Dr Bharat Jhunjhunwala
THE Government has again decided to increase the support price of wheat. This will lead to yet more production. The Food Corporation of India (FCI) does not have storage space for keeping the bumper harvest of previous years. The problem will be made worse by further increase in the production in the current and coming years.
Production of foodgrains is likely to continue increasing which will require ever more storage space. A factory cannot run in profit by manufacturing goods and storing them in godowns for long periods. The burden of interest will mount and quality of stored goods will deteriorate. It is better to cut production instead of increasing storage. So also with wheat. Storage beyond the buffer stock requirements is not good.
Another problem from excess production is that prices move downwards and farmer incurs losses. This is happening wherever FCI is unable to buy the wheat. Farmers are selling to middlemen at low prices. The burden of diesel, electricity and fertilizer subsidies on the Government continues to increase. Increased production means increased usage of these inputs and, therefore, increased burden of subsidies. The long term productivity of agriculture is also declining. Ground water is getting depleted at a rapid pace. The numbers of ‘dark’ blocks where ground water level is falling rapidly due to over extraction has increased from 253 in 1989 to 428 in 1999. Use of large amounts of chemical fertilizers is depleting the organic content of the soil which is necessary for the beneficial bacteria to grow. This is leading to decline in productivity of the soil and necessitating ever-increasing doses of fertilizers which, in turn, leads to yet more depletion of the soil.
Financial condition of the State Electricity Boards is deteriorating because of growing burden of free or subsidised power supplied to the farmers. Finances of Government of India are under strain because of the increasing burden of subsidies. This has led to increase in fiscal deficit and rating agency Standard and Poor’s has changed the outlook from positive to negative on India. The downgrade will have a cascading negative impact on the economy. There was some justification for bearing all these negative impacts if we had problem in feeding our people. But there is no justification of bearing these costs for producing unwanted excess production.
One suggestion for dealing with the problem is to increase the quota of BPL and APL households in the Public Distribution System so that the offtake of grains is pushed upfront and pressure on storage is reduced. This will not be much helpful. The release of additional stocks from FCI will be matched by increase in private stocks. Demand in the market will decline. The homemaker buys fewer vegetables from the market if she gets more from the kitchen garden. Similarly households will buy less from open market if release from FCI is more. The total storage requirement of the country will not be much reduced.
Second suggestion is to encourage consumption of meat. This is wholly in the wrong direction. Prof Utsa Patnaik of Jawaharlal Nehru University tells that grains consumed directly provide 24,150 calories per kg. The same grains when fed to animals and consumed as meat provide only 1,140 calories. In other words, it takes about ten times the land, water and fertilizer to feed people with meat. This is leading to increased pressure on our water and land resources. Further, meat is consumed more by the rich. That leads to widening of the chasm between the poor and rich. The poor suffer the consequences of depletion of groundwater and soil productivity.
Third suggestion is to export the excess stocks. This is not acceptable. It will only lead to increased consumption by rich in foreign countries instead of rich in the country. The negative impact on our environment and burden of subsidies on the government will not be reduced. Indeed, Government of India will be imposing tax on people of India to subsidize consumption by people in foreign countries.
Fourth suggestion is to increase production of cash crops like sugar cane, grapes, flowers, silk and biodiesel. This will not solve any problem. Burden of subsidy on the government will continue to increase unabated. The diesel, electricity and fertilizer used in producing these crops will continue to be mostly consumed by the rich. The deterioration groundwater and of soil health will also continue. In fact, these problems can get worse because cash crops typically use more water and fertilizers. It must be accepted though that cultivation of cash crops can provide some relief to the farmers. They may be able to get higher price for their produce.
None of the suggestions given by mainstream economists are acceptable because the three problems of inequality, deterioration of water and soil, and burden of subsidies on the government are made worse. My suggestion is to remove all subsidies on diesel, electricity and fertilizers. This will spontaneously lead to lower production and solve the problem of storage that we are grappling with at the present. This will lead to increase in cost of production of foodgrains. Purchases may be done at this increased price. Presently the cost of production of wheat would be about Rs 10 per kilo and sale price is about Rs 12 per kilo. The cost of production may increase to, say, Rs 20. But farmer will be mighty happy if FCI buys it at Rs 25. Benefit will be that increased price of diesel, electricity and fertilizers will lead to more prudent use by the farmers. The burden on the earth will reduce. The money saved from dismantling of subsidies may be distributed directly among all households in the country in cash. The common man will not be adversely affected because he will be receiving free cash with which to buy the grains.
Part of money saved from subsidies can be given to the farmers for more benign purposes. Subsidies can be given for planting trees on edges of the fields. The farmer will get subsidy now and also reap profits from sale of fruit or timber later. Such subsidy will be especially beneficial for plantations made on barren lands. These lands will become productive in a decade or so. Subsidy can be given on organic crops. That will lead to the preservation of soil health and also save us from any calamity arising from chemical-induced crop diseases. Subsidy can be given for water conservation measures like making of bunds on the edges of the fields.
Increase in production of wheat provides us with a golden opportunity to provide relief to the farmer, common man and mother earth. It is unfortunate that Manmohan Singh is working in the opposite direction by looking at more exports.
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