If you take the total subsidies paid to India’s farmers, through price support on crop output and through subsidies on inputs like fertiliser, electricity, and water, and add to that outlay the direct transfer of Rs 6,000 per farmer introduced last year, the bill would comfortably cross Rs 4 lakh crore, or about 2 per cent of GDP. And that is without counting many elements of the subsidy regime, like that offered through low interest rates on bank loans to farmers, and the write-offs of such loans that take place with an almost predictable periodicity.
Since almost all these subsidies and price support programmes are for crop agriculture, the government’s bill for the 14 crore hectares of land under crop works out to more than Rs 30,000 per hectare. The annual benefit supposedly being given to a small farmer with a two-hectare holding would therefore be Rs 60,000. Tell that to any Indian farmer, and he will laugh in your face.
Since that is the sum involved, the idea of a basic minimum income for India’s hardworking but perennially troubled farmers starts looking feasible — but only if the entire existing regime of subsidies and price support were to be dismantled. The very mention of such an idea makes it immediately obvious that it is far too radical for anyone in power to attempt, at either the Centre or in the states. Hence, the underwhelming tinkering round the edges that was presented as agricultural reform earlier this month.
Real reform would target the over-use of groundwater, incentivised today because the electricity to run pump-sets is mostly free or massively subsidised. A proposed change in the electricity law holds out the prospect of ending such cross-subsidies, since manufacturing is today charged more to make up the cost, but it is already stirring up political trouble and is not yet law. Disincentivising excessive water use could put an end to the cultivation of paddy in water-scarce areas like Punjab, and sugarcane in dry parts of Maharashtra.
That would also put an end to the artificial boost given today to the export of both rice and sugar. Such exports are tantamount to exporting water, since paddy and sugarcane are two of the most water-intensive crops in the country. In totality, we could put an end to the spectre of growing water scarcity across the country, since more than 80 per cent of all water is used in agriculture.
Radical reform would also put an end to the over-stocking of grain and save the money that is currently wasted on the misnomer that is the food subsidy. It would end the artificial boosting of purchase prices that makes sugarcane the country’s most profitable crop. That in turn makes the production cost of Indian sugar about the highest in the world, and India’s sugar price 50 per cent higher than in world markets. While Indian consumers bear that cost, the government ends up paying Rs 10 per kg to make sugar exports viable.
You could argue that putting a bonfire to most of today’s policies for agriculture, when most farmers live a marginal existence on the edge of poverty, is simplistic and damaging thinking of the kind that led to the demonetisation of 2016. And so it would be. That does not mean that a less disruptive, properly thought-through and carefully-phased programme of change is not possible, so long as the end objective is clear: The money being spent in the name of farmers must be spent for the genuine welfare of farmers. For instance, one could run a sensible subsidy and price support system at a fraction of today’s cost, and still have plenty of money left over to offer a more generous income support to all farmers.
The government has seized on the idea that, since India can undertake radical reforms only in a crisis, the Covid crisis must not be wasted. It is far from certain that a medical crisis can be likened to, say, a foreign exchange crisis that allows an overhaul of economic policies. Still, if the idea is to reform, let it be real reform that delivers positive results.
By Special Arrangement with Business Standard
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The common sense demands the approach suggested by TNN. However, I believe that the steps recently announced by Modi are the first steps in that direction. Eventually, by 2024, full scale reforms should follow. Modi is shying away from articulating long term policy measures and hence, the government is not able to sequence the steps and move in the proper direction with a time bound plan to achieve the objectives. But full scale ‘industrialization’ of agriculture is a must and farmers must be freed from the current model of cultivation. Ownership of the land must remain with the farmer but its use by way of leasing/ contract farming along with cooperative or corporate way of organization will bring in efficiency and returns as all subsidies are removed and merged in to a DBT program for farmers.
“That does not mean that a less disruptive, properly thought-through and carefully-phased programme of change is not possible.”
100% correct – and the Modi govt’s agriculture reforms package is exactly this: the first step of this process.
It seems , reforms and drastic one’s at that, are needed in almost all spheres. India is a fit case for juvenile delinquency center ,if not for a de addiction one , the sooner the better , though not all delinquents come out reformed or de addicted.
Yes Sir , this is a quite correct diagnosis , coming from farming family in Haryana I can understand it fully , due to improper target goal the money spent in the name of farmer is only wasted and in the so called liberal media the blame is put on farming class…the policies of growing crops not suitable to environment has done too much damgae in our area …it would be better to spend this money on making vullage level agricultural support /agriculture science organisations which may guide farmers besides direct income support to them …..but at the end this all remains a mirage and the major roadblock is that political class doesnot show sincerity and the people feel that these ways are methods of ultimately removing all support ( Like A Jumla !) ..farming is a high risk profession prone to losses ..so somewhat support must be there but not in current ways.