Agriculture Sector: A Look Into How Modi Government Addressed the Issues

by September 17, 2018 0 comments

Agriculture Sector A Look Into How Modi Government Addressed the Issues

When it comes to the agricultural sector, the Modi Government has taken deeper structural reforms. The MSP policy promises the farmers remunerative prices and, if the policy is implemented correctly, it will hold the potential to get rid of agrarian distress.

Should I till the land, lease it or leave it barren? Or resort to the extreme step? These were the questions that prevailed on the minds of farmers until the Modi Government took to power in 2014. Prime Minister Narendra Modi addressed the apathy towards the agriculture sector by introducing a slew of measures: Schemes like Soil Health Card, Pradhan Mantri Fasal Bima; initiatives like production of neem coated urea, e-Nam; policies like price support scheme for pulses and oilseeds; and market intervention scheme for non-MSP crops, among others. Announced in the Union Budget 2018-19, the Modi Government’s Minimum Support Price (MSP) policy of assured procurement or price support for 23 notified crops at cost (A2+FL) plus 50 percent margin is of historic significance.

Out of the 23 MSP notified crops, 59 per cent and 39 per cent agricultural households grow just paddy and wheat respectively in 40 per cent of gross cropped area. While green revolution incentivised only the grain community, MSP policy will incentivise the agrarian. MSP policy prompts the Government to instantaneously plunge into procurement operation; unlike the current system of delayed approval process with the request originating from States. Distress sale would have caused damage with delayed decision-making. Earlier, MSP was different for every State. Now, since MSP is same across, States can declare bonus if the cost of cultivation of the crop is relatively higher in a particular State.

MSP policy a practical instrument; input support a political one:  The Telangana Government this year announced an investment support scheme with great fanfare. The programme aims to give Rs 8,000 an acre each year during the kharif and rabi seasons so as to shield the farmers from the clutches of private money lenders and their exorbitant rates. The intended end use is to purchase agri-inputs and hire labour. But is there a fizz in it? The giveaway is neutral to the landholding of the farmers and, thus, large farmers reaped windfall gains without even getting onto field for the kharif season.

Also, the scheme does not recognise tenancy and sharecropping arrangements. A fifth of 72 lakh farmers in Telangana are tenant farmers. To add to the injury, a report by Rythu Swarajya Vedika revealed that, in the last four years, 75 percent of farmer suicides were committed by tenant farmers. Apparently, the State machinery from Minister-in-charge to MRO and Secretary to Sarpanch have been deployed to distribute input support cheques to farmers, but the agenda gets hijacked by land owners. The same reach out and a tiny fraction of this corpus fund suffices to provide kisan credit cards and, thus, institutional credit to avoid private money lenders. The other fraction of the fund could be utilised for interest subvention.

MSP policy, unlike investment support, is agnostic to agricultural production arrangements. A monetary benefit analysis of MSP announced for Kharif Marketing Season (KMS) 2018-19 for Ragi, as an example, fetches more than Rs 4,000, compared to MSP for KMS 2017-18. A good economic policy or scheme should be linked to stages of production and MSP policy is one such. In comparison, investment support scheme mirrored the design of universal basic income. Agriculture, as a state subject, is classified as economic service; whereas input support scheme treats the same as a welfare programme. The agrarian community is not seeking alms; rather they are aspiring for an amount commensurate to the cost of cultivation, topped up by a profit margin as with any economic service.

WTO peace clause, procurement strategy and inflation pressure: Since India is a signatory to World Trade Organisation (WTO), its public stockholding of foodgrains from procurement operations drew sharp criticism from WTO members. They have alleged it as trade-distorting. Though India secured adequate protection in the 2013 Bali summit, it was during Modi’s regime that the country secured a permanent protection from the penal provisions under the peace clause. This ensured peaceful and perennial procurement from the peasants.

Minimum support price works as a tool to stabilise production and control consumer prices. Accordingly, the previous regimes notified prices for MSP crops so as to contain the price rise and, thus, a check on inflation. Even their trade policies and procurement operations followed suit. To fulfill its manifesto promise of a pro-farmer stance, the Modi Government announced the MSP policy, ie, cost plus  50 percent returns in the 2018-19 Union Budget and subsequently notified prices for 23 crops. This policy implementation will ensure the interests of both the farming and consumer communities.

Policy implementation will take the form of either procurement or price deficiency payment as in the case of Madhya Pradesh or through marketing structures to match supply and demand. The procurement strategy will follow Reserve Bank of India’s (RBI) open market operations for raising financial resources for the Government of India. In the process, RBI ensures interest rates are not artificially elevated. Similarly, the Government’s procurement will ensure no spillover effect on consumer prices and, thus, inhibit inflation.

Detour in cropping pattern, doubling income and decreased imports: India is the largest producer and consumer of pulses in the world but 25 per cent of the pulses consumed are imported. There have been multiple attempts to increase pulse production in the past but none fructified. Since the Modi Government assumed office in 2014, crop diversification programme and targeting rice fallows have helped improve production of pulses and oilseeds considerably but not to the desired levels, owing to lack of procurement and low MSP. A 100-day toil is not aimed at hunting for honorarium but a honest and fair price.

With MSP policy, crop diversification and targeting rice fallows will pick up pace to the extent of considerable reduction in import of pulses and oilseeds, which constitute a significant share of agri-import basket. Significant economic gains will be witnessed — saving FX reserves and higher agricultural contribution to GDP growth. Not only will there be change in temporal cropping pattern but also spatially. Intercropping techniques, like row, strip, among others, will gain momentum if any of the cultivated crops is MSP notified. Net resultant of the changes in temporal and spatial cropping patterns is cost reduction, increased yields and higher incomes aiding the cause of doubling farmers income.

FPO establishment — a first order effect: A majority of potential entrepreneurs do not move beyond the idea or conception phase for want of market assurance or access. As the income stream starts to flow into the new enterprise, post the market entry, enterprises tend to either innovate or establish efficient procedures or expand or a combination thereof subsequently. A case in point is that of a turmeric farmer from Nizamabad district who decided to produce higher quality crop as he witnessed a higher realisation for his produce with the introduction of E-NAM in the Nizamabad APMC. Similar was the determination of a cotton farmer at Karimnagar APMC.

With insulation and, thus, assured income for their produce under MSP policy and different market conditions, farmers will explore efficient methods of production and yield improvements. One policy that will attract the attention of farmers is the setting up of Farmer Producer Organisations (FPO), which with a turnover upto Rs 100 crore, have been provided tax exemption for a period of five years in the Union Budget 2018-19. Apart from the extrinsic tax benefit, innumerable intrinsic benefits flow to FPO structure, like availing institutional credit as well as procuring quality and high yielding variety of seeds and fertilisers at wholesale prices.

Other intrinsic benefits include awareness and, hence, availing Government schemes, training and exposure visits, technical assistance, sharing and implementing good agricultural practices, renting out or sharing machinery across farming operations, combined transportation of harvest for transacting at markets and, not the least, processing and value addition of produce. The cumulative effect of intrinsic benefits will consummate as cost reduction, higher price realisation and, thus, higher incomes mustering the Prime Minister’s mission of doubling farmers income. Green revolution was largely confined to the northern belt as well as to no more than two crops. On the other hand, the MSP policy will be a pan-India phenomenon percolating to, not just two, but 23 notified crops. If green revolution achieved the nation’s food security, MSP policy will provide income security to the farming community. In effect, India will be advancing into an era of Extended Green Revolution with farmer’s welfare ingrained. As the farming community realises income stream from MSP policy, the nation will witness another MSP — minimal suicides of peasants.

(The author is State Co-Convener, Election Commission Cell, BJP Telangana and Masters in Finance from Cass Business School, London)

Writer: Sandeep Vempati

Courtesy: The Pioneer

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