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Open letters to next Prime Minister: Unshackle agriculture from controls

Friday, 9 May 2014 - 6:00am IST | Agency: DNA
On May 16, the election results will be out. No matter who forms the government, the next prime minister will face serious policy issues. dna features a series of open letters addressed to the next prime minister written by experts in various fields. These will act as important inputs in the policy decisions of the government.

One of the basic tenets of economic reforms of 1991 was to dismantle the 'licence raj' in manufacturing and services, forcing greater competition, higher efficiency and faster growth. Only when discretion was exercised in granting licences, etc, there were reports of alleged corruption. But when did we hear that agriculture also needs freedom from myriad controls to prosper? Not sure. Agriculture continues to be under numerous controls despite being the biggest private sector enterprise, engaging about 54 per cent of the country's workforce.

Controls abound on agri-exports:

Although production of agriculture is free from controls, yet controls abound in the marketing and post-harvest stages all along the value chain, which ultimately impacts farmers' incentives to produce, and, therefore, has serious consequences on investments and growth in agriculture.

The most subtle way of 'implicitly taxing' an efficient and competitive sector is to put export controls on its products. Take the case of rice and wheat, the two largest crops of Indian agriculture. Their exports were practically banned till 1994. Then rice exports were opened towards the end of 1994, and India emerged as the second biggest exporter of rice in the world in 1995. This happened for the first time as Indian rice was globally competitive. But as wheat exports were opened, in 1995, domestic prices started taking a lift, and controls on wheat and rice exports were brought back in 1996. That was the end of freedom for rice and wheat exports for the next four years, 1996-2000. Only when domestic grain stocks started overflowing with state agencies, exports were opened again, but to be stopped yet again during 2007-11. The result of 2007-11 export controls was similar as that of 1996-2000: bulging stocks with the government that touched 80 million tonnes on July 1, 2012, leading to large wastages due to paucity of proper storage space with the government.

During the two years of 2012-13 and 2013-14, India has exported roughly 40 million tonnes of cereals (rice, wheat and corn, in total), which it has never done before. Think if these exports were not allowed by the government, what would have happened to domestic prices for farmers, or government stocks and wastages.

The story does not end with cereals. Exports of most of pulses and edible oils in bulk, remain restrictive. So are the conditions in most of other commodities, stop and go policy on exports.

In the last decade or so, two agri-commodities, cotton and corn, have experienced technological break-through, doubling their production over a decade. Anywhere from 20-30 per cent of their production is being exported. Think of putting a ban on their exports, and what havoc it can play with their domestic prices. The so-called revolution in cotton and corn can be wiped out within two-three years of their export controls!

Lesson: Put a ban on banning exports of agri-commodities, if you want to let agriculture, and farmers of this country prosper!

But why does the government often ban exports? Plausible answer is: to protect the poor. But why do it by suppressing the prices for peasantry? Why does the general exchequer not foot the bill to protect the poor? By suppressing farmers' prices, you will make them also join the ranks of poor... and that is precisely what has happened over
years.

Domestic agri-markets chained through APMC and ECA

It is not only exports, but domestic markets are also strangulated through monopoly of APMC and laws under Essential Commodities Act (ECA). APMC is skewed in favor of commission agents, oligopolistic structures, and leading to rent seeking. Time has come to break its monopoly with a clean sweep to allow anyone to buy directly from farmers, allow private sector to establish their own mandis, electronic platforms for auctions, futures trading, and negotiable warehouse receipt system to help farmers, with due regulatory frameworks. These new marketing systems will help farmers to get best possible price for their produce.

Further, ECA, which empowers state governments to put stocking limits on traders, levy on millers, restricts free movement of commodity across the country, basically is a draconian law of World War II. India is no more in that situation and this law needs to be either abolished or amended drastically so that private sector has much bigger role to play in stocking, and moving the goods across the length and breadth of the country. Fears of 'hoarding' need to be tackled with an open import policy, at low duties.

Similarly, restrictions on food processing and organised retailing, need to go to give full benefit to agriculture. Agriculture of tomorrow has to be in sync with processing and retailing, to bring prosperity to farmers.

(Writer is chair professor, Agriculture, at the Indian Council for Research on International Economic Relations)
(Views are personal.)

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Send us your open letter to the next Prime Minister at dearnextpm@dnaindia.net. The selected ones will be featured on dnaindia.com. You can also tweet your suggestions with #DearNextPM. Read the Open Letters here


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