NEW DELHI: India must focus on moving surplus labour out of agriculture into industry, services, and other productive sectors in the medium- to long-term, create efficient markets for farmers, and gradually replace commodity-linked subsidies with direct income transfers if it wants to address the structural challenges facing the farm sector, Ashok Lahiri, vice-chairman of NITI Aayog, said on Wednesday.
“Agriculture and allied sectors contribute roughly one-sixth of India’s GDP, while almost half of the population depends on the sector for its livelihood. If half the population depends on one-sixth of Gross Domestic Product (GDP), distress is inevitable. The medium- to long-term solution is to move surplus labour out of agriculture and into industry, services, and other productive sectors,” Lahiri said while speaking at the launch of a book, “Getting Agriculture Markets Right”, written by Distinguished Professor at the Indian Council for Research on International Economic Relations (ICRIER) and agriculture economist, Ashok Gulati, ICRIER fellow Raya Das and Chief Economist, NSE, Dr Tirthankar Patnaik.
Lahiri also questioned the continued reliance on subsidies and argued in favour of direct cash transfers but also accepted that it is easier said than done.
“Most economists would agree that transfers are a better mechanism than subsidies. However, transfers pose a political challenge. If a person receives 35 kg of rice every month and rice prices rise, the value of that support automatically increases. But if support is given in cash, beneficiaries may worry that the government will not increase the transfer amount when prices rise. Therefore, shifting from subsidies to transfers is easier said than done,” Lahiri said.
On the form of government support, Lahiri cited the example of sectors such as poultry, fisheries, and dairy to underscore the point that there are sectors in farming, which has grown without government’s active support in the form of MSPs.
“India’s White Revolution is a classic example. Even today, chicken prices have remained remarkably stable over long periods compared with many other food commodities. This raises an important question: Is government support necessary? My answer is that some intervention is certainly needed, but we must carefully consider its form,” he said.
He also raised concerns over the distortionary effects of the minimum support price (MSP) regime.
Citing findings from the book, he noted that fewer than 10 per cent of farmers and less than 10 per cent of the gross value of agricultural output directly benefit from MSP operations. Yet the policy continues to shape cropping decisions across large parts of the country.
Procurement remains heavily concentrated in wheat and rice, which account for nearly 78 per cent of the total procurement value. The expansion of procurement into states such as Telangana, Chhattisgarh and Odisha has encouraged cultivation of water-intensive cereals while discouraging diversification towards pulses and oilseeds, he said.
In his address, the NITI Aayog Vice chairman also argued that the MSP system was designed in an era of food scarcity when India depended on imports and needed strong incentives to boost grain production.
However, the country has since moved from shortages to surpluses, making the fiscal and environmental costs of the current system increasingly difficult to justify.
“By the early 1970s, economists were already warning that linking prices mechanically to costs of cultivation would distort resource allocation. Dharam Narain also cautioned that exporting wheat at prices above international levels would require substantial subsidies and that indefinitely accumulating stocks would be both costly and impractical. Unfortunately, that is exactly what happened,” Lahiri said in his address.
Drawing from his on-field experience as public representative from Balurghat in West Bengal, Lahiri said that in many rural areas, markets simply do not exist, particularly for small farmers, self-help groups and farmer producer organisations (FPOs).
On the political need to keep raising the MSPs of crops that are grown in abundance. Lahiri said that with rising literacy and awareness, it should be possible to explain (to farmers) that unsustainable policies cannot continue indefinitely.
“The question is not whether change will come. The question is whether we make those changes now or postpone them until the costs become even greater,” he said.
Speaking at the same book launch, Chairman of Prime Minister’s Economic Advisory Council and Former Chairman of Commission for Agriculture Costs and Prices (CACP) Dr S Mahendra Dev argued that India needs to shift its agricultural policy focus from production-centric interventions to post-harvest management, marketing and agro-processing if it wants to sustainably raise farm incomes.
Dr Ramesh Chand, former member NITI Aayog, who also spoke at the book launch event said that over time India’s agriculture policy has moved from evidence-based to political-economy based to populism-based to just where things were just decided based on whims and wishes.
He said for government policy to become evidence-based there has to be strong involvement of farmers has been the experience during the farm laws agitation.
Source: Business Standard
