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Indian agriculture is in deep trouble

Dec 21, 2009

India is a country where governments have been voted out of power over soaring food prices. And yet, it appears that food is not worth a fight for our parliamentarians, writes Rajeev Deshpande.

The Congress isn't oblivious to inflation – Prime Minister Manmohan Singh has called it a tax on the poor and the party has devoted working committee meetings to the price situation – but its success in bucking incumbency in the 2009 general election served to strengthen the notion that it was insulated from rising food bills.

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According to a Congress general secretary, the negative fallout of the price rise was more than compensated by the ruling UPA government's rural employment guarantee scheme and higher minimum support prices (MSPs), which helped the rural economy, while the really poor were taken care of by its BPL (Below Poverty Line) subsidies.

But with the price rise now assuming alarming proportions, the Opposition has begun to bay for blood. "Prices are much higher than they were in April when polls were held," says Sushma Swaraj, BJP's deputy leader in the Lok Sabha.

Protecting speculators

While the government reviews the pricing of cereals, pulses, fruits and vegetables in the light of food inflation crossing 20% – fuelling overall inflation – the statistics on wholesale prices present a grim picture. The retail mark-up makes food even more expensive for the consumer.

Some in the government view the current price rise as seasonal, mostly affecting fruits and vegetables, and feel that when the new crop arrives in January and February, rates will ease up. Others are less sanguine. They argue that while drought was undoubtedly a factor, ineffective action against hoarders remains a major stumbling block.

Here, the states need to pull their weight, but senior officials point to a conspiracy of silence that stretches across party lines. In many instances, politicians, local bureaucrats and the police are in league with unscrupulous traders. Trucks that transport grain are often owned by MLAs and there is a marked lack of political will in cracking down on black marketers.

There is little effort to prevent a 300-400% mark-up between the price farmers in Nasik get for onions and what you pay at your doorstep. As the answer to a parliamentary question reveals, there is no shortage of onions despite some minor damage to the crop with production for 2009-10 being 7,694 tonnes against 7,637 tonnes last year.

So why is onion costing you Rs 21 a kg and more? There is no shortfall in wheat supply or stocks, yet prices have been climbing for close to a year now. India imports pulses and oilseeds every year and this one is no exception, yet prices have been on a northward curve.

In the case of sugar, it's different, as the government seems to have been unable to correctly anticipate a sharp reduction in sowing areas, in addition to which the crop has been virtually decimated. Against a normal annual production of 25 million tonnes, this year, it's been 15 mt.

The centre has tended to blame the states for incorrect reporting, but this is cold comfort for the consumer with estimates suggesting that retail prices may well breach Rs 45 a kg in the coming weeks. Is this merely a case of neglect or is there more to it than meets the eye?

System’s leaking

Amid the debate over tactical measures to rein in prices, there needs to be recognition of the fact that the Green Revolution has all but run out of steam and that there's a deep crisis in agriculture.

For the past several years, the PDS has been eroded severely through a series of policy measures including hike in prices, not including several essential items (like pulses) in the PDS list, limiting it to BPL under the 'targetting' paradigm propagated by international lenders, supplying sub-standard material and irregular supplies. PDS-related infrastructure has been allowed to degenerate – warehouses are in shambles, the number of fair price shops is declining, monitoring mechanism is understaffed and corrupt.

Combined with laxity in implementing anti-hoarding laws and export/import shenanigans, this has created a situation where the common man is forced to go to the open market for most essential commodities and pay through the nose.

PDS no longer serves as a buffer against spiralling food prices as the share of foodgrains sold through it has stood at 10-12 % of net foodgrains available in the country (including imports).

Besides, it addresses the needs of just 30% of the population and many who are outside its pale are not rich either, with some estimates putting as many as 75% of Indians in the $2-a-day bracket.

While a bad monsoon is bound to hit the food economy hard, this year’s drought has driven the point home that India needs new ideas in managing food prices. What if there’s a drought next year too?

Since incomes are limited for a large number of people, the net result is a cut in food consumption among poorer sections. This is confirmed by the fact that cereal availability per person per day was just 407 grams in 2007, a level far below the 453 gm level of 20 years ago. Pulses availability too has declined steadily to 35.5 grams, just over half of what it was in 1951, according to the Economic Survey of 2009.

Although two-thirds of the population is dependent on it for a living, agriculture generates only about 20% of the country’s gross domestic product. The growth rate for agriculture has been stagnating at 4-5 % for several years, and dips even further when the monsoon fails because over 60% of cultivation is still dependent on rains.

Consider this: 56% of food grains are produced from 47 million hectares (Mha) of irrigated land while the remaining 44% is produced from 95 Mha of rain dependent land. Public investment in agriculture has been stagnating for years causing this dependence on rain.

In the absence of serious policy attention towards agriculture, yields per hectare have begun to stagnate and even decline.

According to this year’s Economic Survey, yield of cereals dipped from 2174 kg/ha in 2007-08 to 2107 kg/ha in 2008-09. Pulses, oilseeds and fibres have also shown similar slides.

Limits to intervention

An official involved in preparing the cabinet notes on prices relates an interesting tale. He often faces a minor revolt while dictating the summary of retail prices. "No, sir these are not the prices in the market, they’re much higher!" exclaims his secretary. (In truth, the note is fairly accurate though it cannot account for distortions caused by hoarding and speculation.)

It was to calm prices that the Centre decided in October to import 30,000 tonnes of rice. But by November 23, an E-GOM (empowered group of ministers) chaired by finance minister Pranab Mukherjee scrapped the global tenders.

The reasons for cancelling imports illustrate both the limits to policy intervention as well as why prices are not likely to come down any time soon. India does not play the grain market through the year; it moves only when in need.

The minute it does, international prices shoot up. Just ahead of the India move, suppliers like Vietnam Southern Food Corp offered to sell at $598 to $697 a tonne to the Philippines for a total order of 600,000 tons – a $100 jump on the price in the early-November price.

India’s entry in a limited grain market would have jacked up prices even further. It might have politically damaged the government by laying it open to the charge that it was willing to pay "foreign" farmers more.

Besides, there would have been a big gap between Indian retail prices and the cost of imported rice.

"The government would’ve had to take a decision on whether to subsidise rice for the general buyer, and not just those in the BPL bracket," said an official.

The commerce ministry did not want the State Trading Corporation and MMTC to foot the bills; the Food Corporation of India said it did not have the wherewithal to transport and store the food grain; and the food ministry pointed out that putting the rice in an open market system might lead to it being cornered by traders.

The government needs to overhaul mechanisms such as PDS and do a strategic rethink on its agricultural policies, or there could be chaos in the future.

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