Budget 2020: A lost opportunity

Farmers work very hard only to find they have been shortchanged. 

It’s a lost opportunity. At a time when a slump in rural spending had led to a decline in rural demand pulling down country’s GDP to less than 5 per cent, providing more money into the hands of rural population – where 70 per cent households are engaged in agriculture – was being considered to be the surest way to prop up the economy. At a time when rural consumption is at an all time low, strengthening public expenditure in rural areas would have given a much wanted stimulus to agriculture. 

Knowing that the slowdown was not because of global factors but was driven entirely by domestic reasons -- lack of demand and slackening investments – most economists had suggested pumping in more money by way of direct income support to farmers and farm workers. At a time when bottom 60 per cent of the population holds only 4.8 per cent of the nation’s wealth, enhancing the budgetary allocation under PM-Kisan Samman Nidhi Scheme was considered to be an ideal route. Although I had suggested increasing the PM-Kisan allocation by another Rs 1.50-lakh crore, which would mean a direct income support of Rs 1,500 for a farming family per month, I was thinking at least the government would double the annual allocation for farmers – from the existing Rs 6,000 to Rs 12,000 per year. In addition, the budgetary allocations under MNREGA were anticipated to go up from Rs 70,000-crores, to at least Rs 1-lakh crores to make a meaningful impact. After all, farm wages have dipped to a five year low. 

Not only that the Finance Minister failed to utilise PM-Kisan and MNREGA for creating more rural demand, which would have led to increased consumption thereby leading to a higher economic growth, agriculture and allied sectors, irrigation and rural development and panchayati raj too did not receive any quantum jump in budgetary allocations. The total budgetary provisions this year are at Rs 2.83-lakh crores, which is hardly an increase over last year’s revised estimates of Rs 2.68-lakh crores. The outlay for farm credit has however been increased from Rs 13.5-lakh crore last year, to Rs 15-lakh crore this year. Studies have meanwhile shown that 41 per cent small and marginal farmers do not still avail credit from scheduled commercial banks. What needs to be understood is that farmers do not need more credit. What he needs is a higher income. 

In fact, the budgetary allocation for food subsidy has come down from 1.84-lakh crore to 1.15-lakh crore this year. This has raised doubts whether the government is intending to withdraw from procurement operations. Many farmer groups have raised this concern. Since the Finance Minister in the very beginning of her speech talked of liberalising farmers markets, more concerns have cropped up over the reduction in food subsidy. This assumes importance in the wake of recent developments where the Commission for Agricultural Costs and Prices (CACP) have recommended putting a stop to the open-ended food procurement policy. Already, Punjab and Haryana are under tremendous pressure to cut down on food procurement. Punjab has meanwhile amended the appropriate laws allowing for private sector participation and opening up for of private mandis.   

The 16-point action plan the Finance Minister spelled out as part of the Aspirational India that she talked about provides a roadmap for shifting to corporate agriculture. She said that the government would encourage those States which have implemented the three Model Acts that have been proposed earlier. These relate to land leasing law, market liberalisation and contract farming. Saying that agriculture needs to be made competitive, she listed a couple of programmes to double milk processing by 2025, increasing fish production to 200 lakh tonnes by 2025, integrating financing on warehousing receipts with e-NAM so as to encourage commodity trading. To launch Kisan Rail and Kisan Udaan for transporting perishable commodities too would be beneficial for agribusiness companies. Although much of the 16-point action plan that she listed have already been talked about in previous budgets but I didn't find any separate allocation for these programmes. .  

To lay out a roadmap for the direction of future agriculture is perfectly alright but there is a need to first ascertain how effective the pathway would be. Most of the reforms being brought in agriculture are borrowed from America and European Union. But what is not being explained is that if these policies were effective, why is it that agrarian distress in US/EU is at its peak? The spate of rural suicides in America, for instance is 45 per cent higher than the suicides in urban centres. Real farm income growth has been steadily on the decline in the US since the 1960s. India therefore needs to redesign agriculture in a way that it ushers in rural prosperity. #

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Dismantling food procurement will have serious repercussions.

Photo courtesy: IndiaToday

At a time when agrarian distress is quite pronounced, and while India ranks 102 among 117 countries in the Global Hunger Index 2019, the country’s granaries are overflowing. Against a surplus of 73.1 million tonnes of wheat and rice which was stacked with the government in July 2019, the food stocks are projected to swell by another 10 million tonnes or so to reach a record 84.7 million tonnes in July 2020.

Expecting to be saddled with an extra 46.3 million tonnes by July 2020, over and above what is prescribed under buffer norms, the Centre is asking Punjab, Haryana and other surplus States to curtail procurement.

While the Prime Minister’s Office wants to reduce the subsidy burden, and ostensibly reduce the cost of carryover stocks, the Commission for Costs and Prices (CACP) is seeking a review of the open-ended procurement policy under which whatever marketable surpluses of wheat and rice farmers bring to the mandis the government is committed to buy at the MSP. Seeking a restriction on procurement by setting limits for purchase, the CACP is also suggesting that the private sector be allowed to directly procure from farmers.

The last time the government amended the APMC (Agricultural Produce Market Committee) Act in 2006 to allow private companies to buy directly from farmers, it ended up turning the country into world’s biggest importer of wheat. The private trade swung into action to make brisk purchases, but didn’t disclose the quantity purchased and horded the grain. As a result, there was a shortfall in procurement at a time when there was no visible drop in production. To meet the food needs for public distribution, India had to import 5.5 million tonnes of wheat in 2007-08 at almost double the price it paid to domestic farmers. International prices had jacked up when India’s wheat import needs became known. This had evoked a lot of controversy, and the BJP (which was then in the Opposition) had demanded a CBI enquiry into what it called wheat import scandal.

Allowing private trade to buy wheat or paddy directly from farmers, bypassing the APMC regulated markets, therefore is fraught with dangers. At no stage can the government afford to ignore the ‘food security’ requirements and has to be ready with adequate buffer stocks, even if it is more than what is required, to meet any unforeseen shortages.

To the question of what to do with excess inventory, isn’t the failure to liquidate stocks when there exists plenty of hunger simply a reflection of food mismanagement? In 2006, when the first Global Hunger Index report was published, India’s ranking was at a dismal 96 among 119 countries, sliding further to 102 ranking in 2019. Several other studies have shown that rural India (and also urban poor) was spending less and less on food. A leaked report of the consumer expenditure survey – which has been junked by the government – clearly shows how food consumption in rural areas had steadily dropped by 10 per cent in the period 2011-12 and 2017-18. The piled up stocks therefore could have been very effectively used to meet the nutritional needs of a large section of the population. Here I agree with the recommendations of the CACP which suggests additional allocations to be made under the National Food Security Act (NFSA), Antyodaya Anna Yojna and other welfare schemes.

On the issue of curtailing open-ended procurement, what needs to be understood is that even if the MSP does not entirely cover the cost of cultivation, at least it provides an assured price. For the farmers, an assured price as well as an assured procurement is what protects them for the tyranny of the markets. That is why farmers’ demand for raising MSP and linking it with the Swaminathan Commission’s recommendations has been growing steadfast. But for quite some time, the dominant economic thinking is for dismantling the APMC regulated markets and doing away with MSP. The World Bank has been consistently demanding this, the World Trade Organisation (WTO) has been questioning the need for public stockholding, and even the Economic Surveys, as well as some mainline economists, have repeatedly pointed to how administered prices are coming in the way of what it calls as price discovery.

Let’s be clear. If there is one market intervention that ensures price discovery it is the MSP, if it is delivered properly. In a country where only 6 per cent farmers get the benefit of MSP, markets have failed miserably to provide a better price to 94 per cent of the remaining farmers and thereby help in price discovery. The introduction of e-NAMs (electronic national agricultural markets) too has failed to assure a higher price to farmers. Although the former Finance Minister Arun Jaitley had acknowledged that e-NAMs are the first step towards setting up spot markets, what is not being answered is why in the US agriculture continues to slide into deep crisis year after year despite having the world’s largest commodity exchange at Chicago, and another at New York? According to US Department of Agriculture (USDA) the growth in real income for American farmers has been on the decline since 1960s.

Strengthening the procurement system is therefore the answer. Instead of ascribing a quota system (at the farmer or the district level) for limiting wheat and paddy procurement, an effective procurement system needs to be evolved for alternate crops. For instance, if Punjab’s share in total procurement of wheat has to be reduced from the existing 37.1 per cent, an equally robust procurement system for crops like maize, millets, pulses and oilseeds have to be first ensured. This also holds true for paddy, which is blamed for the depleting ground water. Farmers do realise the need to diversify, but in the absence of an assured price and procurement, are not willing to make the shift. Rightly so. After all, volatility of markets is what hits farmers the most.

Give farmers a viable alternative, they would do the rest. But on the other hand, any move to systematically dismantle the food procurement system, based on the twin strategies of assured price and an assured market, which Dr M S Swaminathan had once referred to as the two planks of a ‘famine avoidance’ strategy, will have serious political ramifications. #

Give farmers a viable crop alternative. The Tribune. Jan 2, 2020.

https://m.tribuneindia.com/news/give-farmers-a-viable-crop-alternative-20342

READ MORE - Dismantling food procurement will have serious repercussions.