Tuesday, November 17, 2009

Agriculture Economics & the Blame Game

The FM yesterday lambasted the “inefficient farm market” for food price spike (source: ET).

This sounds extremely funny esp. when it comes from the mouth of the government, which fails to appreciate the policy instruments in its own hands. The government has no right to blame anyone for India’s ineffective food policy and inefficient agrarian market & let me explain why. Apart from the woefully inadequate infrastructure, reliance on monsoons & small size of land holdings; a major reason for the poor state of Indian agriculture & food market is poor government intervention.

- The food policy has so far been characterized by various kinds of input subsidies. The problem is that, unlike support for extension of irrigation or adoption of new technology, most of these subsidies (e.g., on electricity, water or fertilizer) are not of an once-for-all nature and hence do not cause an enduring increase in productivity. In general, for attaining a targeted increase in output, input subsidies are much less efficient than production subsidies, remembering that the latter leave it to farmers to choose inputs on the basis of their relative costs and productivity.

- The major beneficiaries of procurement at MSP (minimum support prices) are the big, not marginal farmers. There is a systematic and considerable overestimation of consumer subsidy & the net subsidy to the poor Indian consumer through Public Distribution & Ration system is actually negative! (source: Mihir Rakshit)

- Moreover, the government cannot set all the policy instruments independently. Thus a higher minimum support price needs to be accompanied with let’s say larger FCI accumulation of food stocks. The ineffective food policy pursued over the last four to five years may thus partly be traced to inadequate appreciation of such policy constraints.
Guess, it is time to remind the FM that he CANNOT blame anyone but himself, his team & his predecessors!

7 comments:

Nagendra S said...

Good one! But when food policy and such 'input subsidies' becomes a part of the election manifesto, it becomes hard to contain. The problem starts even before the Govt is voted to power.

Aashi said...

Nice blog!! but this post is soo geeky. Typical IIM kinds :P

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Harish Kumar said...

Excellent !!! But the problem with Indian politicians is that they do not have a vision and do not know how to make India a super agricultural power when the entire world is running out of supply shortages. We have everything to become an agricultural nation, we have the land,climate and people. Everything supports us but still every now and then we keep hearing the politicians saying all kind of nonsense. So, FM here is just a mere puppet and we need to have excellent long term planning to become a agricultural nation which till today also we are not seeing it and mind you we will still keep hearing these things in the coming days by these guys. "Respected people, we are trying our level best to cool the prices off but this is just a global phenomena and speculation" So, best thing we can do is by banning futures trading on commodities and everything will be allright in a week's time. Dont worry!!!