FROM BUSINESS WORLD OF 13 MAY 2006
Back to ship-to-mouth?
There was a time
when food grain imports were a highly emotional issue. In the mid-1960s, as
American wheat surpluses waned, the US tried to persuade India to devalue and
to switch from cotton to food grains. The pressure was badly received, and led
to an estrangement between the two countries that was overcome only by Manmohan
Singh.
The humiliation
of grain imports also led the government to invest heavily in dams and
high-yielding seeds. This investment was so successful that India ceased to
import grains in 1972; by the 1980s it was surplus in food grains. By now, an
entire generation has grown up which has not heard of food shortages.
There are signs
that this bounty may be about to end. Twice this year the government has taken
decisions to import 3.5 tons of wheat. That is only 5 per cent of consumption.
But market prices continue to rise. It is reported that Food Corporation of
India (FCI) is finding it difficult to procure wheat, and that even promises to
give farmers a gun licence are not persuading them to sell it to FCI. That by
itself only signifies that FCI’s procurement price is too low, and not that
there is a shortage. But it also portends a shortfall in FCI’s supply to the
public distribution system.
This is not the
result of a single poor crop, but of demand overstripping supply. Agriculture
still provides employment to two-thirds of the labour force; slower
agricultural growth must be reflected in their incomes. At the same time,
supply will fail to meet demand. This will become evident only slowly and only
in one commodity after another. First came the oilseeds shortage; now the
government has settled down to importing millions of tons of edible oil, and
makes considerable money out of import duties on it. India failed to capitalize
on the end of the MFA regime; this was partly because it did not have the
cotton to ramp up textile exports – and the poor performance of cotton output
started in the 1990s. Now comes the turn of wheat; next it may be sugar, or
rice.
The government
is aware of this problem. As the Deputy Chairman of the Planning Commission
noted some months ago, agricultural growth has clearly slowed down from the
high rates it reached in the 1980s, and poses a problem. But the answers coming
from the Planning Commission will be appropriately macro; it will talk about
research and development, new seeds, minor irrigation, cowdung and such
matters.
These are worthy
subjects, but technology does not develop in a vacuum. It evolves in the
context of markets; and agricultural markets are so hemmed in by government
intervention that they offer no incentive to raise production or apply
technology. For instance, most of the marketed surplus of wheat and rice is
bought by the government. Procurement prices are fixed by politicians. In the
early 1990s, Balram Jakhar as agricultural minister engineered rapid price
increases; they led to unprecedented surpluses. The BJP, with its urban base,
held back procurement prices; the result is the present shortage. Politically
determined prices are not conveying the right signals to farmers about whether
to increase output, and whether to change their crop patterns.
Further, the
elimination of seasonal price variation has led to a situation where no one
holds food grain stocks over the year except FCI; farmers hold stocks, but only
if they expect a shortage. FCI is an extremely inefficient stock keeper; it
holds much of its stocks in open godowns specially designed to feed rats. If
this enormous waste is to be reduced, prices have to be allowed to vary across
seasons. Even if the government would not countenance such variation, it needs
to create a specialized industry, consisting of insulated, mechanized silos,
that would store grain efficiently. And while the government is at it, it
should also take steps to standardize grain varieties and qualities, and to
reorganize mandis so that farmers themselves bring in standard varieties.
Finally,
agricultural water supply is grossly mismanaged. Water from dams is supplied
entirely or largely free; as a result, upstream farmers commandeer most of it,
while those further away go short. The result is heavy dependence on ground
water drawn with electric pumps, which is overexploited because state
governments give power virtually free to farmers. And because both water supply
and subsidies are very unequally distributed, farmers have become uncompetitive
in many areas for no fault of theirs; that leads to further subsidies from the
state governments. Despite these heavy subsidies – or because of them – there
are waves of farmer suicides in the Deccan peninsula. The ills of agriculture
are economic, and complex. The government should study them before it jumps
into action.
