Finance commission seeds a sound idea

Finance commission seeds a sound idea

Devolutions should incentivise farm reform.

The Fifteenth Finance Commission reportedly wants to incentivise credible agricultural reform in the states. This is a good idea. India’s farm sector is crying out for reform: to remove restrictions on marketing, to end cropping patterns misaligned with agroclimatic suitability, to build the missing links in the chain — good rural roads, stable rural power supply that can fuel an agroprocessing revolution in rural India, a stable international trade regime for farm produce and functional spot and forward markets for farm produce — that should connect the farmer to the end-consumer, and rational pricing of farm inputs so as to incentivise sound crop choice, optimal input use and sustainability. Incentives in central devolutions could trigger positive change in policy.

A priority would be to scrap the Agricultural Produce Marketing Committee Act that mandates farmers to sell their produce only to designated middlemen. A wide network of regulated warehouses, whose receipts are negotiable instruments, along with logistics for swift ferrying of fresh produce to markets, makes middlemen redundant. It makes sense to organise farmers into large producer companies and cooperatives to give them economies of scale and bargaining clout vis-à-vis retail. The infrastructure for storage, transport and processing of farm produce must improve and policy tailored to make markets work for farmers. This, in turn, calls for stepping up public investment, removing restrictions on marketing freedom and ad-hoc curbs on external trade. As a large farm producer, India has a competitive edge that should not be dampened by excessive protectionism.

Mispriced inputs and output drive the mismatch between cropping patterns and agroclimatic conditions, such as water-guzzling crops in arid regions. Excess output of rice and wheat rots in government godowns, even as the soil on which these grow gets degraded. Realistic water and power charges and support prices would curb such ills. Carrying out structural reforms in the farm sector requires political will, most of all.