Agrarian crisis one of the biggest challenges for new govt

Nothing seems to be going right for the Indian economy. The slowdown is reflected in stagnant growth in jobs, which is visible with lakhs of flats lying unsold in most cities of India. When the government revised Gross Domestic Product (GDP) growth for 2016-17 from 6.7 per cent to 8.2 cent, the entire system of measuring growth came under a question mark.

Demonetisation had affected every sector of the economy and except the super-rich, lived experiences of people did not support high growth. From non banking financial companies (NBFCs) to banks to the motor vehicle industry, the slowdown is staring from every corner. And yet, the election campaign saw little debate about the dark clouds hanging over the economy.

The ongoing crisis in agriculture received little attention during election rallies. Even in drought-hit region of Latur in Maharashtra, there was hardly any mention of humanitarian crisis caused by drought. Parts of Gujarat, Karnataka, Odisha, Andhra Pradesh and Rajasthan are also reeling under drought due to deficient rainfall in 2018, but the ruling party seems to hardly care.

Investments needed

The government has fixed a target of Rs 7,61,000 crore for GST in 2019-20, which is 18 per cent higher than last year. For direct taxes, the target of Rs 13.80 lakh crore is 21 per cent higher than 2018-19. A slowing economy is unlikely to deliver this much revenue.

The National Democratic Alliance (NDA) has committed Rs 75,000 crore to PM-Kisan scheme, while the Congress had promised Rs 72,000 per year to 20 per cent poorest households. This would have cost Rs 3.60 lakh crore.

So, the government will find it difficult to find resources for the much-needed investment in agriculture. Even in the face of fiscal problems, the new government will have to address at least three major challenges in the next three months.

These are — (a) drought in about 40 per cent of India (along with the possibility of deficient rainfall due to the impact of El Nino), (b) lower prices realised by farmers in the last three years for most crops and ironically (c) possibility of price rise of food items.

In Swaraj Abhiyan Vs Union of India, the Supreme Court issued detailed guidelines for declaration and management of drought. In compliance with the order of the SC, the government issued revised drought manual in December 2016.

Managing food security

On July 1, the government may have about 24.8 million tonnes of rice and 46.3 million tonnes of wheat. So, extra allocation of wheat and rice to drought hit areas can easily be made by the Centre.

Thus, food security of the drought-hit population will not be difficult to manage through the public distribution system, arranging drinking water and fodder supply in vast expanse of rural areas is not easy. In several districts, fodder will have to be transported even from other states and we do not know what will happen to stray cattle!

Low prices for most crops in the last four years were caused by demonetisation and global downturn of prices. Private trade is reluctant to stock commodities as it sees little chance of rise in prices. Keeping the Essential Commodities Act in abeyance for three years may help in getting private trade back in mandis, which can help lift prices there.

Surpluses in agriculture are not yet of permanent nature. In 2018-19, as a result of drought, India had to import cotton and maize. If monsoon turns out to be deficient in 2019 also, as predicted by Skymet and other global models, there is a possibility of rise in prices of pulses and quantitative restrictions on their import may require easing. A group of ministers must be ready to enable quick decision making on import policy and tariffs. 

Water woes

For the long-term, the new government will face three major challenges. First, how to fix the water woes of perennially drought-affected regions. Pradhan Mantri Krishi Sinchai Yojana (PMKSY) was supposed to enable completion of 99 projects by 2019, but command area works have been completed in only six projects.

Because of the high incentive of assured price for paddy and sugarcane, farmers continue to grow them in regions most unsuitable for such water-guzzling crops. The Narendra Modi government enjoyed complete domination in Lok Sabha, but did little to incentivise diversification from paddy in Punjab, Haryana and Western Uttar Pradesh.

Similarly, India continues to produce more sugar than required for domestic consumption. Its cost is higher than global prices, so it cannot be exported without subsidy. India is facing serious questioning in the World Trade Organisation (WTO) on subsidy to sugar sector, so business as usual cannot continue.

Secondly, marketing reforms have been discussed and debated for long but the Centre has not moved decisively. In 15 years, the Centre could not persuade the states to adopt the Model APMC Act of 2003. In 2017, the Centre came up with yet another Model Act in the form of the State/UT Agricultural Produce and Livestock Marketing (promotion and facilitation) Act, 2017. It is likely to meet the same fate as the Model Act of 2003.

It is high time the new government brought agriculture marketing to the concurrent list to bring real reform to agriculture markets. Simultaneously, investment in storage and assaying in mandis needs to be accorded highest priority so that the idea of a national agriculture market can actually succeed.

Thirdly, the government must realise the limitations of Minimum Support Price (MSP) as a tool to provide remunerative prices for all crops. From Kharif 2018, the government fixed MSP by using a formula to ensure 50 per cent return over paid-out costs incurred by farmers.

But, in the absence of procurement by government, the market prices continued to rule lower for most crops in major producing areas. The government should substantially increase its allocation for food processing and make it really easy for new food businesses to be set up without any fear of tax authorities.

Despite all the rhetoric of Make in India and Start-up India, the businesses remain fearful of the opening of tax cases, several years after assessment.

The challenges discussed above provide a glimpse of task ahead for the new government. More than the money, the long-term challenges require consensus to implement reforms, difficult but necessary.

Sustainability, more than anything else is agriculture’s biggest challenge. Whoever can manage water can claim to be Indian agriculture’s savior.

The author is visiting senior fellow at Indian Council for Research on International Economic Relations (ICRIER). He was Union Secretary (Agriculture and Food Processing).

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