Budget 2018: Stable trade policy may bring agri cheer
Drought, low prices have haunted Indian farmers for long; the key to growth lies in seeking new export markets.
The year 2017 would go down in history as a year of acute distress for a large number of farmers in India. After two consecutive drought years, they were hoping to realise a good income in 2017/18, but low prices of most agricultural produce left them high and dry. The central government has introduced several schemes in the last four years for the farming sector, but it has not found a solution to non-realisation of remunerative prices by farmers for their produce.
Sugar cane farmers are best placed in terms of profitability as they are assured of buyers in the form of sugar mills, and they realise at least the fair and remunerative price (FRP) fixed by the government of India (GoI). In some states, they get the state-advised price, which is higher than the FRP. Cotton farmers are also better off as cotton is procured at minimum support price (MSP) through Cotton Corporation of India when prices are below MSP. While Punjab and Haryana have efficient procurement systems in place, other states, including Madhya Pradesh, Chhattisgarh, Andhra Pradesh, Odisha and Uttar Pradesh, have also improved their procurement infrastructure for wheat and paddy in the last 10 years.
However, the farmers growing perishable crops depend entirely on market forces. Those growing pulses, onion, potato, soybean and groundnut often sell at lower prices in many states. In Madhya Pradesh, farmers' agitation took a violent turn, and the government procured 8.76 lakh tonnes of onion at Rs800 a quintal, which was then disposed at a loss of about Rs785 crore. Finally, it prompted the government to bring in the Bhavanter Bhugtan Yojana for eight kharif crops under which, by March 2018, payment of Rs2,000 crore might be made to farmers who sold their crops at less than modal prices.
So, what worries Indian farmers in 2018? Other than the monsoon, it is the spectre of low prices that haunts them. Data shows that annual retail food inflation rose 4.96 per cent in December 2017 and vegetable inflation touched 29.1 per cent. As the RBI is now mandated to keep retail inflation in the 4-6 per cent range, in case of price rise, there is a possibility of export bans, minimum export pricing, setting up of stock limits and even raids by police or the Income Tax department. Weak monsoon in 2018 may also affect prices. It is believed in the finance and consumer affairs ministries that price rise is caused by manipulation and hoarding by 'unscrupulous' traders. The Indian Council for Research on International Economic Relations (ICRIER) has also found that between 2004/05 and 2013/14, prices of rice, groundnut, cotton, buffalo meat, onion, banana and potato were below export parity prices in most of the years. Although cotton farmers benefited from booming exports in that period, restrictions on the export of rice and edible oils harmed others by depressing domestic prices.
In November 2017, import duties were raised on chana, tur, and crude and refined edible oils. It has not seen a rise in domestic prices so far but that may happen during the year. India's policy on agricultural trade will be tested in such an event. While other schemes will take several years to materialise as their implementation lies with states, the trade policy is entirely in the central government domain. Increased production of agro-commodities can be absorbed either by finding new markets for exports or by using the product in the food processing industry. Therefore, the government should have a stable trade policy and should consider at least a threefold expansion of the budget of the Ministry of Food Processing Industries.
The writer is Visiting Senior Fellow, ICRIER, and former Secretary, Agriculture, GoI