The new chairperson of the Commission for Agricultural Costs and Prices (CACP), Ashok Gulati, has used the very first opportunity available to impart his professional imprimatur to a policy report. The CACP’s report on kharif prices, presented to the government last week, has gone beyond just recommending an increase in minimum support prices (MSPs) of paddy and other kharif crops. The report has drawn attention to fundamental flaws in official policies, which continue to hurt farmers and impede agricultural growth. The CACP believes that regulations imposed by the government on trade in agricultural products prevent farmers from securing better prices and better incomes. Freer trade, including external trade, says the CACP, will benefit farmers. Many agricultural commodities, including rice and wheat, are barred from being exported. This means Indian farmers are not benefiting from rising global commodity prices. The government’s granaries are already brimming over and the Food Corporation of India (FCI) expects to pick up an additional 26 million tonnes of wheat in the next one month. In the case of rice, too, stockpiling is more than double the buffer requirement, thanks to the government’s policy of mopping up a sizeable part of the marketed surplus through either direct purchases or from rice mills as mandatory levy. Barring some varieties of basmati, no other variety of rice is allowed to be exported, though international prices are currently about double the domestic price.
The CACP has, therefore, recommended lifting the curbs on rice exports and is in favour of allowing private traders to directly buy produce from growers. Such measures can relieve the government of the needless burden of procuring and stockpiling grains far beyond its needs to feed the public distribution system and maintain a reasonable buffer for food security. More importantly, this will allow farmers to realise better returns for their produce. Higher purchases by private traders, coupled with a waiving of the mandi tax on foodgrain – which will narrow the gap between wholesale and retail prices – as proposed by the CACP, will help keep domestic rice prices at reasonable levels. The CACP report also rejects the view that liberal increases in MSPs have fanned food inflation. In fact it is non-MSP food items, especially vegetables, fruit, milk, meat and fish, that have driven recent food inflation.
Given the limited scope of FCI’s procurement operations, the CACP is in favour of non-price instruments for improving livelihood security of farmers. More effective marketing support for farmers is one such idea. Taken together, the ideas in Dr Gulati’s first CACP report offer a framework for policy reform in agriculture and can herald the much-talked about second Green Revolution. Both medium- and long-term issues as well as short-term issues, like reducing the excessive build-up of grain inventories through exports, are sensible. The CACP has rightly demanded replacing the open-ended grain procurement system with a need-based one, and letting private trade play its due role in food marketing, storage and distribution (read retail sale). This will be in the best interests of the government, farmers and consumers.