Remove shackles on agricultural prices

Remove shackles on agricultural prices

That’ll cure farm distress, not MSP or subsidy.

As policymakers debate what form of income support will cure India’s extensive farm distress, we have a study whose insights suggest that the right policy has to look beyond ratcheting up support prices to unsustainable levels and cash transfers to farmers. Agricultural policy is deeply flawed and calls for structural reform. This crisis can no longer be contained with band-aid. It calls for proper diagnosis and remedy.

Such a diagnosis comes from a large-scale study on India’s farm policy by ICRIER-OECD led by Ashok Gulati and Carmen Cahill, published last year. It says there is a crucial imbalance between farming and the rest of the economy: contrary to popular belief, farmers are not subsidised by everyone else; they are taxed very heavily. Among more than 50 major economies globally, Indian farmers got a negative 14% price support from government between 2000-01and 2016-17: in other words, farmers were taxed by limiting marketing, storage and credit opportunities. Only Ukraine treats cultivators worse. Norwegian farmers, with 60% price support, are best off, way ahead of 20% support for cultivators in OECD nations. The report reckons over 17 years, Indian farmers have been milked for ₹45 lakh crore in implicit taxes, the highest globally.

To remedy this, farm produce has to open up to global markets, farmers allowed to discover prices and compete against imported substitutes. Domestic markets have to be unshackled from state-controlled monopsonies sheltered by Agriculture Produce Marketing Committee laws. Cooperatives must be encouraged and retailers allowed to buy produce directly from them. Storage and transport infrastructure must improve to reduce wastage, estimated to be around 40% for perishables like fruit and vegetables. Much farm income comes from dairying, animal husbandry and related activities. Vicious cattle protection politics has already dented meat and leather industries and destroyed livelihoods. Good intentions wither in a toxic political climate. India needs inclusive policy, and politics.