The Hindu Business Line : Implications of collapsing farm prices

IN presenting his Budget for 2002-03, the Finance Minister, Mr Yashwant Sinha, will have to balance the various pulls and pressures of the several lobbies around him. The corporate sector, which is primarily in the manufacturing and financial sectors, is asking him to reduce its tax burden and to cut interest rates further to enable it to earn more net profits.

The idea that the corporate sector is in a recession has been dinned into his ears so much that one by now expects him to concentrate on satisfying the wishes of this lobby. But that would be a tragedy, for the more serious economic problem is in agriculture. Mr Sompal, of the Planning Commission, has publicly stated that by and large agriculture's problem is one of surplus.

This is rather strange because, if he is correct, there should be no more investment in agricultural expansion. But the Planning Commission wants an expansion in agricultural output of at least 4 per cent per annum. The Planning Commission has taken for granted that the problem is one of promoting investment in agricultureAgriculture is important also because a substantial portion of the population depends on it. Following the classical practice, the excess national product over minimal wage-goods consumption constitutes the surplus, which is the source for savings and investment. Graph 1 reveals the picture in respect of the years 1990-91 to 2000-2001.

The surplus proportion in NDP is going up, and this is natural in a developing economy. But savings as a proportion of surplus are decreasing. This should be a matter of serious worry for the Finance Minister. The proportion of investment in agriculture to surplus has been falling during the last three years — exactly opposite of what the Government wanted to achieve.

In fact, it was in Mr Deve Gowda's Government that, after 1991-92, the proportion of investment in agriculture moved up. The Graph also indicates that the proportion of investment in agriculture to savings has also been falling. Actually, this proportion has come down by 50 per cent since 1990-91. Clearly, something is seriously amiss in the economy.

Does the Government share the view that agricultural production has now become a surplus and that, except through expansion of exports, there is no way the additional production can be absorbed at home?

The Table indicates the monthly trend rates in the price changes of some agricultural commodities. Also given, for comparative purposes, is the trend rate of change in manufactured products. The data is from January 1999 to January 2002. The Table should be of special value to the Commerce and Industries Minister, Mr Murasoli Maran, and the Commerce Ministry, which is playing down the impact of WTO obligations on domestic prices. The following commodities have witnessed a falling trend rate of change in prices: betelnut, coconut, coffee, tea, condiments and spices, tobacco, cashewnuts, onions, oilseeds and raw cotton.

The prices of food articles have risen at a monthly trend rate of 0.3 per cent; the prices of foodgrains so far show no major positive trend or negative trend. However, raw rubber has shown a trend rate of rise less than that of food articles and all commodities. Relatively, its prices have also fallen. In Karnataka and Tamil Nadu, especially, coffee growers have been facing distress because of the sharply dropping price trend rate.

Tea producers in Assam, West Bengal and South India are also facing a similar problem. Raw cotton producers in Maharashtra and Andhra Pradesh have also been in difficulty because of the falling price trends of their product. Oilseeds producers, especially in Gujarat, must be facing severe problems because of the falling price drifts. Coconut producers in Karnataka, Kerala and Goa are in considerable distress, also because of the disease affecting coconuts.

Onion producers are also facing problems all over India, especially in West Bengal. Rubber producers are facing stiff competition from imports, especially of synthetic rubber. Millions of farmers, more than the population engaged in industry, are concerned because of the falling price drifts in agricultural commodities.

One wonders whether the Central Ministers are even seriously conscious of the agricultural crisis and the suicides of farmers. It is strange that the Commerce Ministry seems to think that all is OK with agriculture. As millions of producers, whose incomes have fallen, have been unable to make purchases of reciprocral foodgrains, it is clear why, with such high growth rates of money supply, food prices have not been rising; and why there is a glut of stocks with the Food Corporation of India.

The Agricultural Prices Commission is mostly worried about the problems of growers of rice and wheat. Even Mr Joshi, the special adviser, seems unconcerned about the severe distress of farmers in many States. The Finance Minister has to find ways and means to help the farmers in these States. The State Governments are virtually bankrupt, thanks to the Pay Commission's recommendations and the burden on their finances, following the Centre's unilateral decision to accept readily the recommendations.

The financial burden of helping the farmers must be the Finance Minister's responsibility. He has to pay more attention to these problems than to those of the powerfully organised corporate sector in industry. It is also the duty of the Commerce Minister to protect the interests of farm producers.

Graph 2 gives an idea of the collapsing agricultural prices in a number of commodities like betelnut, tea, raw cotton and coffee.

The aggregate weight of commodities mentioned in the Table would be about 6 per cent and the approximate number of producers affected would be approximately at least 60 million. The prices of several commodities have been falling in a context in which the prices of manufactures have been rising! The terms of trade of the producers of the agricultural commodities referred to earlier, with respect to subsistence commodities like foodgrains, have been turning adverse. Naturally, the purchasing power of six crore of the population, even to purchase foodgrains, would be affected adversely.

This is the major reason for the bloating stocks of foodgrains with the public distribution system. Monetary expansion, just for the sake of expansion, would not enable six crore of the population to get their subsistence requirement. Actually, their position would worsen because prices of foodgrains would keep rising, while their purchasing capacity is falling.

Most of the advice being given to the Finance Minister and to the Prime Minister is missing the implication of the serious agricultural crisis affecting the economy. Unless a U-turn is made in the mental perspectives of these leaders, the position is going to become worse and worse.

One way out would be for the Chief Ministers of such States as Karnataka, Tamil Nadu, Kerala, Gujarat, Goa, Assam, Maharashtra, and Andhra Pradesh to bury their political differences and to collectively pressure the powers-that-be in New Delhi to change policies and to turn their attention to the agricultural crisis in these States.

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