Funding Punjab crop diversification critical

 Financial Express

December 07, 2020

Sunil Jain

But onus lies on the state government as it has to ensure the crop-switch takes place once Centre pays its share of costs.

With the Union government and the agitating farmers failing to resolve the issue when it was not so full-blown—the Punjab government is also to blame since, at the very least, it didn’t help lower tensions—it is clear there is no real winner, no matter how the impasse ends. The Centre can’t afford to have the national capital blockaded or the agitation spreading; truck operators have threatened to join in support of the Punjab farmers who have now announced a Bharat bandh to add to the pressure on the Centre. Indeed, the farmers won’t go back till they get some meaningful concessions. More important, even if the Centre gives the farmers a written promise to continue its unlimited MSP-based procurement from the state—and hope that farmers from the rest of the country don’t demand this as well—they will continue to lose.

Should the Union government cave in to the demands of the farmers, the larger lesson to anyone who wants concessions—think of all the caste groups who want more reservations, to begin with—is that holding the capital to ransom is a sure shot way to get what you want.

While MSPs for wheat and rice are raised from time to time, there is a limit to how much they can be hiked since, once prices rise above market-clearing levels—with wheat MSP above global prices, even exports are no longer an option—the government is left holding stocks it cannot possibly liquidate; FCI has around 30-40 million tonnes of extra rice and wheat already. This makes finding a solution critical for even the Centre since continuing with the current system—as it has promised to do so—hurts it as well. As for the Punjab farmers, with the bulk of them continuing to grow wheat and rice—the smarter ones have switched to citrus and other crops/livestock—the state’s agriculture GDP growth has plummeted. Agri-GDP grew by 5.7% a year between 1971-72 and 1985-86 versus India’s 2.3%; both Punjab and India grew at roughly the same 2.9-3% between 1986-87 and 2004-05, but, in the period since, Punjab’s agri-GDP grew at just 1.9% versus India’s 3.5%. So long as Punjab’s farmers continue to get MSP support, and this keeps them wedded to rice and wheat, they will keep losing out to those, in Punjab and elsewhere, who grow more lucrative crops.

This slowing farm growth in a state that was once India’s most dynamic is the real issue, not the survival of the mandis though the farmers have flagged this as well; the argument is that, once new mandis are allowed, the existing APMC ones will die. The fact that, even after spending billions of dollars, online retailers such as Amazon and Walmart-Flipkart have such a small market-share is surely proof of the resilience of traditional market structures. It is,though, natural that the existing mandis, those that operate in them, and the Punjab government that earns so much from them should be worried. Punjab collected Rs 1,750 crore of mandi taxes in FY20 and an equal amount by way of a rural development cess on mandi sales. And though the arhatiya hardly has a role given FCI is doing almost all the procuring—in private trade, the arhatiya is responsible for both payments to farmers as well as the quality of the produce—arhatiyas earned a commission of Rs 1,460 crore in Punjab in FY20! Their role in the agitation cannot be ignored.

Any long-term solution to Punjab’s crisis—no matter what the Centre agrees to over the next few days—has to focus on the issue of moving the farmer to more value-added activities. Interestingly, for those who argue that there wasn’t adequate consultation with farmer groups—or even with political parties including former BJP ally Akali Dal—before the new laws were passed, it is worth keeping in mind the issue of the need to wean Punjab from wheat and rice was something the Johl committee had recommended way back in 1986! As for whether non-APMC markets are needed, the Congress party had promised this in its 2019 election manifesto and, as it happens, the first real step, to move fruit & vegetables out of the sole purview of the APMC, was taken when the UPA was in power.

Moving farmers addicted to the certainty of wheat and rice won’t be easy, but the trick lies in replicating the assured markets that MSPs offer. Ideally, given rice’s water consumption, the best bet is to move acreage from paddy to maize which can be used not just for poultry- but also as animal-feed; as animal-feed, it even raises milk productivity dramatically. What is required are gap-payments to farmers to move to alternative crops that either take a longer time to fruit—citrus for instance—or that offer lower value initially. Indeed, experts argue that once 25-30% of the rice acreage—rice is grown on three million hectares—is moved to maize, this will ensure other industries come up in Punjab, like those to make corn products or milk processing; in a paper on getting Punjab back to a high-growth path, Ashok Gulati, Ranjana Roy and Siraj Hussain had pointed out that just 3.6% of Punjab’s gross cropped area was devoted to fruit & vegetables versus 8.3% at the all-India level. Once alternative crops become viable as support industries come up, more diversification will take place on its own.

It is not clear how large the gap-payments need to be, but many feel it could be around Rs 4,000-5,000 crore a year for three-four years at the most. Not all of this has to be paid by the Centre; Punjab will save on electricity subsidies given maize uses a fraction of the water that rice does; the restoration of the water table is another big positive. The Centre, in turn, will save from the mountains of dead stock that FCI buys from Punjab—the extra stock costs `5,600 crore a year —as well as on fertiliser subsidies. Funding a crop-diversification programme is a win-win, for the farmers, for Punjab, and the Centre.

Ideally, then, the Centre and the state need to sit down and work out a realistic level of payments that need to be made as well as the work that needs to be done, such as helping set up processing units in the state. Whether the Congress party fuelled the agitation or not, or whether it has attained a momentum of its own is irrelevant; for any solution to work, Punjab CM Amarinder Singh needs to regain the charge since only the state administration can deliver on the diversification promise, apart from being held accountable for it.

https://www.financialexpress.com/opinion/funding-punjab-crop-diversification-critical/2144466/