Editorials - 09-04-2021

The distinct characteristics of India’s agriculture require that a reformed state must ensure farmer, consumer welfare

For at least four decades now, economic policy making globally has dogmatically adhered to the notion that a progressively reduced role of the state would automatically deliver greater economic growth and welfare to the people. Since reform, by definition, is taken to mean only one thing, sector after sector is compulsively sought to be moved in this direction, even if overwhelming evidence, over many years from all over the world, indicates that it is the state that has played the leading role in provisioning the most critical aspects of life: water, sanitation, education, health, food and nutrition. There are very specific characteristics of agriculture, as also crucial elements of the socio-historical context, which imply that the Indian state must continue to intervene in multiple markets, and make critical investments, to ensure the welfare of both farmers and consumers.

Specificities of agriculture

Due to a variety of limiting factors, from uncertainties of the weather to soil fertility and water availability, increasing returns to scale are very difficult to achieve in farming. This underscores the need for the right kind of public investment in agriculture. Again, economies of scale allow producers in industry to make profits by cutting unit costs, even as prices fall, while those who fail to make the cut, get eliminated from competition. But in agriculture, members of the family can be drafted to work on the family’s farm, as also in other farm and non-farm work. This phenomenon is quite widespread in India today: of the nine crore rural families who draw their main income from unskilled manual labour, four crore are small and marginal farmers. Through overwork and self-exploitation, peasant farmers are able to cling on to their land.

Again, production processes in agriculture cannot be organised in an assembly line; they need to begin at the appropriate phase of the climatic annual cycle. This means that all farmers harvest their crop at the very same time; 86% of India’s farmers are ‘small and marginal’, too poor to afford warehousing facilities and are, therefore, compelled to bring their harvest to the market at around the same time. Since demand for food crops is typically price inelastic, during a bumper crop, while prices fall, the resulting rise in demand is not enough to salvage farmer incomes. Correspondingly, for poor consumers, unregulated markets for foodgrains mean that during a drought they either starve or get pauperised, being forced to buy very expensive commodities, conveniently hoarded up by traders.

Balance of power

These traders double up as moneylenders and the operation of a deeply exploitative grid of interlocked markets afflicts most farmers. In the credit market, usurious interest rates (often as high as 60%-120% per annum) create a debt trap from which it is virtually impossible to escape. The repayments due are ‘adjusted’ through exploitative practices in the input, output, labour and land-lease markets. The moneylender combines the roles of input supplier, crop buyer, labour employer and land lessor. This interlocked grid works in tandem with the oppressive caste system, with the poorer, ‘lower’ caste farmers, facing a cumulative and cascading spiral of expropriation. All the above reasons provide a strong case for state intervention in multiple agricultural markets.

Diversify public procurement

The Food Corporation of India and the Agricultural Prices Commission (Commission for Agricultural Costs and Prices, or CACP since 1985) were set up in 1965. The idea was that as farm output rises with the Green Revolution, farmers are assured that their surplus would be bought by the government at a price high enough to leave them a margin. The crops procured were then made available to consumers at subsidised rates through the Public Distribution System (PDS). Thus, government intervention protected farmers during bumper crops and dipped into the buffer stock to protect consumers during droughts. This is how India got its much vaunted food security over the past several decades.

However, the Green Revolution also sowed the seeds of its own destruction. More than 300,000 farmers have committed suicide in the last 30 years, a phenomenon completely unprecedented in Indian history. There is growing evidence of a steady decline in water tables and water quality. The yield response to application of increasingly expensive chemical inputs is falling, which has meant higher costs of cultivation, without a corresponding rise in output. Around 90% of India’s water is consumed in farming, and of this, 80% is used up by rice, wheat and sugarcane. Farmers continue to grow these water-intensive crops even in water-short regions primarily because of an assured market — for rice and wheat in the form of public procurement, which still covers only a very low proportion of India’s crops, regions and farmers.

Thus, we need to greatly expand the basket of public procurement to include more crops, more regions and more farmers. If done right, this single reform would secure multiple win-wins: higher and more sustainable farmer incomes, greater water security and better consumer health. Procurement must be local and follow the logic of regional agro-ecology. Huge volumes of water could be saved if cropping patterns are diversified to include a variety of millets (rightly called ‘nutri-cereals’ now), pulses and oilseeds.

Ensuring a steady market

To incentivise farmers to make this change, governments must include them in procurement operations. A useful benchmark could be 25% of the actual production of the commodity for that particular season (to be expanded up to 40%, if the commodity is part of the PDS), as proposed under the 2018 Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA) scheme.

The locally procured crops should then be incorporated intoanganwadisupplementary nutrition and school mid-day meal programmes. This would mean a large and steady market for farmers, while also making a huge contribution to tackling India’s twin syndemic of malnutrition and diabetes, since these crops have a much lower glycemic index, while providing higher content of dietary fibre, vitamins, minerals, protein and antioxidants. Public investment in specific infrastructure required for millets and pulses, especially those grown through natural farming, would also help expand their cultivation.

India has a network of 2,477mandisand 4,843 sub-mandisto safeguard farmers from exploitation by large retailers. This network needs to be greatly expanded as today, only 17% of farm produce passes throughmandis. To provide farmers access within a radius of five kilometres, India needs 42,000mandis, which are also in need of urgent reform. Rather than moving in the direction of weakening or dismantlingmandis, we need to make their functioning more transparent and farmer-friendly.

Rural India will be focal point

Ever since the Second Five Year Plan initiated in 1956, the central plank of Indian economic policy has been to get people off the land and move them into industry and urban areas. However, even after all these efforts, the United Nations estimates that in the year 2050, around 800 million people will continue to live in rural India. Given this unique Indian demographic transition, agriculture will need to be greatly strengthened, especially bearing in mind the complete nightmare our urban metropolises are, for current and future migrants. In a context characterised by grave and growing inequalities, as also a historically skewed balance of power, no reform can succeed that does not strengthen the weak and the excluded. Agriculture can only be reformed by radically enhanced state capacities and qualitatively better regulatory oversight, rather than by opening up spaces for more predatory action by those already entrenched in positions of overwhelming power in the economy.

Mihir Shah is Distinguished Professor, Shiv Nadar University

The shadow of politics still looms over trade, which runs contrary to Islamabad’s statements on the need for better ties

Pakistan’s double U-turn on resuming trade with India highlights the internal differences within Ministries, between business and political communities, and the emphasis on politics over economy and trade. It also signifies Pakistan cabinet’s grandstanding, linking normalisation of ties with India to Jammu and Kashmir.

On March 31, Pakistan’s new Finance Minister Hammad Azhar, announced Pakistan’s Economic Coordination Committee (ECC)’s decision to import cotton, yarn, and 500,000 metric tons of sugar from India. The media dubbed it as a political breakthrough but the ECC’s decision was not on bilateral trade; it was about importing only three items — cotton, yarn and sugar.

A day later, Pakistan’s cabinet overruled the decision; the meeting was chaired by Prime Minister Imran Khan and which included Shah Mohammad Qureshi (Foreign Affairs Minister), Fawad Chaudhry (Science and Technology Minister) and Shireen M. Mazari (Human Rights Minister). TheDawnquoted Mr. Qureshi as saying, “A perception was emerging that relations with India have moved towards normalization and trade has been opened… there was a unanimous opinion …as long as India does not review the unilateral steps it took on August 5, 2019, normalising relations with India will not be possible.”

Mr. Hammad Azhar, whose Ministry proposed the idea, accepted the cabinet’s decision as the working of “economic and political interface in a democracy”, and it was left with the Prime Minister and the cabinet to “endorse, reject or modify” the ECC’s proposals. However, Pakistan’s textile industry has not taken the cabinet’s decision kindly; for them, importing cotton yarn from India is an immediate need; else, it would impact their export potential.

Three takeaways can be identified from the above. The first relates to the ECC’s decision to import only three items from India, namely cotton, yarn and sugar. It was based on Pakistan’s immediate economic needs and not designed as a political confidence-building measure to normalise relations with India.

Practical and economic

For the textile and sugar industries in Pakistan, importing from India is imperative, practical and is the most economic. According to the latest Pakistan Economic Survey, 2019-20 (https://bit.ly/31TXd1I), though the agriculture sector witnessed a growth of 2.67% (with an increase in rice and maize production), cotton and sugarcane production declined by 6.9% and 0.4%, respectively. Sugar exports came down substantially last year, by over 50% in 2019-20, when compared to 2018-19. Yarn, cotton cloth, knitwear, bedwear and readymade garments form the core of Pakistan’s textile basket in the export sector. By February 2020, there was a steep decline in the textile sector due to disruptions in supply and domestic production. When compared to the last fiscal year (2019-20), there has been a 30% decline (2020-21) in cotton production.

According to State Bank of Pakistan’s latest quarterly report (https://bit.ly/3uMedDJ), the decline in cotton production is also due to fewer areas (the lowest since 1982) of cotton cultivation. By the end of 2020, there was a sharp decline (around 40%) in cotton production. Besides the decline in the area of cotton cultivation, there was also a decline in yield per acre. The ginning industry estimates that in 2021, it would receive less than half of what was projected. In 2019-20, Pakistan produced around nine billion bales; this year, the ginning industry estimates only around seven million bales. This would mean, Pakistan’s cotton export would reduce, creating a domino effect on what goes into Pakistan’s garment industry. Pakistan is the fifth-largest exporter of cotton globally, and the cotton-related products (raw and value-added) earn close to half of the country’s foreign exchange.

Another industry in crisis

The sugar industry in Pakistan is also in crisis. When compared to cotton, the sugar industry’s problem stem from different issues — the availability for local consumption and the steep price increase. The sugar industry has prioritised exports over local distribution. Increased government subsidy and a few related administrative decisions resulted in the sugar industry attempting to make a considerable profit by exporting it. By early 2019, the sugar prices started increasing, and in 2020, there was a crisis due to shortage and cost.

In February 2020, Mr. Imran Khan announced an investigation and constituted a commission of inquiry into Pakistan’s sugar crisis, 2019-20. According to the report, sugarcane was purchased off-the-books by the sugar mills, and sugar sold off-the-books. The report also noticed market manipulation and hoarding resulting in increased sugar price within Pakistan. In short, the subsidies, cheap bank loans, a few administrative decisions, manipulation and greed, especially by the sugar mill owners, mean high cost paid by the consumers.

As a result, importing sugar from India would be cheaper for the consumer market in Pakistan. Clearly, the crises in cotton and sugar industries played a role in the ECC’s decision to import cotton, yarn and sugar from India. It would not only be cheaper but also help Pakistan’s exports. This is also imperative for Pakistan to earn foreign exchange.

Politics first

The second takeaway from the two U-turns — is the supremacy of politics over trade and economy, even if the latter is beneficial to the importing country. For the cabinet, the interests of its own business community and its export potential have become secondary. However, Pakistan need not be singled out; this is a curse in South Asia, where politics play supreme over trade and economy. The meagre percentage of intra-South Asian Association for Regional Cooperation (SAARC) trade and the success (or the failure) of SAARC engaging in bilateral or regional trade would underline the above. Trade is unlikely to triumph over politics in South Asia; especially in India-Pakistan relations.

The Kashmir link

The third takeaway is the emphasis on Jammu and Kashmir by Pakistan to make any meaningful start in bilateral relations. This goes against what it has been telling the rest of the world that India should begin dialogue with Pakistan. Recently, both Pakistan’s Prime Minister and the Chief of Army Staff, Qamar Javed Bajwa, were on record stating the need to build peace in the region. Gen. Bajwa even talked about “burying the past” and moving forward. There were also reports that Pakistan agreeing to re-establish the ceasefire along the Line of Control (LoC) was a part of this new strategy.

The latest statement by Pakistan’s cabinet that unless India rescinds the decision of August 5, 2019 in Jammu and Kashmir, there would be no forward movement, goes against what Mr. Imran Khan and Gen. Bajwa have been stating in public. This position also hints at Pakistan’s precondition (revoking the August 2019 decision on Jammu and Kashmir) to engage with India.

Pakistan has been saying that the onus is on India to normalise the process. Perhaps, it is New Delhi’s turn to tell Islamabad that it is willing, but without any preconditions, and start with trade. It may even allow New Delhi to inform Pakistan’s stakeholders about who is willing to trade and who is reluctant.

D. Suba Chandran is a professor and dean at the School of Conflict and Security Studies, National Institute of Advanced Studies (NIAS), Bengaluru

Rich countries must commit technology and funds to move to net zero carbon emissions

The visit of the U.S. Special Presidential Envoy for Climate, John Kerry, ahead of a leaders’ summit convened by President Joe Biden later this month on the climate challenge, has prompted a review of India’s long-term policy course. To the developed world, India presents a study in contrasts, with carbon dioxide emissions that rank in the top five globally, while millions of its citizens remain mired in energy poverty and underdevelopment. Ironically, to many smaller countries, including island nations hit by intense storms, lost farm productivity, droughts and heat waves linked to a changing climate, India contributes to the problem with its total annual emissions. It is unsurprising, therefore, that the clamour is growing for India to join many other big economies and commit itself to net zero emissions: to balance carbon emissions with their removal from the atmosphere, by a specific date. Evidently, Mr. Kerry sought to explore the possibility of raising national ambition, with the assurance that the U.S., pursuing major green technology initiatives in the post-Donald Trump era, would support such a road map. His meeting with Prime Minister Narendra Modi has been positive. It would, of course, reassure not just India but other emerging nations as well, if the climate diplomacy of the North under the Paris Agreement is underpinned by funding and technology transfer guarantees to reduce emissions. If climate change is the biggest crisis today, the solutions require the U.S, the U.K., Europe and others who occupied the bulk of the world’s carbon budget to give up further emissions in favour of the developing world and fund the transition.

Even if India does not commit itself to a net zero deadline, and prefers to wait for the post-pandemic development pathways to become clear, it cannot afford to ignore the impact that its project decisions — such as deforestation — will have on the climate. At the peak of COVID-19 last year, the Centre saw it fit to press ahead with environmental clearances that would have a serious negative impact. It extended the deadline for coal plants to adopt strict pollution control, and proposed gross dilution of norms to assess environmental impact of projects. Fuel prices, at historic highs due to taxation, pay no specific environmental dividend, and the poorest are worst hit by its inflationary effects. What India should be doing in the run-up to the UN Convention on Climate Change in Glasgow, scheduled later this year, is to come up with a domestic climate plan that explains to the citizen how it will bring green development in this decade, specifying a target by sector for each year. This would align internal policies with the justifiable demand that rich countries uphold the principle enshrined in the UN Framework Convention on Climate Change, of common but differentiated responsibilities to build equity. Taxing luxury emissions, whether it is cars, air-conditioners, big properties or aviation, for specified green development outcomes, will send out a convincing message.

IPL sets the stage for a young bunchof players eager for the spotlight

Since its launch in 2008, the Indian Premier League has largely remained a summer-fix, with its share of pulsating thrills and big money. But these are extraordinary times when a virus has extended its stifling grip across the globe for more than a year and while COVID-19 rages, through a second wave in India, the IPL is back with its 14th edition that will commence at Chennai’s M.A. Chidambaram Stadium on Friday with defending champion Mumbai Indians taking on Royal Challengers Bangalore. The previous tournament, a much-delayed one due to the pandemic, had concluded at Dubai on November 10, last year. After a five-month gap, the latest version rolls in with its share of 60 matches in a schedule that stretches all the way to May 30. Meanwhile, the virus continues to influence logistics and with bio-bubbles being the norm, the matches will be initially played at empty venues. The other new development is the idea of neutral venues, a move necessitated by the need to reduce travel so that every squad stays in a specific city for at least a fortnight. With cities such as Hyderabad, Mohali and Jaipur missing out as hosts, it was felt that their respective home units — Sunrisers Hyderabad, Punjab Kings and Rajasthan Royals — needed a level playing field and that was achieved by propping up neutral venues for all rivals.

It is a thread that goes all the way to the play-offs and final, which would be held in Ahmedabad, a city that does not have an IPL outfit. If the immediate context is about playing sport in the times of the coronavirus, the larger goal for the players would be to also use this IPL as a stage to finesse their skills well in time for the Twenty20 World Cup in India during October-November this year. The current build-up that included hotel quarantines, gradual training and news about a few players and support staff testing positive for COVID-19, may not have been ideal but all the squads are keen to get on the turf and play even if excited fans and their acoustic-support would be missed. Besides its obvious stardust, the IPL is equally about an unsung player grabbing attention and winging his way into the national squad. T. Natarajan and Suryakumar Yadav, to name just two, have done that in recent times. And for the nostalgically inclined, it is also a space to watch the likes of M.S. Dhoni and AB de Villiers plying their wares. Neutral grounds that negate home-advantage and a virus in the air do make a strange mix but this is the new-normal for an event that has previously adjusted to three general elections and a couple of overseas deviations.