Calcutta Notebook

B J

Race is on among political parties to collect votes of the farmers. Parties are offering goodies like easy loans. This will not do. The main problem of farmers is that they are not getting remunerative prices, thanks to the skewed import-export policy of the Government. Policy is to allow import of agricultural goods whenever domestic prices are high. This leads to lowering of domestic prices and farmers are deprived of the profits they could make in absence of imports. On the other hand, exports are prohibited when production is high and domestic prices are low. Again losses due to low prices are imposed on the farmers.

The consumer gets agitated about the increase in prices of vegetables such as onions and tomatoes. He does not realize that this is a small problem. He is getting much larger benefits from imports of pulses and edible oils. The cost of production of these items in India is  very high and their price is being controlled by cheap imports. Indians have to decide whether they want cheap tomatoes or pulses. If Indians become part of the global market then they will have to bear increased prices of tomatoes but they will get cheap pulses, no doubt.
The increase in price of vegetables is of a short term nature. There is a year-to-year variation in production of vegetable crops which leads to sudden spurts in prices sometimes. But the benefits from cheap imports of pulses and edible oils, on the other hand, are of a long term nature.

The Government has implemented a policy of providing agricultural subsidies on fertilizer, electricity and water; and restricting exports in order to contain domestic prices. In reality this is counterproductive. Provision of subsidies brings down the prices temporarily—only as long as the subsidies are in place. Revenues of the Government are used up in provision of subsidies and public investment in roads, testing labs, cold storage and seed improvisation suffers. The cost of production remains high in absence of these investments. As a result the consumer is forced to pay more for the produce year after year. This writer had an opportunity to visit a farm in the United States a few years ago. They had mapped the soil profile of every field in plots of 10 feet by 10 feet. This data was fed into the computer. The tractor would then dispense fertilizers depending upon the profile of each small plot. In this way every plant got the required dose of fertilizer, yields were very high and cost of production was less. Such technological improvements are not taking place in India because Government revenues are being consumed in the provision of subsidies and the corrupt practices that are essential to channel those subsidies.

There is a similar impact of export restrictions. Exports take place when prices in India are less and those in the international markets are high. Restricting exports means that the government is preventing farmers form making profit from higher international prices. Competitors in other countries get the higher prices, however. The present policy of provision of subsidies and imposition of export restrictions is counterproductive because it provides short term relief while it imposes long term pain on the domestic consumer.

Thinking behind economic reforms was that subsidies will be reduced; open global market will be adopted and public investment in infrastructure and research will be enhanced. However, the government has lost its way. Public investment has been nearly stagnant since the beginning of reforms while subsidies have multiplied many fold only to make the subsidy regime unsustainable. There is hardly any investment in quality control in particular. Indian produce does not conform to the quality standards set by the importing countries. Cold Storages are few and far. Roads and transport infrastructure are inadequate for shipping refrigerated items such as frozen peas. All things considered Indian farmers have not been able to get the increased income from opening of the global markets.

Well, it was told that the WTO would open up the global markets for Indian farmers. The opposite has happened. The WTO has led to opening markets to cheap imports but farmers are unable to sell in foreign markets. Partly this is because of the domestic subsidies and non-tariff barriers put in place by the importing countries. But the bigger problem is that Indian produce is not up to the global standards in absence of investment in research, transportation and testing infrastructure. Therefore, in the main, policies of Indian Government are responsible for this sad result.

Frontier
Vol. 46, No. 41, Apr 20 - 26, 2014