New govt needs to fight inflation while bringing back focus on farm reforms

A favourable monsoon in 2024 should keep production worries at bay

As a new government takes office in New Delhi, the biggest challenge that it would face in the food and agriculture sector are the ways to manage food inflation that has got aggravated due to supply-side pressures of 2023.

Though, the good news is that the southwest monsoon in 2024 is projected to be not only good but also well-distributed.

The India Meteorological Department in its second stage forecast also said rainfed areas of the country too might get copious ‘above normal’ rains.

A good southwest monsoon over the critical rainfed regions of the country that spans across the states of Madhya Pradesh, Rajasthan, Maharashtra, Odisha, Chhattisgarh, Madhya Pradesh, Uttar Pradesh and West Bengal should augur well for the country’s pulses and oilseeds crops.

Pulses and oilseeds production along with that of cereals will help boost their domestic supplies and contribute towards keeping inflation low in the coming months.

Only, the North-East part of India might get ‘below normal’ rains in the 2024 monsoon at less than 94 per cent of the Long Period Average (LPA), the Met has predicted.

The showers are critical as the June to September four months provide more than 70 per cent of the annual precipitation that India gets.

Moreover, a good monsoon also helps in filling up reservoirs and leaving adequate residual moisture in the soil for the following rabi harvest.

Slowing farm growth

In 2024, the rains are much more crucial.

This is because, Gross Value Added (GVA) for agriculture and allied activities grew at a miserly rate of 1.4 per cent in FY24 in constant terms, the lowest since 2018-19 as a ‘below-normal’ rains in 2023 crimped output of several key crops, the latest advanced estimate showed.

In the last quarter of FY24, the sector grew by 1.1 per cent which was similar to the growth rate in the previous October to December quarter.

However, several experts believed that despite a poor monsoon, the positive growth rate of 1.4 per cent was healthy as it reflected the resilience of the farm sector and its growing delinking from poor and uneven rains.

Coming back to monsoons, the rainfall in the four months of June to September last year of 2023 was 94 per cent of the Long Period Average (LPA) which was categorised as ‘below normal’.

This was the first below-normal monsoon since 2018.

A strong El Nino alongside other unfavourable factors was the prime reason for the below-normal rains in 2023.

The monsoon after making a delayed entry in June went for an extended break in the critical month of August delivering a performance which was just 64 per cent of that month’s Long Period Average (LPA) in 2023.

The extended break in rains impacted the harvest of critical kharif and production dipped.

Thereafter, the post-monsoon showers were also extremely poor in most parts of the country in 2023 impacting the yields of some rabi crops as well.

The drop in water levels in reservoirs due to the extended dry spell also impacted irrigation activities in several states.

As a consequence of all these, food grains production in the 2023-24 crop year (July to June) is 6.2 per cent less than last year as per the second advance estimate while production of oilseeds is 11.5 per cent lower than last year and of pulses; 10 per cent less than the 2022-23 crop year.

Rice production has fallen to around 123.81 million during the year which is 8.8 per cent less than the 2022-23 crop year. The next government needs to bring growth back on track as falling growth in a sector that employs more than half of the country’s labour force could have an immense cascading impact.

Food prices

Food production drop has pushed up food inflation.

To control the same, the Central government has announced a slew of measures over the last few months starting with retaining the ban on rice exports, curbing rice exports, allowing free import of pulses and oilseeds for at least till March 2025. Stopping the exports of onion and even deoiled cakes of some oilseeds.

All these measures while helping in keeping food prices calm during the crucial election months have started hitting the growers hard.

How fast and quickly will the government reverse some of these decisions to ensure that farmers get the right price for their produce?

Already, milk prices have been hiked within days of polls ending.

Reform agenda

On the policy front, the biggest challenge for the next government will be to continue with the reform momentum which has somewhat got lost after the three farm bills were withdrawn in early 2021.

The next government will have to bring back the reform agenda back on track in agriculture.

Some experts said the government might look at reforming the input side of the agriculture sector, namely regulations and rules that govern the seeds, fertilisers and plant chemical sectors.

Sources said a blueprint on the same which is aimed at making the life of Indian farmers easier ensuring quicker approvals without compromising on the quality is in the works as part of the 100-day agenda of Modi 3.0.

In the case of fertilisers, ways to administer the subsidy more effectively and more ways to cut down on leakages and diversions to build on the success of neem-coated urea are being thought of.

A few years back, a proposal was mooted in some quarters to conduct a pilot in a few districts of the country on a modified version of the direct benefit transfer that would establish some sort of linkage between land holding and the nutrient’s consumption.

Presently, the version of DBT in place involves farmers purchasing their fertilisers through Point-of-Sale devices after undergoing Aadhaar authentication.

This ensures that the identity of the person who purchases the fertiliser bags is well established.

However, there is no restriction on the number of bags that each farmer can purchase which sometimes leads to excess usage and chances of misuse. The proposed pilot was meant to limit that.

In the case of seeds and plant chemicals, sources said lots of reforms are urgently needed as the regulatory and approval process in India takes a long time involving multiple layers.

They said the government could look at creating a favourable policy environment for the agrochemicals sector that would facilitate an increase in agrochemical exports, position India as an attractive destination for foreign investments, and safeguard the interests of small and regional players operating in the industry.

Also, the current process for registration of a new agrochemical molecule in India is often perceived as a time-consuming, costly, and complex procedure by the industry.

Only a few large multinational companies and leading domestic players can afford to invest in R&D to develop new molecules and get them registered for manufacturing and sale.

As a result, only around 280 molecules and 800 formulations (including combinations) are registered in India. Compared to India this number is just double in the European Union and triple in Japan. The industry wants reforms in the Central Insecticides Laboratory (CIL) as well to cut down on the pending lists and time taken for clearance of new applications. One of the major challenges faced by Indian agricultural exporters is the stringent rules related to pesticide residues in regions like the European Union. In the case of seeds, the problem of spurious seeds and the need for proper regulations to check their proliferation could form part of the possible reforms.