December 22, 2000


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Ashok Mitra

Starvation amidst plenty

Thirty-five years ago, when the concepts of procurement and minimum support prices were introduced in Indian agriculture, the objective was straightforward. In difficult years, when the crop fell short of expectations and market prices ruled high, the majority of consumers in this poor country were unable to afford the market price prevailing for essential foodgrains. It was therefore considered the state's duty and obligation to procure grain from producers and traders at a price lower than the going market price. At the same time, in years of good harvest, when market prices tended to dip, the government was pledged to offer the farmers a minimum support price for their crop, which covered not only the cost of production but also ensured a reasonable profit margin for the producers.

It was no happenstance that this dichotomy of procurement and minimum support prices was introduced as an adjunct of the new agricultural strategy, in popular parlance, the Green Revolution. High yielding varieties of seeds, together with regulated dosage of water and fertiliser and pesticide, were the kingpin of this strategy. The dramatic transformation in farm output was initiated with wheat and after an interval of years, spread to paddy. The inferior grains remained outside the orbit of the strategy, for high yielding varieties were yet to be innovated in their case. That situation has not changed much in the course of the past three-and-a-half decades.

The rationale of the twin policy of minimum support and procurement prices is easily explicable. The Green Revolution called for considerable outlay, on the part of the producers, on high yielding varieties of seeds, fertiliser, water, pesticide and so on, that is to say, it necessitated a stepping up of per hectare outlay. True, this was compensated by much larger output of the grain concerned from each hectare of land. But higher output, the law of the market suggests, leads to a lowering of market price. To save the enterprising farmers from possible loss, it was decided to institute a minimum support price to ensure an adequate profit for the farmer after fully covering his cost. At the same time, if perchance production was affected adversely either because of unsatisfactory rains or other factors, market prices were bound to soar.

The millions and millions of poor consumers in town and country would be unable to buy the grains at such high market prices. It was accordingly considered desirable to have the parallel institution of procurement price, which would be lower than the market price but higher than the minimum support price. The procurement price had obviously to be lower than the market price since the object of procurement operations was to supply foodgrains through the public distribution system at prices which the poor consumers could afford.

There was an element of social control in this scheme. The government happens to be the main supplier of water from the irrigation system, often at a subdised price; the government also supplies fertiliser at a price lower than the cost of production and, of course, it takes the initiative to supply the farmer with high yielding varieties of seeds, again at throwaway prices. The farmers should, therefore, in exchange be agreeable to hand over to government agencies a part of their produce at a price higher than the minimum support price but still lower than the prevailing market price.

Even for the part of the output that would be claimed by the government in the form of procurement, the farmers would be offered a remunerative price which would be higher than the minimum support price. For the sake of the nation, farmers should, however, remain satisfied with a price for the procured part of output which was less than the current market price.

To implement this two part pricing policy, the agricultural prices commission was set up and it was assigned the task of announcing the minimum support and procurement prices for the main agricultural crops, including foodgrains. Nonetheless, thing started going sour from the very beginning. Since the deployment of the new agricultural strategy called for relatively greater outlay of resources on the part of the farmers, it was only those with bigger-sized holdings who were fortunate enough to reap the advantage of it.

In this unequal society, where 65 per cent of the total arable land is concentrated in the hands of only 10 per cent of the farmers, the new agricultural strategy became the exclusive monopoly of big farmers and rich peasants. The latter constituted a powerful political lobby given their clout in the countryside, they exercised influence over a large section of the electorate.

In the areas where the experiment with the high yielding varieties seeds yielded lush dividends, the dominance of the farm lobby was therefore altogether pronounced. Very soon, pressure began to be exerted on the government that, never mind the decisions of the agricultural prices commission, procurement prices must be pushed up almost to the level of market prices. But the lobby did not even stop here. Even as the Green Revolution scaled new heights of success and still newer heights, the farm lobby grew even more vociferous in its demands. With ample foodgrains available in the areas where the new agricultural strategy succeeded beyond measure, the market price for grains tended to fall, and, in some instances, even fell below the level of the procurement price.

A sensible public policy in this situation would have been to purchase grains at minimum support prices. Political forces were, however, at work, the kulak lobby would not hear of any such practice. Over the years, they bullied the government into buying grains at procurement prices that were higher than the market price as well as the minimum support price. And such procurement prices were not fixed by the agricultural prices commission, but at the initiative of the government itself.

The inevitable happened. To this inordinately high procurement price had to be added the distribution cost, including the cost of storage, so much so that the economic price at which the public distribution system could sell grains to the hard up consumers was beyond their means. The only way out in this circumstance was to subsidise the issue price of the publicly distributed grains.

But here an increasing shadow has fallen of late. The World Bank, the International monetrary Fund and the Western governments had always been against the principle of subsidising the supply of food to consumers. Now the World Trade Organisation has entered the picture. It has issued the fiat that the public distribution system must not be run at a subsidy; it is a sin to sell grains by the government at a price lower than the market price, since such an arrangement affects the incentive of private producers and traders. The Government of India is an extremely good boy; it never deviates from following directives laid down by the WTO, the World Bank, the IMF and similar international agencies.

We have, therefore, arrived at the present scenario where the government has a stock of foodgrains of 40 million tones, the storage cost of maintaining these stocks is at least Rs 5,000 crore per annum, while the offtake from the public distribution system is hardly 10 to 15 per cent of the total stocks. The consumers cannot afford the price at which the grains are offered to be sold through the public distribution system and subsidy is out.

Our poor consumers, who include the overwhelming majority of landless peasants and small cultivators, would therefore starve while foodgrains would be stockpiled in government godowns in record quantities. This is not the end of the story though. The issue price cannot be subsidised for the consumers, but the Government of India, as a special dispensation, has recently granted more than Rs 400 crore to the governments of Punjab and Haryana to enable them to offer further subsidies to the rich farmers in those states.

The bell nevertheless tolls for the producing farmers as well. There must be, the WTO has ordained, unbridled import of all kinds of farm output, including foodgrains, into our country from Europe and the United States. Our farmers, too, will then go to the wall, in the manner of our consumers.

Ashok Mitra

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