Priorities in farm sector for Modi

Tejinder Narang | Updated on August 27, 2014


‘Over-stocking’ of grains by FCI should end; national sugar policy is a must

The Food Security Act (FSA), food inflation, farmer’s profit on Minimum Support Price (MSP), FCI’s restructuring, export policies, GM crops, sugarcane prices are some of the vital issues that need immediate attention of the new Government that will be headed by Narendra Modi.

Food Security Act: Though FSA was conceived for political populism by the UPA, it found no takers in the elections this time. After 35 days of its passage in September 2013, the Act’s implementation was deferred for a year for various reasons including the list of the targeted beneficiaries in various States not being ready.

Apparently, FSA is a doctrine of substantive undeliverable entitlements, which increases fiscal deficit from 1 per cent of GDP to 2-2.5 per cent of GDP and will result into higher food inflation than the existing 10 per cent per annum because 45-50 per cent leakages in public distribution system continue to thrive.

The World Trade Organisation (WTO) considers FSA as violation of India’s commitments because it distorts domestic market and provides unfair competitive advantage in exports.

Any imports triggered by the FSA can create global price spikes. The nation’s fiscal deficit, agricultural trade, food inflation and WTO compliance have implications in the manner the FSA is pursued in future.

India was excluded from any punitive action till 2017 in WTO’s Bali conference of December 2013, provided listed details on “domestic support” are furnished to the WTO. Since India is yet to supply the data remains, the reprieve it enjoys now may not be maintainable. Controversies on raw sugar incentive and wheat exports have already cropped up.

Since the BJP’s manifesto mentions “review of all laws and schemes under food security system as a priority”, FSA in its existing form may not be implemented. Thus over-stocking of grains by the Food Corporation of India (FCI) must come to an end.

Modi, in his campaign, has mentioned that farmers should get about 50 per cent return over the minimum support price (MSP) without clarifying whether such returns will be applied on all expenses in cash and kind plus family labour – (technically jargoned as A2+FL) or on total cost – which also includes rental foregone and interest on fixed capital asset (termed C2 cost).

Profits to farmers under existing MSP in most of the crops are above 50 per cent as per A2 +FL formula but not if C2 conditions are applied. If MSPs are inordinately raised inflation, fiscal deficit and exports of agro commodities will be impacted. A cautious approach is required in this aspect.

FCI reforms: The BJP has also assured unbundling of the FCI into three corporations, each dealing with functions of storage, procurement and distribution. These are long-term reforms and may take years to implement.

On a short-term basis – stopping open-pended procurement of grains and limiting to need based acquisitions; disciplining States from bonuses and local taxation to 2-3 per cent only; purchasing rice from millers only; insulating FCI from paddy procurement and stop acting as processor of paddy to rice can be prioritised.

The current dispensation to first procure paddy, store it with millers and get it custom milled by paying fixed tolling charges is exposed to massive financial abuse that needs correction by the new Government without affecting farmers’ interests.

Interests of farmers, who could fear that millers may not pay them the due MSP for paddy, can be safeguarded by the Government arming itself the right to intervene in the market to lift prices to the MSP level as in the case of maize, where authorities undertake intervention under specific circumstances.

Export Policy: In the last two years, India exported about 40 million tonnes of grains (wheat/rice/corn) which is unprecedented. Open and unrestricted exports policies as a default model in this sector have helped. El Nino is a weather event and should not impact policy prescription. Exports will come to a halt if inflation rises due to El Nino, so why interfere with the policy?

If the new Government intends to expand agricultural trade aggressively it must take a view on the GM crops. GM soya and maize have revolutionised the yield and overall production in Brazil and Argentina. China is a major importer of such GM crop.

The use of GM crops is riddled with controversy over health concerns and damage to the existing crop, etc. A balanced view is needed so that benefits of technology are leveraged to all sections of the society.

Sugar: State Advisory Prices (SAP) is announced by various States annually in an arbitrary manner, leading to mounting cane arrears.

BJP’s suggestion of having a “National Agriculture Policy” could be the way forward in rationalising the system that is controlled by States where Central intervention has been quite frequent.

(The author is a trade analyst.)

Published on May 19, 2014

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