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Resource centre on India's rural distress
 
 

Agriculture And Not The Stock Market Is The Reality Of India -Roshan Kishore
-The Citizen.in

This piece is a rejoinder to an article by D K Joshi, which appeared in ‘The Indian Express' on June 4, 2014. The main arguments made by the author are neither new nor unique. Many neoliberal economists, including some occupying crucial policy-making positions have been making arguments which propose dilution of Minimum Support Price (MSP) policies to take care of excess food stocks with the government and also control inflation.

 

Curbing inflation, particularly in food items is rightly being seen as an agenda which ought to have high priority on the newly elected government's to-do list. A recent article by the chief economist of a leading financial firm has correctly noted the need for a proactive role by the government in combating this problem. Unfortunately, the author's prescriptions seem to be based on half-truths about the concrete conditions in agriculture and inflation.
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The article's analysis about inflation, by and large, seems to suggest that it is a problem of demand exceeding supply. In the case of cereals, government stocks and increasing MSP are seen as the main reason for the inflationary situation. In fact, the author goes on to suggest that increased MSPs for cereals are responsible for inflation in prices of fruits and vegetables by discouraging their production. This claim however is, factually incorrect. The growth rate of production for fruits and vegetables has been much higher than that of cereals in the last decade. A look at the data for area under cultivation also shows that the area under cultivation for cereals has actually declined in the reform period, while that of fruits and vegetables has been increasing at a faster rate compared to the pre-reform years. How does the question of cereals discouraging fruit and vegetable production arise then?

Similarly, the claim that increasing MSPs are responsible for inflation seems to suggest that farmers are making windfall gains from these support prices. It needs to be reiterated that as per the terms of reference given to it in 2009, the Commission for Agricultural Costs and Prices analyzes demand and supply; cost of production; price trends in the market, both domestic and international; inter-crop price parity; terms of trade between agriculture and non-agriculture; and likely implications of MSP on consumers of that product in deciding support prices. Due to the manner in which they are calculated, MSPs can only guarantee normal profits for farmers.

Claims of irrational hikes in MSP have to be examined in the context of the trends in cost of production and overall inflation figures. An important aspect, which is often missing in discussions on agricultural prices, is the fact that cost of production has been going up very sharply in the recent past. The ministry of agriculture's data on terms of trade for prices paid and received for agriculture shows that the ratio has been almost stagnant in the reform period. Data confirms that there has been and virtually no increase in MSPs in real terms. Calling for "restraint" in increasing MSPs would mean pushing cereal cultivation towards a viability crisis.

Any student of economics would know that inflation need not always come from an excess of demand over supply. Cost-push and profit inflation can also contribute to the inflationary spiral. In addition to the inflationary contribution of increased cost of production, the profit inflation component in food items has received much less attention than it deserves. The massive spurt in speculative activities in future and spot markets in food items has been seen as an important player in food inflation worldwide. Not only did the previous government open more commodities for speculative activities, it also displayed apathy in cracking down on those eyeing profits through activities like hoarding. In the enthusiasm to reform agriculture-related legislations to promote efficient market transactions, not only should care be taken to retain and strengthen provisions which allow a crackdown on such players, adequate political will should be mustered to take action against such elements.

Continuous talk about "diversifying diets" and "record cereal production" has painted a warped picture of both the state and importance of cereal production in our country. Per capita cereal production was continuously going down in India during the reform period, barring the 11th Five Year Plan period, and difficulty is still being faced in restoring it to pre-reform levels. However, per capita availability (which denotes the level of aggregate demand) figures have continuously moved on a downward slope even during the 11th FYP period. When read with the fact that even as per 2009-10 NSSO data, cereals contributed more than 60 (50) percent of calorie and protein intake in rural (urban) areas, questions arise on the claims of increasing incomes and lower cereal consumption. While there is no doubt that a small segment of the middle class has experienced a huge rise in incomes, leading to increasing demand for diversified diets, the vast majority of the country's population has suffered a decline in nutrition levels. Not surprisingly therefore, UPA-II had hastily brought the National Food Security Act to provide affordable cereals to two-thirds of the population, hoping to secure political support from the large number of potential beneficiaries.

Reviving agriculture and ensuring food security needs a drastic change in the attitude of policy makers towards agriculture. While everybody is complaining about low yields, only a few point out that expenditure on R&D in agriculture continues to be less than 1 percent of agricultural GDP. It is a travesty that when myriad problems-including environmental sustainability, prolonged agrarian distress and increasing squeeze on domestic agricultural policy-making from organizations like the WTO-are facing our farm economy, we do not even have a holistic national agricultural policy to address these challenges. Any such policy must have in its root a recognition of the harsh reality that more than half of the Indian population still earns its living from agriculture and has not found alternative employment opportunities while we continue to have ad nauseam discussions about what is happening to growth rates and stock market movements.