Policymakers are using the wrong instrument to support farmers and the right one would be to use an income policy to keep them afloat, says noted agricultural economist Ashok Gulati.

“When prices collapse, if you want to help farmers who have been affected, don’t tweak the price policy; instead give them direct income support. That way you don’t mess up with the market,” Gulati, who is Infosys Chair professor at the Indian Council for Research on International Economic Relations (ICRIER), said while addressing a gathering of sugar industry experts in Gurugram on Wednesday.

Using high fair and remunerative price (FRP) given to sugarcane farmers as an example, Gulati said governments can help only to some extent when the prices are falling sharply.

Today, it is not demand and supply determining the prices of agri-commodities but the pricing policy adopted by the government. This is not sustainable, he said.

“Many a time, these crises can be turned into an opportunity for change.” For instance, Gulati said, in Maharashtra, about 4 per cent of the cropped area consumes 60 per cent of the water used for irrigation. This is because of water-guzzling crops like sugarcane. The fall in prices will force farmers to move away from crops like sugarcane, and price support mechanisms such as FRP are absent.

Among Indian States, only Telangana has implemented an income support policy for farmers. Since this kharif season, the State government in Telangana has been giving ₹4,000 per acre as income support to 72 lakh farmers. Similar support will also be available for the rabi season, which commences next month, taking the total annual support to farmers to ₹8,000 per acre.

The sugar industry estimates that the total surplus lying with it by March-April next year would be around 19 million tonnes. Saying that the industry is “sitting on dynamite”, the ICRIER economist said that if the situation persists many mills would end up in the National Company Law Tribunal.