India's poor paying for government folly
By Kunal Kumar Kundu
BANGALORE - Recently the United States government cut the stock forecast for
the country's key crops. Argentina and Brazil are suffering dry spells and
Russia from drought. On the other hand, excessive rainfalls have damaged crops
in India and Indonesia, while Australian agriculture output will suffer because
of flood.
Endless incidences of natural calamity, one big problem - food shortage. Apart
from the wrath of nature, a Western push to use
biofuels made from corn to reduce dependence on fossil fuels and increased
demand for meat and dairy products from the richer Asian countries, are also
put forward as factors important enough to cause food scarcity and rising
prices.
All of these, however, are external causes which are not easily, if at all,
controllable. What these help masking are causes that have led to the
stagnation of agricultural sectors in the developing world, causes that are
rooted in the policy choices of governments.
According to Robert Paarlberg, professor of political science at Wellesley
College, most of the world's hungry people do not use international food
markets, and most of those who use these markets are not hungry. The fact is,
international food markets, like international markets for everything else, are
used primarily by the rich, not the poor.
In world corn markets, the biggest importer by far is Japan followed by the
European Union. Next comes South Korea. Surely, citizens in these countries are
not underfed. In the poor countries of Asia, rice is the most important staple,
yet most Asian countries import very little rice. Hunger is caused in these
countries not by high international food prices, but by local conditions,
especially rural poverty linked to low productivity in farming.
India is no different in this regard given the misalignments of policy
interventions. Interventions in the farm sector are mainly in the form of high
support prices for food grains, various subsidies (mainly power and
fertilizer), debt write-offs and so forth.
India's foodgrain production growth rate has been lagging behind population
growth rate. This can be mainly attributable to low levels of yield.
Source: FAO. Note: HG/HA - hectogram per hectare
Low level of productivity is a manifestation of continuous under-investment in
this sector. As can be seen from the table below, the gross capital formation
(GCF) in agriculture (a sector on which about 60% of India's population depend
upon for their livelihoods) as a percentage of total capital formation in the
country has been falling continuously since fiscal year '07. Subsequently it
has picked up, but only just.
Unfortunately, rather than investing adequately in a sector that is severely
deficient on physical infrastructure (be it irrigation, cold storage
facilities, transportation or whatever), India's food subsidy budget is
ballooning.
The legendary inefficiency in the procurement and management of foodgrains by
the Food Corporation of India (FCI) and that of the Public Distribution System
(PDS) notwithstanding, the sudden spurt in minimum support price (MSP - the
remunerative price that is paid to farmers for their produce) since fiscal '07
and the large quantity of procurement has resulted in food subsidy reaching
stratospheric levels.
As is quite well known, the decision for setting the MSP of a produce during a
crop year is fraught with political connotations. In fiscal '08, the MSP was
increased to keep parity with global foodgrain prices on the back of a global
food shortage. Thereafter, there was no way of reducing the price. Then came
the elections and the MSP was raised even further. And it is the rich and the
strong farmers' lobby that gains the most from increases in MSP.
Clearly, it is this continuous rise in MSP (apart from the inefficiencies in
the system) that has been accelerating food inflation in India. In fact, apart
from fiscal 2010 and, to a certain extent in fiscal '92, falling foodgrain
production did not lead to an inflationary spurt, thereby debunking the myth
perpetrated by the government that shortage of production leads to inflation.
Hence, subsidies and interventions cannot lead to amelioration of the malaise
afflicting the Indian agriculture sector. Fertilizer subsidy, for example,
leads to widespread use of urea leading to imbalance of soil nutrients, thereby
impacting productivity. The much talked-about debt-waiver schemes have not
necessarily reduced the indebtedness of the farmers nor have these resulted in
substantial decline in incidents of farmer suicides.
Farmers continue to be burdened by debts, both from banks and other
institutions - the number of suicides in 2009 was 1,200 higher than in 2008 and
just about on par with the average of the post-1997 period.
What is really needed is directed investment to ensure that the dilapidated
physical infrastructure in the farm sector is modernized, streamlining
procurement and distribution mechanism, and working toward ensuring capacity
building of the farmers.
Kunal Kumar Kundu, Senior Practice Lead, Infosys Technologies Ltd.
Bangalore. Views are those of the author. Author's website:
http://kunalsthoughts.weebly.com.
(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
