case of tomato prices this tear. While retail prices remained Rs 200 per kg for quite a while, the media hammered the issue day in and day out. But when the wholesale prices dropped to Rs 14 or even Rs 10 per kg, media went silent.

To put the issue in the right perspective, let’s look at the latest report of the Karnataka Agricultural Prices Commission. According to it, the farm gate price of tomato stands at Rs 20 per kg if the price is calculated using the Swaminathan formula (Comprehensive cost +50 per cent profit). Given that the average requirement for a family of four is around 3.75 kg per week (as shown by The Hindu newspaper) it comes to hardly three per cent of the daily wage salary, if at all they consume it. But the hype that media generates gives an impression as if the poor working class finds it difficult to feed itself when prices shoot up.

But when prices crash for farmers, what happens to the livelihood security of farmers, daily wagers and the poor is never talked about.

In a country like India, where almost 50 per cent population is dependent on agriculture, unless farmers get a higher income, the market demand would remain low. What is not realised is that the farmer too is a consumer. Unless he gets a relatively higher income, he is unable to join the class that is seeing enhanced consumption expenditure. We have also seen whenever prices go up; the government allows imports or curtails exports so as to reduce inflation. In other words, the intent is not to let prices go up for farmers.

That is why I have always maintained that keeping farmers deliberately impoverished is not the way to bring in Sabka Saath Sabka Vikas. To attain inclusive growth, the benefits of development have to reach the majority population, which in India is engaged in agriculture. How to make agriculture economically viable and profitable therefore has to be the focus during the Amrit Kaal period.

While agriculture needs reforms, the urgent need first is to make MSP a legal right for farmers. If 86 per cent of the country’s farmers are faced with the volatility and vagaries of markets (considering that 14 per cent get MSP), there is little hope for the people at the bottom of the pyramid.

According to the World Bank, nearly 91 per cent of India’s population lives under less than $4 a day (Rs 280). This is primarily because economic reforms have only targeted the industrial sector. If the focus shifts to agriculture as the second engine of growth, the population living under $4 a day will drop significantly.

To reiterate, give the next five years to agriculture. Offer adequate economic stimulus packages and incentives for growth for agriculture like what the industry has been provided with, the socio-economic transformation would not only be spectacular but take India to new heights by the time it completes 100 years of Independence.

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)