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Farm support in a drought year

THE UNION CABINET has shown considerable resolve in accepting the first recommendations of the Commission on Agricultural Costs and Prices (CACP) and setting the minimum support price (MSP) for paddy during the kharif season at the same level as last year. However, this is not the end of the matter because the Ministry of Agriculture is currently processing a subsequent set of recommendations by the CACP, prepared at the behest of the Ministry, that demands a Rs. 20 a quintal bonus for paddy procurement as part of a Rs. 4,000-crore farm package. This is an extraordinarily difficult year for Indian agriculture which does call for special assistance. But in formulating aid packages, the Government should separate specific allotments of relief for farmers in areas hit by rainfall scarcity from universal concessions that could become permanent give-aways.

What is unusual about the Government's decision on paddy MSP is that for the first time in more than a decade it has not tinkered with the CACP's suggestions. It was an ad-hoc modification of past CACP recommendations which contributed to mismanagement of the cereal economy during the 1990s. The latest decision is, however, good only as far as it goes. There are three other important issues, two of which have not had the desired attention from the Government. The first of the three issues is the timing of the announcement. If the MSP is to influence sowing decisions, it should be announced before the crop season and not when the first harvests are beginning to arrive in the market. Such long delays in announcing procurement prices attract the kind of protests that have been taking place in Punjab in recent days. The second is that the Government has lost the first opportunity to implement the recommendations made recently by the high-level committee on long-term grain policy. That would have involved setting an MSP lower than before (accompanied by temporary direct income payments to farmers to compensate for losses) and also reforming the public distribution system (PDS). The 2002 drought may have pushed the problems of procurement and the PDS to the background, but since substantive reform is urgently required and can be implemented only over a period of time, the Government could not afford to use the drought as an excuse to postpone change. As the Government of Tamil Nadu's decision to withdraw from procurement and reduce subsidised allocations to the PDS shows, the problems have already percolated to the States.

The third and most important area in which the Government's actions will be watched is how it responds to the CACP's relief package. While a moderate revival of the monsoon in August has meant that 2002 will not see the "worst drought of the century", the situation is serious enough to call for Government intervention on a major scale. The CACP package — a procurement price bonus, interest rate waivers and roll back in fertilizer prices for all farmers in all parts of the country — is more an exercise in populism. Since the drought has not been universal, relief should be based on an identification of the areas affected and the crops that have suffered the most damage. Support could then take the form of direct income payments or even waiver of interest on crop loans in the affected areas. From the point of view of assisting farmers in a drought year, there is also little point in rolling back fertilizer prices after the kharif crop has been harvested. It is also peculiar that "a procurement bonus" payment is used in times of plenty as well as of a shortfall in production. Bonuses were offered in the mid-1990s when there were bumper harvests and there are proposals to offer them now as well when there is a decline in production. Unfortunately, 2002 is turning out to be a year of huge bailouts and relief packages. The Rs. 14,000-crore bailout of UTI has been followed by an equally large one for fiscally-strapped State Governments and large packages are being prepared for a couple of financial institutions. Irrespective of the merits of the case, the Government will be trapped into providing a package of a similar size to Indian agriculture.

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