Loan waivers no panacea
Behind the tragedy, calamity and babble over farmers' death, loan waivers, crashing prices is the reality of a vital sector of the economy which is held to ransom by control mind-set of politicians. How and why? Here are the reasons.
The fundamental fact that is not appreciated is that farmers are shrewd businessmen. They plan their production next season by evaluating the prices for the products in the market. So when the prices of a product increase, they go for it. When many of them at the same time follow the same game plan and production rises, prices fall. Meanwhile, the farmer had raised commercial loans to implement his business plan of production of the crop.
The question is why should the prices inevitably crash if production goes up. The fundamental reason why this happens is that the farmer has the freedom to produce but no freedom to sell his products. Ideally, the farmer should have the freedom to sell his product wherever he chooses and whoever he wishes. But then, is the Indian farmer free to sell his farm products anywhere in the country and not necessarily in his state or if he chooses to sell to say, Saudi Arabia or Qatar (to name a few nearby destinations) rather than in his district mandi?
Rules do not allow him to sell his potatoes, rice, wheat or vegetables even outside the state. Admitting freedom to export, year in year out, notwithstanding domestic production and demand, is unimaginable. A farmer cannot export his onion to overseas buyers on a committed basis. If there is domestic shortage of any item, then the option should be to import rather than restrict farmers' unfettered right to export; because export cannot be a stop-and-go activity. You have to nurture your market with reliable and stable supplies.
Not that the farmer himself will do all this. Of course, traders will. But mention private trading in food grains or food items, that is unmentionable and the thinking process centres around profiteering and hoarding or what not. The suspicion about all of these is so strong that laws and rules are there for all such presumed activities.
Secondly, think of it. If you are a farmer and want to sell your product at the local mandi, you have to pay a mandi tax. Why? A natural gas company for example does not have to pay in market tax for selling its product.
As a business, Indian farming is in the sale control regime as Indian industry used to be in pre-reforms era. Reforms have not percolated into the farm sector. It is completely in the thrall of the local politician, even though it is politically correct to say that the farmer should get adequate price for his product. We have minimum support price systems for a handful of products in place. But no actual marketing freedom.
The reason this is the state of affairs is that the domestic consumers cannot be allowed to suffer – another political goal. The middle classes must get their food items at reasonable prices, no matter what is the production.
The predicament of the farm sector is that we are trying to achieve two irreconcilable goals: to ensure that the food prices in the country are not uncomfortably high and also that the farmers get adequate price.
Mere loan waiver to distressed farmers is not the solution to this predicament. Even if loans are waived in one year, distressed farmers will keep emerging. Farmers will commit suicides.Venkaiah Naidu's point about a long term solution to this endemic problem of the farm sector and occasional demands for loan waivers is fully justified. But this is politically not correct as all politicians are now shouting against him.
What are the long term solutions?
First, build farm infrastructure, namely, stocking facilities and warehouses throughout the country. This might not happen through private investment so a public investment programme should be formulated, taking into account what private initiatives could also bring in. This is particularly important for perishable items, whose prices are the most volatile. Refrigerated stock holding and refer transport network are essential to tame the volatile markets for vegetables and fruits. Additionally, processing facilities for perishables should be promoted as agro-based industrial activity. This should help contain fluctuations.
Secondly, extend minimum support prices (MSPs) for all items, including perishables to provide cushion to the market in case of over-production. Such systems of support and subsidy are in place in all countries, including in the most developed ones like the United States. Maintaining an effective MSP regime and building stock holding facilities have to go hand in hand as the former cannot be implemented without the latter.Thirdly, free up farm restrictions, including giving unfettered rights to famers' rights to sell to traders and exporters. In case of shortages, feel free to import (or give import parity price to domestic farmers). It might sometimes result in situations of shortages and exports. But be that as it may for short periods. Instead of creating sporadic shortages, these reforms will in effect raise Indian farm production to such heights that shortages would become a thing of the past. Witness how Indian pulses production rose in the last few years.
Maintaining an effective MSP regime and building stock holding facilities have to go hand in hand as the former cannot be implemented without the latter.Thirdly, free up farm restrictions, including giving unfettered rights to famers' rights to sell to traders and exporters. In case of shortages, feel free to import (or give import parity price to domestic farmers). It might sometimes result in situations of shortages and exports. But be that as it may for short periods. Instead of creating sporadic shortages, these reforms will in effect raise Indian farm production to such heights that shortages would become a thing of the past. Witness how Indian pulses production rose in the last few years.
Farm loan waiver is no solution. Had it been, then this would not have been necessary today. Loan waivers have been given many times in the past. But the real culprit is the restrictions on farmers and the refusal to admit that farming is basically another business.
(Views expressed are strictly personal)