Inflation and short-changed farmer

The Finance Minister was scheduled to hold pre-Budget discussions with the stakeholders in agriculture on January 7.

This is the first time that the agriculture sector got precedence over all other sectors in the annual round of pre-Budget discussions, showing perhaps that the Finance Minister is concerned about inflation, particularly the upward spiral in commodity prices.

Mr Pranab Mukherjee is not an economist by profession. However, his experience in Finance and Commerce and other economic Ministries is so extensive that he could well shed the air of injured innocence at the unprecedented inflation, particularly in farm produce.

Inflation is not exclusively an Indian phenomenon. China is reeling under inflation of over 18 per cent. The continuous rise in petroleum prices is enough to make inflation a global phenomenon.

The UPA government has sown the seeds of the present crisis since 2004, and drawn a bonanza of political benefit in two successive general elections. Why should the UPA leaders now feign surprise at the crop they are harvesting now?

The President of the Republic , in her address to Parliament last year, had admitted that the aam aadmi policies were causing inflation. She is no economist either; but has the uncanny astuteness of a housewife to see what could come out of pump-priming in the form of the flagship schemes of her Government.

Disincentives to farming

Putting more money in the hands of the consumer is by itself not a bad thing if it is accompanied by other measures that promote productivity. Industry is booming. Understandably, there is no public outcry on tertiary goods inflation.

Till the end of 2010, agriculture showed a negative rate of growth, and the Government has been trying to disincentivise farming.

The farmer continues to be burdened by debts, both from banks and other institutions. The number of suicides in 2009 at 1,200 was higher than in 2008 and just about on par with the average of the post-1997 period.

The Debt Relief and Loan Waiver (DRLW) Scheme 2008 has clearly been a scam comparable with the 2G spectrum imbroglio. Electricity is the largest single item of farm expenditure; the DRLW Scheme ignored power dues altogether.

The farmers continue to be defaulters on this account. The State Electricity Boards are carrying out a ruthless campaign of cutting off supply of defaulters as also non-defaulters. .

This is happening even as rising fuel prices make a return to diesel pump sets difficult. . The UPA government has failed to delink the economy from the global rise in petroleum prices by encouraging Brazil-like farm production of bio-fuels.

The situation of the farmers has become even more precarious because wage costs have gone up 60 times since 1980 when we had the first onion crisis. Further, the free lunch schemes of the UPA government are fostering an ethos of indolence.

Climate frailty is proving far more dangerous to agricultural production than presumed. Last year, we had devastation by drought; this year, unseasonal precipitations and cloudbursts are causing mass destruction of crops and unprecedented supply crunch.

Mismanagement

The most significant factor contributing to high inflation is mismanagement by the administration.

First, is the colossal failure of intelligence in respect of crop estimates. The precise consequences of the unseasonal rains on onion crops should have been clear at least three months earlier.

It is common knowledge that the Nashik varieties ‘ Rangda ' and ‘ Pol ' do not lend themselves to storage. The entire bulb starts deteriorating within a week or so. Too much time was wasted in chasing the wild geese because of the entrenched bias against a class that does trading, processing and storage. Petty stocks of kilos were seized and brought out with exaggerated publicity and fanfare.

Lastly, there was a systemic failure. If futures markets were the default marketing channel rather than the Agriculture Produce Marketing Committees (APMC), most of the stocks would have been in the warehouses of the commodity exchanges, not requiring any wild goose chase.

Last but not the least was the failure of market intelligence. It is common knowledge that prices of onions the world over are much higher than what Indians consider as exorbitant. The only exception is Pakistan which produces more or less the same varieties and offers competition to Indian onion in the West Asian and South East Asian markets. It was quite obvious that the ban on export and facilitating imports could be to the advantage of Pakistan. Fortunately, so far consignments of onion containers have not been used by Al Qaeda contingents.

There is considerable unrest in the farming community at the news that the government intends to complete the incomplete agenda on land reforms and reduce agricultural land ceilings to two acres of irrigated land and five acres of dry land. The chronic economic predicament of the farmers along with inimical State policies and vagaries of climate will soon create a situation where it will be difficult to have stocks necessary for the food security plans of the government.

The Finance Minister will have to take the lead and initiate policies that will make agriculture turn the crucial corner.

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