It can be said that Union budget, 2007, is high on symbolism and intent. Most people in and close to power acknowledge that something is spoiling booming India’s party: price rise, agricultural decay, poverty, mainly. This budget, says finance minister P Chidambaram, is the government’s way to fix these problems so that growth is inclusive. But will the words and allocated funds add up to coherence and content?
I suspect not. The problem is primarily conceptual. For instance, while everybody agrees that agriculture in India is in a mess and needs reform desperately, the prescriptions are widely divergent. Till we understand this, change will be meaningless. Currently, the dialogue on agriculture is as deaf as it is dumb.
On one side are people who write economic policies. Their missionary zeal tells them that the economic crisis stems from the preponderance of the state; its corruption and its inefficient delivery of services. Because they also accept that unshackled private growth will lead to widening inequities, their answer is to provide measures for social security. In this worldview, schemes for rural employment, however useless, are vital because they put a floor to poverty. They will say the ‘Washington Consensus’—the broadly accepted reform package for the developing world—includes these measures, with an emphasis on education and health.
In the agriculture reform deal, the accent, again, is on opening up the market—that is encouraging private players and reducing the role of the state, especially through current and futures commodities market institutions. They are also concerned about the inefficiency of present-day agriculture, attributing poor productivity to small landholders and marginal farmers. There are too many people engaged in it; and the returns are too meagre, they say. They are also concerned about the land on which farming is practised, since, in their view, it can be put to much more valuable and efficient uses. Remember that the West Bengal chief minister justified the displacement of farmers for the Tatas’ small car project in Singur arguing that industry would be far more economically productive. As far as food to eat is concerned, their worldview is global. The vast foreign exchange reserves we have can be used to buy food, already subsidised and made cheaper by rich countries.
But this cold logic of efficiency and growth is poor on substance.
Take just one instance: wheat. Last year, the logic of the market meant we allowed private procurement by large companies. But my colleagues who visited Punjab and Haryana reported that farmers big and small did not benefit. The large traders paid marginally more than the government’s minimum support price. In fact, in most cases, all they did was to evade the mandi (market) tax and pay it to the farmers instead. This meant that government had a smaller stock of wheat. Prices went up. We started importing food. But prices in the international market had also hardened: partly because of droughts and partly because rich governments were subsidising crops that would be used to produce biofuel for cars. We even permitted private traders to import wheat without paying duties and slackened quarantine regulations because we needed to import at any cost. No wonder the government did not make public the laboratory tests done on such wheat.
The bottom line is we ended up paying more for foreign wheat than we paid our own farmers, by waiving import duties we lost more money. Moreover, our farmers had to comply with food safety regulations, foreign traders did not. But we still have inflation, widely attributed to the rising price of wheat and pulses.
Again, we import large quantities of oilseeds palm, soya, sunflower and pulses. As agricultural scientist and chairperson of the National Commission on Farmers, M S Swaminathan will tell you our neglect of the drylands has seriously undermined the crops and people of rainfed areas, which constitutes the bulk of our agriculture. His prescription is to invest in these lands; to practise land and water management with a difference; to include these neglected crops of neglected lands in our food procurement system. Most importantly, he says, we need to give farmers the price they need, not the price government thinks they should get. His commission has asked for food procurement to be based on the market price, not at an arbitrary minimum support price.
But in this budget even as Chidambaram has called for investment in oilseeds, he has announced further duty cuts on crude and refined edible oils, “to make them more affordable”. In other words, farmers are being asked to compete with distorted and much subsidised markets of the rich world. They obviously can not and lose again.
This is exactly the case with cotton, the killer crop of farmers of Vidarbha. The problem is that input costs for farmers are increasing from the cost of new-fangled seeds, to pesticides, to fertilisers and water but the price of cotton is ‘fixed’ or falling. The us, for instance, pays roughly us $4.7 billion in subsidies to its farmers, which keeps the price of cotton roughly half of what the production costs should be. The double whammy for our farmers is that not only are they competing with these ridiculous, backbreaking subsidies but that we are not investing in land or water for agriculture to prosper. Remember, the biggest investment in water comes not from the public sector, but from private farmers, digging 19 million wells to irrigate their fields.
This is the economics that the finance minister discounts in his prescription. This is why we are hungrier today and will be famished tomorrow. It’s a pity we cannot eat words.