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Perils of over promising

By Ashok Gulati

It is a season of promising freebies to lure voters. The Congress leads in making these promises. The party has promised to waive farmers’ loans in Chhattisgarh within 10 days if it is voted to office. It has also promised a hike in minimum support price (MSP) of paddy to Rs 2,500/quintal, up from Rs 1,750/quintal. This is a 43 per cent raise over the already increased MSP of paddy. In Madhya Pradesh, the party has promised to waive loans up to Rs 2 lakh, MSPs as per the M S Swaminathan formula, a pension of Rs 1,000 per month to marginal farmers above the age of 60 and Rs 51,000 to small holders for their daughters to be married.
When a political party is out of power, it can promise the moon, but when in office, it delays fulfillng its own promises because they are often not in sync with budget realities or any rational long-term vision for the farm sector. The BJP has not been better. It promised to waive farmers’ loans in Uttar Pradesh when it was not in power. In fact, the prime minister promised that the first meeting of the UP cabinet would announce a loan waiver if the BJP were to be voted to power. This seemed to have worked. The Congress seems to have quickly learnt these tricks and is now promising loan waivers in almost all the major states in which polls are due.
If the electioneering in Chhattisgarh and Madhya Pradesh is any indication of things to come, next year’s parliamentary election could see political parties promising to waive farmers’ loans in other states, hike MSPs and give pensions to aged farmers. All this could cost the exchequer anything between Rs 2 to 3 lakh crore. The Congress often asserts that if the NDA government can “waive” Rs 2 lakh crore for a few industrialists in the name of “restructuring their NPAs”, what is the harm in waiving the loans of millions of farmers.
The question, however, is: Will these freebies put Indian agriculture on sustainable high-growth path and augment farmers’ incomes? The simple answer is “no”. In fact, they may worsen the condition of agriculturists over the medium to long run. These band-aid solutions will eat into the scarce resources of the sector, shrink public investments in agriculture and lower growth in this sector. Such promises of freebies take away the focus from structural reforms that are urgently required in the agriculture sector.
The prime minister’s promise to double farmers’ real incomes by 2022-23 cannot be realised with loan waivers and higher MSPs. Even the current MSPs of kharif crops that were announced on the formula of 50 per cent margin over cost A2+FL does not give much comfort to farmers as the market prices of most kharif crops are way below (10 to 40 per cent) these MSPs. Promising even higher MSPs is rubbing salt on the wounds of farmers. Why doesn’t the Election Commission reprimand political parties for making such unrealistic, irrational, and irresponsible promises?
What Indian agriculture and farmers need from political parties is the promise to usher in structural reforms. These include getting the agri-markets right so that farmers get fair prices for their produce, ensuring that farmers have access to best technologies from the Indian Council of Agriculture research, CGIAR or the best private sector companies, local or global. This would require augmenting investments in agri-R&D, and fixing the weak Intellectual Property Rights (IPR) regime. This would also require massive investments in better water management technologies, fertiliser use management, improved organic culture and bio-technologies, including GM technologies. These have to be coupled with institutional reforms in land management by freeing up land-lease markets and reforms in agri-credit markets by increasing the reach of institutional credit to small and marginal farmers — rather than giving heavy interest subvention. MP, for example, gives agri-credit at zero interest rate when the informal sector charges rates that range above 24 per cent per annum. Streamlining crop-insurance — the Pradhan Mantri Fasal Bima Yojana — and e-NAM would take time, and require a lot of perseverance. The Essential Commodities Act needs to be drastically pruned and reformed. Export and domestic marketing policies need to be liberalised.
Unfortunately, the time horizon of our political parties is very short and no wonder they are myopic in their election manifestoes. They cannot wait for their investments to bear fruit, which can take three to five years, if not more. So, they promise freebies galore, while investments take a back seat and structural reforms are not even mentioned. The result is clear: The critical problems of agriculture remain unaddressed and there is no appreciable rise in the income of farmers. From 2002-03 to 2015-16, based on NSSO and NABARD surveys, farmers’ real incomes have increased only by 3.6 per cent per annum. Doubling farmers’ real incomes by 2022-23 over a base of 2015-16 requires a growth rate of 10.4 per cent per annum. More than two years have passed and so far the growth rate has been below 4 per cent. So in the remaining period, doubling farmers’ incomes will require a growth rate of about 13 percent per annum. This is akin to promising an overall GDP growth rate of about 20 per cent per annum for the next five years, when the actual GDP growth rate is less than 8 per cent per annum. Is it not taking the voters for a ride?