Rains alone won't help; India needs reforms

Key farm inputs like seeds and fertilisers still suffer from needless controls and official interventions

Optimistic forecasts of this year's monsoon have, predictably, caused much cheer. It is hoped that it would lift agricultural output and incomes, stimulate rural demand for goods and services and restrain food inflation. The confidence on this count is not confined to the sectors that are likely to benefit directly from the impact of normal rains on agriculture, such as suppliers of inputs like seeds, fertilisers, pesticides and farm equipment or the bulk consumers of agri-commodities for processing and trade. It spills over to a variety of other sectors as well, such as the auto industry, consumer goods, construction and a whole range of services which can potentially benefit from the expected higher disposable income in rural areas. Reserve Bank of India (RBI) Governor Raghuram Rajan has indicated that a rate cut might be considered if the monsoon is good and inflation remains moderate.

The India Meteorological Department (IMD) has predicted monsoon rainfall this year will be six per cent above the long-period average. This is in line with the projections made by many other weather forecasters, foreign as well as domestic. The most notable feature of these prognoses is that the rains are likely to be fairly well-distributed. Northeast and parts of southeast India - Tamil Nadu and adjoining Rayalaseema - may face some rainfall deficit but that may not be large enough to depress farm output to any significant extent.

However, after the well-founded initial excitement, the economic pundits are now realising that good times are still some distance away. Any advantages would begin to accrue only from the second half of the current financial year, October onwards, when the kharif crops are harvested and marketed. In the meantime, rural distress may worsen further. An important point to bear in mind is that though ample rainfall enhances chances of a good harvest, it does not automatically assure higher farm incomes. That depends on numerous other factors, the most notable among them being competently managed input supplies and efficient marketing of output. These, sadly, are the areas which have not received due attention.

Key farm inputs like seeds and fertilisers, for instance, still suffer from needless controls and official interventions. Recent capping of the sale price of Bt-cotton seeds and the continued government control over the most consumed fertiliser, urea, are cases in point. While the price caps on hybrid seeds and indecisiveness on the fate of genetically modified seeds tend to deter private research on seed improvement, the failure to liberalise the urea sector has frittered away the likely gains from the nutrient-based subsidy policy. This apart, the irrigation sector which is vital to impart drought resilience to agriculture, has not seen any worthwhile reform. The state governments' tendency to supply power free or at highly concessional rates to the farm sector is proving counterproductive. In the pesticides sector, circulation of spurious chemicals is rampant. They damage the crops and cause heavy losses to farmers. Agricultural marketing, too, remains by and large in a shambles despite initiatives to reform it by prevailing upon the states to amend their agricultural produce marketing committee (APMC) Acts. The newly launched electronic platform for agricultural trading will take years to show results. Unless such vital aspects are suitably addressed and the farm sector is adequately reformed, gains from good monsoons may not be realised in full measure in the near future.