“The key challenge is not only to raise land productivity but also water productivity and simultaneously build effective value chains” Ashok Gulati

“The key challenge is not only to raise land productivity but also water productivity and simultaneously build effective value chains” Ashok Gulati

The new NDA government has its task cut out for rejuvenating the Indian agriculture as the sector faces complex and critical challenges faced by agricultural sector. Ashok Gulati, Chair Professor Agriculture, Indian Council for Research on International Economic Relations (ICRIER) and former Chairman of Commission for Agricultural Costs and Prices (CACP) spoke to www.indianagribusiness.com focussing on measures the government must initiate to rejuvenate the critical sector.

Q: As the NDA government led by Narendra Modi takes over, what should be the key thrust areas for the food and agriculture sector?

First and foremost, the new government needs to focus on taming food inflation. Government should quickly announce its strategy in this area, and demonstrate that in the next 100 days, food inflation is brought below 5%. We have already suggested three steps in this regard: liquidate excessive grain stocks with Food Corporation of India – FCI (15-20 million tonne), reduce import tariffs on food products, especially fruits and vegetables, milk and milk products, and meat and fish to much lower levels (10-15%) from their current levels, which go as high as even up to 100%, as in case of chicken legs (cut pieces); and contain fiscal deficit.

On agriculture front, the key challenge is not only to raise land productivity but also water productivity and simultaneously build effective value chains, especially for fast perishable commodities, and thereby save on the large wastages.

Q: what would be the Modi led government’s policies towards sharp rise in food and fertiliser subsidy?

I don’t know what the government plans are with respect to these subsidies, but time has come to bit the bullet. Currently food subsidy is budgeted at Rs 1,15,000 crores and fertilizer subsidy at around Rs 68,000 crore. However, we are told that the pending bills on account of food subsidy alone are roughly Rs 49,000 crore, and for fertilizer subsidy another Rs 38,000 crore. All these together amount to Rs 2,70,000 crore.

I feel that bold policy decisions to re-orient these subsidies towards conditional cash transfers directly to beneficiaries through UID route has potential to save at least 30 percent of this, if not more. This is a huge potential saving, which can be achieved without sacrificing the ultimate objectives of helping poor consumers or farmers. And these savings can then be ploughed back in agriculture through investments say in water sector. This will raise productivity and give long term food security at affordable prices. But this cannot be achieved overnight, given that several poor people may not have bank accounts and financial infrastructure may be weak in remote areas. However a beginning can be made starting with large cities, and then going to farmers, and if this can be achieved in the next one-two years, it can give rich dividends.

Q: Can the government reorient the focus of mega programme such as National Rural Employment Guarantee Act (NREGA) and various irrigation schemes?

Yes. Currently, NREGA is more like a dole under the ‘rights approach’. We need to turn it into a development project, be it for constructing low cost housing in rural areas, or toilets and sanitation facilities, or re-charging ground water through check dams, or rejuvenating our degraded forests. It must be an integral part of such development projects. The change from dole to development model can give productive and sustainable employment to people.

Q: As you have observed during your tenure as CACP chairman, Minimum Support Price (MSP) for grain has already reached a higher level, any further increase would push food prices. What should be the approach of NDA both in long and short terms?

We must note that our MSPs for wheat and paddy (rice) are not very high in relation to comparable countries in the region. Take, for example, wheat. Our MSP of Rs 1400 per quintal turns out to be roughly $233 per tonne at an exchange rate of Rs 60 to a dollar. In Pakistan, MSP of wheat is around $280 per tonne and in China $388 per tonne. Similar is the case in paddy (rice) when compared with Thailand, Indonesia, Philippines, China, etc. In China, for example, MSP for Indica rice is about $ 445 per tonne and for Japonica rice at $494 per tonne, while in India our MSP for rice (converted from paddy) is around $325 per tonne.

I feel that prices are determined by forces of demand and supply in an open economy environment, i.e, when exports and imports are both open. Indian agriculture cannot and should not remain insulated from global markets. Only wide swings in global markets have to be watched and tariffs tweaked to contain large volatility. Having said all this, I think much of the adjustment in MSP is already carried out, and now, if the global prices remain calm and stable, and if domestic costs of production do not rise abnormally, further increases in MSP can be contained.

Q: BJP in its manifestos has announced un-bundling FCI’ s operations. What would be your views on the issue?

Well, we need to think out of box here. Time has come to shrink the role of parastatals like FCI, which are remnants of the scarcity era of mid 1960s, and so is the MSP regime. But in order to do this, reorienting the entire food security complex, from open ended procurement to stocking and distribution through highly leaky PDS, needs to be revisited. It is a big ticket item and needs some cool thinking within the government. My take is to use best international practices, like conditional cash transfers in case of food subsidy, develop warehouse receipt system and futures markets for farmers, keep exports and imports open, and allow private trade to stock as much as they like, and create a unified market for the whole country. Then you can really think of shrinking the functions of FCI to just keep a strategic reserve of say 15-20 million tonnes, instead of 80-74 million tonnes that we kept during July 2012 to July 2013. Just unbundling of FCI will not take you far enough in the reforms process.

Q: FCI’s foodgrains stocks are huge. What should be mechanism of the government to sell its excess stocks in the market? Whether FCI should sell the grain below its procurement cost?

FCI can offload excess grains through an electronic auction, with a minimum reserve price of say MSP at which the grain was bought plus 5 percent. The high levies and taxes in certain states (like 14.5% on wheat in Punjab) needs to be brought to less than 5 percent (Gujarat has 3.5%), especially when National Food Security Act (NREGA) promises to give wheat and rice at Rs 2/3/kg.

Q: Should not the new government as a part of converging activities of ministries take step to merge food, water resources and fertiliser into one agriculture ministry?

That would be a dream come true and it can help avoid all inter-ministerial turf wars that often delay the decisions for months, if not years. I would strongly advocate merging of food and agriculture, which was the case earlier, and also bring in the department of fertilizer, irrigation, and food processing under one roof.

Q: What are approaches in your suggestion on crop diversification in Green revolution states? And recently launched in bringing green revolution into eastern India?

In Punjab-Haryana belt, we need to bring down rice area by almost a million hectare to save fast depleting water table. Any crop other than common rice (basmati can continue) consuming less water should be welcome. Preferably, it should be market driven. But Punjab farmers and policy makers have been ‘addicted’ to the MSP system over years, and they may want the government to assure buying of the produce. They need to look towards Gujarat, which is all commercial, from cumin to cotton to castor, it is all market driven and their agriculture has grown at almost 10% per annum during 2001-02 to 2011-12 compared to less than 3% in Punjab.

Q: Please identify the thrust areas for agricultural research particularly for revamping Indian Council for Agricultural Research (ICAR)?

I think, ICAR needs to switch gears in terms of augmenting productivity not in terms of land alone, but in terms of water too. Biotechnology, drought resistant seeds, water saving farming practices, bio-fortification, precision farming to attend to the needs of micro-nutrient deficiency, are some of the areas that need to be developed further.

Q: What are new initiatives which the government can take for further boosting India’s agricultural goods exports?

Keep the trade policy stable and open. In FY 2013-14, India has exported agri-produce worth $42 billion vis-a-vis imports of only $17 billion. This is resounding success story of India’s competitiveness in agriculture.