There was a time when food grain imports were a highly emotional issue. In the mid-1960s, as American wheat surpluses waned, the US tried to persuade India to devalue and to switch from cotton to food grains. The pressure was badly received, and led to an estrangement between the two countries that took 30 years to overcome.
The humiliation of having to import grain also led the government to invest heavily in dams and high-yielding seeds. The investment was so successful that India ceased to import grains in 1972; by the 1980s it was surplus in food grains. By now, an entire generation has grown up which has not heard of food shortages.
There are signs that this bounty may be about to end. Twice this year the government has taken decisions to import wheat. The 3.5 million tons contracted is only 5 per cent of wheat consumption. But market prices continue to rise. It is reported that Food Corporation of India (FCI) is finding it difficult to procure wheat, and that even promises to give wheat farmers a gun licence are not persuading them to sell it to FCI. That by itself only signifies that FCI’s procurement price is too low, or that gun licences are cheap. But it also portends a shortfall in FCI’s supply to the public distribution system.
This is not the result of a single poor crop, but of demand overstripping supply. Agriculture still provides employment to two-thirds of the labour force; slower agricultural growth must be reflected in their incomes. The excess of demand over supply will become evident only slowly and in one commodity after another. First came the oilseeds shortage; now the government has settled down to importing millions of tons of edible oil, and makes considerable money out of import duties on it. India failed to capitalise on the end of the MFA regime; this was partly because it did not have the cotton to ramp up textile exports — and the poor performance of cotton output started in the 1990s. Now comes the turn of wheat; next it may be sugar, or rice.
The government is aware of this problem. As the deputy chairman of the Planning Commission noted some months ago, agricultural growth has clearly slowed down from the high rates it reached in the 1980s. But the answers coming from the Planning Commission will be macro; it will talk about research and development, new seeds, minor irrigation, cowdung and such matters. These are worthy subjects, but technology does not develop in a vacuum. It evolves in the context of markets.
Agricultural markets are so hemmed in by government intervention that they offer no incentive to raise production or apply technology. For instance, most of the marketed surplus of wheat and rice is bought by the government. Procurement prices are fixed by politicians. In the early 1990s, Balram Jakhar as agricultural minister engineered rapid price increases; they led to huge surpluses. The BJP, with its urban base, held back procurement prices; the result is the present shortage. Politically determined prices are not conveying the right signals to farmers about whether to increase output, and whether to change their crop patterns.
Further, the elimination of seasonal price variation has led to a situation where no one holds food grain stocks over the year except FCI; farmers hold stocks, but only if they expect a shortage. FCI is an extremely inefficient stock keeper; it holds much of its inventory in open godowns specially designed to feed rats. If this enormous waste is to be reduced, prices have to be allowed to vary across seasons. Even if the government is not prepared to countenance such variation, it needs to create a specialised industry, consisting of insulated, mechanised silos, that would store grain efficiently. And while the government is at it, it should also take steps to standardize grain varieties and qualities, and reorganise mandis so that farmers themselves bring in standard varieties.
Finally, agricultural water supply is grossly mismanaged. Water from dams is supplied entirely or largely free; as a result, upstream farmers commandeer most of it, while those further away go short or use pumps. The result is heavy dependence on ground water drawn with electric pumps, and it is overexploited because state governments give power virtually free to farmers. And because both water supply and subsidies are very unequally distributed, farmers have become uncompetitive in many areas for no fault of theirs; that leads to further subsidies from the state governments. Despite these heavy subsidies — or because of them — there are waves of farmer suicides in the Deccan peninsula. The ills of agriculture are economic, and complex. The government should study them before it jumps into action.
