The only thing which is worse than an aborted reform is a stillborn one. That is why in advanced democracies, reforms are introduced off and on, but more time is spent in preparing the ground for it and evangelical marketing thereafter. Instead, when laws like the recently withdrawn farm laws are created and foisted in a hurry, they inevitably meet with resistance and attract the appellation of black laws. Laws dubbed as black laws emerge from the dark echo chamber of no debate, no discussion and no consultation. The reforms in the farm laws were a product of hubris. No discussion, no debate and no consultation preceded them though agriculture is a state subject.
Having introduced them, the government could have modified these laws to the extent that 23 MSP crops are kept outside its purview. Substantial space in procurement, storage and contracting out has been ceded to the private capital already in case of other crops and in the modified form it had some chance. Another way of going about it was to make the template ready in some states before storm-trooping. Agricultural reforms required an understanding of factors, problems and possibilities in their myriad hues which was lacking, to begin with. Even the concurrent positive action such as creating FPO in large numbers, which would have helped small producers come under the big banner to mitigate their asymmetrically weak position, was not attempted seriously. For a country of India’s diversity with 15 agro-climatic zones, only 10,000 FPOs is a small number. Now we face a stillborn reform coming packaged with reluctance to reform in future.
Predictably, the politicians compromised and retraced their steps back once the payoff was looking negative (be it because of forthcoming elections or otherwise). This also means no reform will be attempted in the sector for a long time to come as the maxim “once bitten, twice shy” unfailingly holds good in the political economy. The price of doing nothing about a deeply flawed system can be huge in the process. We have got an agricultural problem on one hand and an agrarian problem on the other. Incentives of the Green Revolution have run their course and now unravel their egregious impact. They are reckless use of water, fertiliser and chemicals, a vast swathe of land suffering from alkalinity and salinity, dependence on moneylenders instead of the formal sources, farmers getting into the debt trap and facing increased risk which continues to grow. Masses of sharecroppers and landless labour are the forgotten people on our policy radar whether it is the PM Fasal Bima Yojana or PM Kisan. Too little is being done on these problems and one doesn’t see their reversal in the near future.
Instead, agitating farmers have upped their ante for statutory backing of MSP for 23 crops. This is the maximum welfarism rather than a growth-enhancing bet. The problem with MSP is not only that it forces prohibitively costly payouts from the Central Government, which has got a measly 10 percent as tax to GDP, but other unintended consequences of unknown magnitude surface.
Economics tells us that with guaranteed price by the government, whether by direct procurement or by paying the difference between the targeted price and the market price, farmers get incentivised to produce more and with more production the market price gets depressed. The government pays a higher differential price eventually. This is a sure recipe for disaster. The case of Telangana, where 92.5 percent of the paddy produced has been procured this year, is an instructive guide for the shape of things to come. The mountain of food grain not only creates undesirable stockpiling it also makes export uncompetitive. If the crop output is say 7 percent of the GDP even if 50 percent comes under the MSP because of perverse incentives, the government finances get hollowed out.
It is naïve to believe that only 3 percent of the crop which gets collected under MSP now will continue as such after statutory status. Currently, 40 percent of the produce of wheat and rice comes for procurement. The rest of the crop only gets procured when there is a distress sale. Finally, unsuspectingly huge quantities will surface because of misalignment of incentives. If the government accepts a part of the maximalist position of the farmers’ demand, the country will have a monstrous problem to contend with while fundamental problems remain unaddressed.
Maximum welfare cannot be the bedrock of agricultural reform. Even here the sharecroppers, leaseholders and landless labourers are never in the spotlight. Reform in the field as complicated as agriculture and the agrarian structure was done in a hurry, buried in haste and perhaps abandoned unwittingly. It is a case of missed opportunity which we may rue for a long time.
(Views expressed are personal)
Satya Mohanty
satya_mohanty@ediffmail.com
Former Secretary, Government of India