After biting the bullet on diesel and allowing foreign supermarket chains to set up shop, the Government must now brace itself for the far more daunting challenge of rationalising farmgate prices of urea and freezing the official procurement price for wheat. By all accounts, the Government is unlikely to oblige – if at all – till mid-December, when the assembly elections in Himachal Pradesh and Gujarat are scheduled to be completed. That would be unfortunate, as farming operations for the rabi season are all set to commence, and a timely decision now would send out just the right signals to farmers.

What are these signals? The first is to discourage farmers from sowing wheat, when public godowns are overflowing with over 43 million tonnes of this foodgrain – three times the required buffer and strategic reserves. They would, instead, be better off growing more of chana (chick-pea) and rapeseed-mustard. Both chana dal and mustard oil are today retailing about 30 per cent higher over last year, as poorly distributed monsoon rains have impacted production of kharif oilseeds as well as pulses. If to this, the huge import bill – almost $10 billion of edible oils and $2 billion for pulses in 2011-12 – is added, the need for boosting domestic oilseeds and pulses cultivation becomes self-evident. A sensible policy intervention, then, would be to freeze the minimum support price (MSP) of wheat to last year’s level of Rs 1,285 a quintal and increase these significantly for chana and rapeseed-mustard. This should be combined with clamping import duties on crude edible oils – currently nil – considering the sharp decline in global prices in recent weeks. The Government should do these, while resisting populist pressures to further hike the wheat MSP, which has more than doubled since 2004-05.

Equally urgent is the action on urea, where a controlled price regime has widened the disparity between what farmers pay for it vis-à-vis other de-controlled fertilisers. Since April 2010 – when so-called partial decontrol took place – farm-gate prices of di-ammonium phosphate and muriate of potash have zoomed roughly three to four times. Urea prices, by contrast, have been allowed to go up only 12 per cent, leading to higher consumption of the country’s most widely used fertiliser and, thereby, worsening an existing soil nutrient imbalance that is tilted excessively towards nitrogen. The Government can counter the political backlash from a urea price increase by raising the subsidy on phosphatic and potassic nutrients, and emphasising the hike in MSPs for pulses and edible oil. An immediate hike in urea price would, moreover, curb unnecessary speculation and hoarding at the dealers’ end that would only serve to worsen the plight of the farmers. The latter are known to respond very well to price signals, and should therefore be enabled to do so now – for their own good, ultimately.

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Published on October 21, 2012