The Reform and Welfare India Needs
Context:
Agricultural pricing, whether for outputs or inputs, is fundamentally shaped by the forces of demand and supply in a market economy. However, in India, government intervention often distorts this natural equilibrium, creating inefficiencies that stifle progress.
Role of Government
- While governments undeniably have a role in agriculture, their primary focus should be on ensuring markets function efficiently.
- This involves investing in information symmetry, improving physical infrastructure, and fostering value chains that reduce price gaps between farmers and consumers.
- Additionally, promoting futures markets and options can help farmers make informed planting decisions based on anticipated prices rather than relying on outdated data.
- Such forward-looking reforms resonate with the economic liberalisation India embraced in 1991 under the stewardship of Dr. Manmohan Singh.
- However, agriculture remained largely untouched during these reforms, partly because it was viewed as a state subject.
The Legacy of MSP and Its Challenges
- India’s Minimum Support Price (MSP) system, introduced in 1965 through the Agricultural Prices Commission (APC), was conceived to address the acute food shortages of the 1960s.
- Back then, India relied heavily on wheat imports under the PL 480 program from the United States.
- The Green Revolution, initiated with high-yielding wheat seeds from Mexico, further justified the MSP framework, which was designed to ensure food security for a population of 500 million.
- Fast forward to today, India has transformed into a global agricultural powerhouse, feeding 1.43 billion people and becoming the largest exporter of rice.
- Despite this progress, the MSP system has outgrown its original purpose.
- The basket of crops under MSP has expanded due to political pressures, while open-ended procurement of wheat and rice, especially in Punjab and Haryana, has led to ecological imbalances.
- Excessive rice production, driven by free electricity and subsidised fertilisers, has resulted in groundwater depletion, soil degradation, and greenhouse gas emissions — an ecological crisis in the making.
Rethinking Agricultural Subsidies and Inputs
- The MSP framework now demands a thorough reevaluation.
- Rather than legalising MSPs, the focus should shift toward deregulating the pricing of agricultural products and inputs such as fertilisers and electricity.
- Furthermore, India’s highly regulated land markets, which restrict leasing, need to be liberalised to enhance productivity.
- The current system of free grain distribution under the Public Distribution System (PDS) exacerbates inefficiencies, locking India into procuring 60 million tonnes of grains annually to sustain the program.
- Digitalisation of food systems presents an opportunity to transition toward direct cash transfers.
- By targeting beneficiaries based on need, the government can allocate subsidies more efficiently, ensuring the extremely poor receive significant support while those above the poverty line receive less.
- Similarly, aggregate input subsidies could be distributed on a per-hectare basis, replacing price controls on inputs like fertilisers and power.
- The savings generated through such reforms could be reinvested into critical areas like agricultural research and development (R&D), irrigation, rural infrastructure, education, and skills training.
India’s aspirations for a “Viksit Bharat” (Developed India) by 2047 require bold reforms. Competitive populism — manifested in free food, power, or highly subsidised fertilisers — is not welfarism but a form of political bribery. It undermines the nation’s long-term development goals by fostering inefficiencies and diverting resources from critical investments.
True agricultural reform calls for a shift from short-term populism to long-term sustainability. By aligning policies with market principles, empowering farmers with information, and investing in infrastructure, India can realise its full agricultural potential. Such reforms will not only elevate the sector but also drive India closer to its vision of becoming a global economic leader by 2047.
