India’s celebrated economic reforms of 1991 did lead to a substantial increase in economic growth, per-capita incomes, trade openness, stock of foreign exchange and deepening of the financial sector. The twin spectre of food and forex shortage no longer haunted India, although food self-sufficiency had been obtained much earlier due to `green revolution’.
There have been nine parliaments elected, and several governments of different coalitions, since 1991. But even then, the direction of economic reforms has remained unchanged, if not the pace.
There is of course much unfinished work, especially when it comes to job creation and the ease of doing business, with newer challenges like climate change and worsening inequality.
There is, however, one area where economic reforms have failed to deliver, perhaps more by intent and not by oversight. That is the area of agriculture. The spirit of deregulation, delicensing, less government control, more free markets have been absent or pursued with very little enthusiasm when it comes to farm issues. Agriculture remains a protected and subsidised sector among most members of the World Trade Organisation.
That does not mean it enjoys great prosperity. In the case of India, and perhaps few other emerging market economies, the farm sector receives net negative subsidy. It is thus penalised, and also not allowed to fully function as per free market principles. This is because of the twin reasons: a historic legacy of special favourite treatment to industry, and also due to the constant concern about food prices and inflation.
If you let the free market reign, food prices may skyrocket. Hence, the desire to “control” the forces that operate agriculture markets. In the past, as India pursued an import substitution-based industrial development model, agricultural prices were kept low to help wage goods and industrial investment.
But as if to compensate the farmer for price ceiling on his product, he was given input subsidies on fertiliser, credit, water and electricity. The input subsidies were invariably cornered by big farmers, so more controls were introduced. The cheap inputs also led to their overuse, and led to problems like salinity of land due to excessive usage of fertiliser, as in Punjab.
Another example is the food procurement and Public Distribution Scheme. These were aimed to achieve three objectives with one instrument: that of food security, price stability and farm viability. It has been a partial success, since PDS off-take is very low in states with high poverty.
In the past, it has also led to anomalous situations of high food stocks in government warehouses and also high food prices. Similarly, various rural development initiatives have met with limited success, as is testified by the fact that the bulk of India’s poverty is still within rural areas and in agriculture.
There are, of course, structural challenges, which make India’s situation unique and difficult. Firstly, we have one of the worst land man ratios due to population. Besides, half the population is still stuck in agriculture or the rural economy. Secondly, land holdings are extremely fragmented, with very little forces of consolidation.
Thirdly, more than 85% of households have farm holdings of less than five acres, which means they suffer from inefficient scale. Fourthly, even now, more than half of all farmers do not have access to formal credit. They have to depend on friends, family or moneylenders.
Fifth, moneylenders still operate in the shadows of illegitimacy. They are often best equipped to assess the need of farmers, and also have ability to recover loans, or give extensions. But moneylenders do not have the confidence of lawmakers. Sixth is the issue of tenancy farming. This is the de facto practice, and almost one-third of farming is done by leasing, a practice still not fully recognised in law.
Besides, a tenant farmer cannot offer land as collateral, so access to formal credit is a problem. Seventh, the Commission for Agricultural Costs and Prices does not fully account for costs like self-labour, true cost of electricity and other services, logistics and high cost of finance from moneylenders. Hence, the minimum support price (MSP) based on the Commission’s advice, fails to be viable.
Eighth is the issue of supply chain. The road from farm to fork is long and full of obstacles. The price that a farmer gets for his produce can be as low as one-tenth of what is paid by the retail buyer in urban areas. How to ensure that a larger pie of this value goes to the farmer and not to other middlemen? This glaring inefficiency clearly points to the urgency of reform. One could go on. It is clear that due to a combination of structural challenges and policy myopia or neglect, the farm sector continues to suffer.
Removing shackles
In recent years, and especially by the present government, there have been attempts to correct the situation of pending reforms in agriculture. So, removing the shackles of the Agriculture Produce Marketing Committee (APMC) Act, reducing the role of intermediaries, introducing an all-India market place and liberalising crop insurance are all examples of reforms. These are, however, inadequate, and much more needs to be done.
Farmers are so many and so diffused, operating under such diverse conditions nationwide, that they do not have a unified voice. Nor is there any vested interest (like industry chambers) which can be a potent force representing them. Hence, the dominant and main working principle ought to be “leave them alone”! The less the shackles of regulation on the farmer, the better.
The recent episode of farm loan waivers across eight states once again brings the farm sector woes in focus. Loan waivers do not solve any of the issues highlighted above, but have become a political and moral imperative due to acute distress.
It is hoped that in these waivers, genuine cases get adequate relief. But unless we undertake the reforms of truly unshackling agriculture, we are simply biding time till the next crisis looms large again for farmers.
(The writer is an economist and Senior Fellow, Takshashila Institution)
(The Billion Press)
There have been nine parliaments elected, and several governments of different coalitions, since 1991. But even then, the direction of economic reforms has remained unchanged, if not the pace.
There is of course much unfinished work, especially when it comes to job creation and the ease of doing business, with newer challenges like climate change and worsening inequality.
There is, however, one area where economic reforms have failed to deliver, perhaps more by intent and not by oversight. That is the area of agriculture. The spirit of deregulation, delicensing, less government control, more free markets have been absent or pursued with very little enthusiasm when it comes to farm issues. Agriculture remains a protected and subsidised sector among most members of the World Trade Organisation.
That does not mean it enjoys great prosperity. In the case of India, and perhaps few other emerging market economies, the farm sector receives net negative subsidy. It is thus penalised, and also not allowed to fully function as per free market principles. This is because of the twin reasons: a historic legacy of special favourite treatment to industry, and also due to the constant concern about food prices and inflation.
If you let the free market reign, food prices may skyrocket. Hence, the desire to “control” the forces that operate agriculture markets. In the past, as India pursued an import substitution-based industrial development model, agricultural prices were kept low to help wage goods and industrial investment.
But as if to compensate the farmer for price ceiling on his product, he was given input subsidies on fertiliser, credit, water and electricity. The input subsidies were invariably cornered by big farmers, so more controls were introduced. The cheap inputs also led to their overuse, and led to problems like salinity of land due to excessive usage of fertiliser, as in Punjab.
Another example is the food procurement and Public Distribution Scheme. These were aimed to achieve three objectives with one instrument: that of food security, price stability and farm viability. It has been a partial success, since PDS off-take is very low in states with high poverty.
In the past, it has also led to anomalous situations of high food stocks in government warehouses and also high food prices. Similarly, various rural development initiatives have met with limited success, as is testified by the fact that the bulk of India’s poverty is still within rural areas and in agriculture.
There are, of course, structural challenges, which make India’s situation unique and difficult. Firstly, we have one of the worst land man ratios due to population. Besides, half the population is still stuck in agriculture or the rural economy. Secondly, land holdings are extremely fragmented, with very little forces of consolidation.
Thirdly, more than 85% of households have farm holdings of less than five acres, which means they suffer from inefficient scale. Fourthly, even now, more than half of all farmers do not have access to formal credit. They have to depend on friends, family or moneylenders.
Fifth, moneylenders still operate in the shadows of illegitimacy. They are often best equipped to assess the need of farmers, and also have ability to recover loans, or give extensions. But moneylenders do not have the confidence of lawmakers. Sixth is the issue of tenancy farming. This is the de facto practice, and almost one-third of farming is done by leasing, a practice still not fully recognised in law.
Besides, a tenant farmer cannot offer land as collateral, so access to formal credit is a problem. Seventh, the Commission for Agricultural Costs and Prices does not fully account for costs like self-labour, true cost of electricity and other services, logistics and high cost of finance from moneylenders. Hence, the minimum support price (MSP) based on the Commission’s advice, fails to be viable.
Eighth is the issue of supply chain. The road from farm to fork is long and full of obstacles. The price that a farmer gets for his produce can be as low as one-tenth of what is paid by the retail buyer in urban areas. How to ensure that a larger pie of this value goes to the farmer and not to other middlemen? This glaring inefficiency clearly points to the urgency of reform. One could go on. It is clear that due to a combination of structural challenges and policy myopia or neglect, the farm sector continues to suffer.
Removing shackles
In recent years, and especially by the present government, there have been attempts to correct the situation of pending reforms in agriculture. So, removing the shackles of the Agriculture Produce Marketing Committee (APMC) Act, reducing the role of intermediaries, introducing an all-India market place and liberalising crop insurance are all examples of reforms. These are, however, inadequate, and much more needs to be done.
Farmers are so many and so diffused, operating under such diverse conditions nationwide, that they do not have a unified voice. Nor is there any vested interest (like industry chambers) which can be a potent force representing them. Hence, the dominant and main working principle ought to be “leave them alone”! The less the shackles of regulation on the farmer, the better.
The recent episode of farm loan waivers across eight states once again brings the farm sector woes in focus. Loan waivers do not solve any of the issues highlighted above, but have become a political and moral imperative due to acute distress.
It is hoped that in these waivers, genuine cases get adequate relief. But unless we undertake the reforms of truly unshackling agriculture, we are simply biding time till the next crisis looms large again for farmers.
(The writer is an economist and Senior Fellow, Takshashila Institution)
(The Billion Press)
GET IT 
Comments (+)
