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Farm sector distress is expected to worsen, cautioned S Narayan, who was the Economic Adviser to former Prime Minister Atal Bihari Vajpayee.
No remunerative prices
Speaking on ‘Economy in Election Year’, organised by the Chennai chapter of the Observers Research Foundation, Narayan said the underlying problem is one of abundance of production and farmers not getting remunerative prices. State governments are not doing enough to create markets for farmers’ produce.
As such, there is little that can be done in the short run, which means the stress in the agriculture sector will only worsen.
However, in the long run, the only inevitable solution will happen: India will open up agriculture for international trade, giving farmers an opportunity to export their produce. Narayan, who was also Finance Secretary, noted that India is opposed to opening up its agriculture sector for international trade, fearing developed countries may flood the Indian market with their goods and cause distress to Indian farmers.
However, today, many of the commodities that developed countries are keen to export to India are already being imported by the country out of necessity. He gave the example of almonds and lentils, mainly tur dal.
On the other hand, liberalising agriculture will give Indian farm commodities a bigger market, he said. “Unless you provide a market, there is no solution,” he said. Incidentally, last month, the government cleared an agriculture export policy (which Narayan referred to) that seeks to raise shipments of agricultural products to worth $60 billion by 2022.
Narayan said farm loan waiver was a short-term solution, which would only weaken State governments’ finances, leaving them with little money for other developmental activities. On the other hand, the distress in farming would result in urban migration, forcing State governments to create infrastructure such as water and power. But they may left with no cash for such activities.
Urban management will continue to deteriorate, he said. He observed that the number of Indian cities with a population of more than 1 million had grown to 55 from 35 in the last 10 years.
RBI’s surplus
Later, during the question-answer session, when asked about the government wanting to dip into the RBI’s reserves, Narayan replied that the Economic Capital Framework Committee, formed to look into transferring RBI’s surplus to the government, comprised members who were ‘fiscal conservatives and not fiscal adventurists’. The committee will come up with a fair solution, he added.
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