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Plateful of reforms

March 19, 2008

It is ironical and somewhat paradoxical that India is amongst the top two producers for most agricommodities, despite Indian agriculture continuing to lumber along at around 2 per cent growth rates. For a very long time, the Indian farmer has been denied a reasonable price for his produce because the interests of Indian consumers have dominated public policy. In recent times, an unprecedented confluence of factors (see Agflation; Food on a Burn? on page 93) is conspiring to lead to a sustained increase in global prices of virtually all agri-commodities. Some of those ripples are being felt in India too, at least for the commodities that we import, notably edible oils and more recently wheat. Internally too, we have seen blips in some prices, which have mostly been attributed to supply constraints, yet by and large India has been insulated from any dramatic impact—mainly because we are mostly self-sufficient.

Rising prices: Another reason for Indian consumers to worry
Rising prices
It seems it’s time now to allow the Indian farmer to benefit from rising prices in global markets. What then of the Indian consumer? Are there reasons to worry? Not immediately. If we did end up importing around $5 billion (Rs 20,000 crore) worth of food items in 2006-07 then it serves us well to remember that our food-related exports are in the range of $13 billion (Rs 52,000 crore). Yet, what will possibly benefit the consumer more than any artificial holding down of prices will be a cleaning up of supply side issues. For around 80 per cent of the 1.1 billion Indians who live on less than $2 (Rs 80) per day, it is grains, mostly rice and wheat, which matter. And here it is reassuring to know that wheat and rice stocks at the beginning of January were at comfortable levels. Economists point out India can survive a single drought year without too much trouble. A second consecutive drought year may, however, put food management into stress. The Public Distribution System, which attempts to provide food subsidy to the poor, is an inefficient, leaky bucket. Studies have shown that it takes Rs 5.37 to transfer one rupee of income to the poor through the PDS.

As incomes grow and Indians start consuming more non-grain items, the ‘inefficient’ self-sufficiency will start getting stretched. The pilot project in Haryana and Chandigarh using technology (smart cards) to plug PDS leakages is heartening. The government, too, seems to be doing the right things by setting up the National Food Security Mission and focussing on irrigation. Yet, it is clear much more needs to done and done fast.

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