The Hindu Business Line : Export incentives for farm goods vital

The government should move proactively to bring about an increase in the domestic prices of agricultural goods. It must provide protection to domestic agriculture from cheap imports. Higher prices in domestic markets would encourage the farmer to increase production — exactly as more investment will do.

Bharat Jhunjhunwala

The Government has come out with a package of incentives for exporters in the manufacturing sector to help them tide over troubles arising out of the rupee appreciation. Farm exports also deserve similar incentives.

The Reserve Bank of India has expressed concern at the declining rate of growth in agriculture. It has pointed out in its annual report that the growth rate was 4.4 per cent in the 1980s. Largely to blame has been the low public investment in agriculture. India was investing 3.4 per cent of GDP on agricultural infrastructure in the 1970s; this has declined to 2.6 per cent now.

Increased investment in agricultural infrastructure will lead to higher production. Vast areas of the Thar Desert in Bikaner and Jaisalmer are today producing chillies, wheat and other crops due to investment in the Rajasthan Canal. But the income of farmers has not risen.

For instance, a farmer producing 1,000 kg of wheat and selling at Rs 10 per kg was earning Rs 10,000; Government investment in canals has enabled him to produce 1,200 kg, but the price has declined to Rs 7 per kg. His total income has therefore declined to Rs 8,400.

Farmers are facing troubles mainly due to such decline in prices. While the prices of manufactured products are increasing, those in other sectors, especially agriculture, are decreasing. The price of wheat, ruling at Rs 5 per kg in the mid-1980s, has increased to Rs 10 per kg now. But the price of a Maruti-800 car has increased from Rs 55,000 to Rs 2.2 lakh in the same period.

In other words, the increase in the prices of manufactured products is twice that of agricultural products. The main reason for this is the small increase in world population. Consequently, the demand for food-grains is increasing only marginally.

On the other hand, farm production is increasing because of bringing forest lands into cultivation, introducing new technologies such as high-yielding varieties and investing in infrastructure, such as building dams. The latter is the RBI’s prescription for salvaging Indian agriculture. The increase in the supply of agricultural goods brought about by such investments is leading to lower prices due to stagnant demand, compounding trouble for the farmers.

Protection from imports

Under such circumstances, the government should take a proactive step and increase the domestic prices of agricultural goods. It must provide protection to domestic agriculture from cheap imports.

Higher prices in the domestic markets would encourage the farmer to increase production — exactly as more investment will do.

This policy is being implemented by the rich countries, which are providing huge subsidies to the farmers, encouraging them to increase production.

They are not able to consume this production within their own country because population is limited. So they provide export subsidies and remove the excess production from the domestic economy.

The cost of production of food-grains in countries such as the US is high; yet it exports. The cost of production in India is less, yet it imports. Result: Prices are further depressed and the farmers are forced to commit suicide. Further, the country becomes dependent on food imports. Our food sovereignty is lost.

The rich countries are providing huge subsidies to their farmers mainly to protect the food sovereignty. They do not want to be caught in a situation where supplier countries refuse to provide food-grains to them. This is the logical result of investment in agriculture which leads to higher production.

RBI’s suggestion

The RBI’s suggestion to increase public investment in agriculture must be evaluated against this backdrop. This policy is entirely correct if the excess production is exported. Exports would reduce the availability in domestic markets, lead to higher price and higher incomes for the farmers. At the same time, investment will help them produce higher quantities, resulting in better living conditions for them.

The impact of the same public investment is quite different in the absence of export subsidies. Investment leads to increase in production, leading to lower prices. The farmer’s income is less and he still suffers huge losses. In the next cycle, lower prices provide lesser incentive to farmers to produce, and that affects the country’s food sovereignty.

India has made huge investments in agriculture in the last 60 years, yet is forced to import food-grains and the incidence of farmer suicide has increased to a large extent. The beneficial impact of higher investment is negated by the impact of lower prices. A football team that is provided with good shoes but sent into the field with an empty stomach loses the match. Similarly, the farmer who is provided with investment but sent into the market with lower prices loses the game.

As suggested by the RBI, the Government should increase public investment in agriculture, at the same time provide export subsidies to channel out excess production from the economy.

The author can be reached at bharatj@sancharnet.in

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