What ails Farm Sector and probable Remedy? By: Amit Bhushan Date: 8th Feb. 2016With the budget round the corner, we again have usual voices around the rural or mass India, with their pseudo-concerns about the poor farmer. Accordingly, one gets to hear the same old ragas about the distress in rural economy, lack of farm credit, high input costs, woefully inadequate infrastructure like irrigation facilities which propel low productivity, low income distress, suicides etc.
The government or political leadership, since it can't ignore these vote-banks, is bound to bring relief through subsidies or so called targeted subsidies in the current dispensation to be politically correct. What these subsidies have done over the years is not being questioned even once. These subsidies, normally veer around Minimum support price whereby government becomes a trading agent between producers and consumers, and around supports for suppliers (producers of farm inputs) like fertilizers, seeds or pesticides or diesel to sell to farmers at subsidized costs.
Given such mechanisms, the producer's propensity to take risk becomes low especially so when per capita land holdings are dwindling. Most producers would follow their neighbour so that there is adequate interest amongst buyers for their produce; which only happens if they are collectively producing a significant quantity, which can propel buyers to consider the village as some significant supplier or local mandi having potential to buy produce at a decent price without significant markdown from consumer offered price. We already see a negative bias for most horticultural products affecting producers negatively.
Also, there is little interest in differentiating amongst various input suppliers, but rather go for the least cost input. This often leads to exploitation by unscrupulous suppliers who are adept in exploiting these vulnerabilities. Cumulatively the situation leads to financial aggravation every few years, debt trap etc. What has perhaps not been tried is diversifying production, which is generally veering around horticulture or oil seeds, lentils or cash crops other than cotton/sugarcane etc., and developing enough support structure for the same.
Instead the focus has always remained on food security backed by having enough grains or sugar, and thus remain mired in the problem; even when it involves exports of these commodities which are produced using heavy subsidies.It is also correct that there have been many interventions including Information technology led interventions, some of which may be ongoing like developing national e-markets, however most such interventions are dominated by existing traders. This is because they intend to facilitate traders rather than producers and/or consumers; in part because the producers may be of use in the system for once or twice is a season, while the consumers individually have relatively small need to be catered to, by a wholesale system. The relatively bigger consumers like Hotels/Restaurants/Banquets etc. have generally been neglected from such platforms, though they have a regular buying potential, and thus may be benefited if can be connected with the producers directly.
If a regular on-going need of such bulk customers is made known to producers than there is adequate lure for some producers to diversify, however challenges would remain to bring producers most of whom may be semi-literate at best on such online platforms. The other problem is way agri-processing units are treated via tax regime. A restaurant serving ready-to-eat food is required to pay very little taxes on input raw food and just has to do with service tax (with possibilities of avoid the same for smaller units), however a large food processing unit is subject to multiple administrative checks and multiple taxation layer at centre as well as state. These units have to compete with multiple small vendors for the same consumer's wallet share. No wonder, large units, who could make a difference in processed food segment are missing from scene barring a few areas.
The government may officially have a policy to support such units which may include subsidies, tax breaks etc., however the logistics or tax woes almost completely neutralize these incentives over the long run. The vote-bank politics around protecting the small trader ensure that such scheme of things are almost never going to be disturbed, no matter the rhetoric.What is however curious, that even the states who are largely food importers (from other states) like Bihar, West Bengal or North-east etc. have largely followed the same subsidies and distribution model rather than devising something which could have been more relevant to the producers/consumers in these states.
Likewise little value addition goes for the mangoes or fruits or vegetables/milk/poultry produced in these states (especially by agri-processing units within these states). The market management in almost all these states except Bihar is almost similar and tends to reward producers following the herd approach rather than promoting diversity in production base. Also the technology interventions including information technology interventions, have had one size fit all approach.
This is even as some of these states having greater land and population than some of the small countries which may have better agri-practices. We still continue to have song and dance about federalism as well as talks around vote-banks. While the government/political leadership almost have always tried to make attempt to address Farm woes, what has been neglected is attempting to address the segment of entire rural economy in an integrated fashion. Such attempts at diversification of rural economy by rural agri-processing large units backed by suitable tax regime may be a key whereby which people diversify within the sector to higher value goods backed by adequate support structure from large units and thus improve the strength of rural economy.
The government or political leadership, since it can't ignore these vote-banks, is bound to bring relief through subsidies or so called targeted subsidies in the current dispensation to be politically correct. What these subsidies have done over the years is not being questioned even once. These subsidies, normally veer around Minimum support price whereby government becomes a trading agent between producers and consumers, and around supports for suppliers (producers of farm inputs) like fertilizers, seeds or pesticides or diesel to sell to farmers at subsidized costs.
Given such mechanisms, the producer's propensity to take risk becomes low especially so when per capita land holdings are dwindling. Most producers would follow their neighbour so that there is adequate interest amongst buyers for their produce; which only happens if they are collectively producing a significant quantity, which can propel buyers to consider the village as some significant supplier or local mandi having potential to buy produce at a decent price without significant markdown from consumer offered price. We already see a negative bias for most horticultural products affecting producers negatively.
Also, there is little interest in differentiating amongst various input suppliers, but rather go for the least cost input. This often leads to exploitation by unscrupulous suppliers who are adept in exploiting these vulnerabilities. Cumulatively the situation leads to financial aggravation every few years, debt trap etc. What has perhaps not been tried is diversifying production, which is generally veering around horticulture or oil seeds, lentils or cash crops other than cotton/sugarcane etc., and developing enough support structure for the same.
Instead the focus has always remained on food security backed by having enough grains or sugar, and thus remain mired in the problem; even when it involves exports of these commodities which are produced using heavy subsidies.It is also correct that there have been many interventions including Information technology led interventions, some of which may be ongoing like developing national e-markets, however most such interventions are dominated by existing traders. This is because they intend to facilitate traders rather than producers and/or consumers; in part because the producers may be of use in the system for once or twice is a season, while the consumers individually have relatively small need to be catered to, by a wholesale system. The relatively bigger consumers like Hotels/Restaurants/Banquets etc. have generally been neglected from such platforms, though they have a regular buying potential, and thus may be benefited if can be connected with the producers directly.
If a regular on-going need of such bulk customers is made known to producers than there is adequate lure for some producers to diversify, however challenges would remain to bring producers most of whom may be semi-literate at best on such online platforms. The other problem is way agri-processing units are treated via tax regime. A restaurant serving ready-to-eat food is required to pay very little taxes on input raw food and just has to do with service tax (with possibilities of avoid the same for smaller units), however a large food processing unit is subject to multiple administrative checks and multiple taxation layer at centre as well as state. These units have to compete with multiple small vendors for the same consumer's wallet share. No wonder, large units, who could make a difference in processed food segment are missing from scene barring a few areas.
The government may officially have a policy to support such units which may include subsidies, tax breaks etc., however the logistics or tax woes almost completely neutralize these incentives over the long run. The vote-bank politics around protecting the small trader ensure that such scheme of things are almost never going to be disturbed, no matter the rhetoric.What is however curious, that even the states who are largely food importers (from other states) like Bihar, West Bengal or North-east etc. have largely followed the same subsidies and distribution model rather than devising something which could have been more relevant to the producers/consumers in these states.
Likewise little value addition goes for the mangoes or fruits or vegetables/milk/poultry produced in these states (especially by agri-processing units within these states). The market management in almost all these states except Bihar is almost similar and tends to reward producers following the herd approach rather than promoting diversity in production base. Also the technology interventions including information technology interventions, have had one size fit all approach.
This is even as some of these states having greater land and population than some of the small countries which may have better agri-practices. We still continue to have song and dance about federalism as well as talks around vote-banks. While the government/political leadership almost have always tried to make attempt to address Farm woes, what has been neglected is attempting to address the segment of entire rural economy in an integrated fashion. Such attempts at diversification of rural economy by rural agri-processing large units backed by suitable tax regime may be a key whereby which people diversify within the sector to higher value goods backed by adequate support structure from large units and thus improve the strength of rural economy.