Advertisements

Subsidy misnomer for Investment

Every year at the budget time, Economists express great worries about the rising figures of subsidies, especially those on fertilizers. Pre-budget commentaries this year too are no different. But the Economists must understand that there is no subsidy. There is nothing gratis. The government does not do charity to the farmer by making available chemical fertilizers at a “subsidized” rate. Does economics mean the farmer invests more and realizes less? What would be his “return” on investment? Is he not entitled to a reasonable rate of return on his investment? Is he ineligible for a reasonable rate of annual growth merely because he has given his services for farming and not real estate development or making chemical fertilizers or organic fertilizers? That would be turning all economics upside down.

Fertilizers subsidy, as the shrewd economic hypothesis touts, is the wisest investment by the government, because the returns it gets are really huge on very low investment. When people opposed to such subsidy quote the figure of about 100000 crores of rupees, they intend to create some kind of a fiscal scare. They ignore the fact that farming is not very attractive either as a vocation or career. It is hardly rewarding for those clinging to the family vocation only because they have not become aware of the economic opportunities in non-farming businesses for which the economists recommend more and more “concessions” year after year in the name of “economic reforms”. It is only the farming sector where they consider pruning or complete abolition of subsidy on fertilizers. The Finance Minister of India prepares his budget proposals only after extensive “consultations” with the industry and business associations. Prominent captains of industry and business have the ears of the Finance Minister. I do not remember if he ever called genuine farmers for consultations- most of these farms are on less than 18 acres of land. The biggest political irony is that he, as all other members of the Indian parliament, remembers  this farmer only at the time of elections, when they fantasize his demands and accordingly prepare glossy manifestoes promising even the most unachievable benefits. Will any sensible person ever think that such political economy will ever grant any subsidy to this farmer? Can industry be run without making profits? Does any expert draw up a detailed project report on sound financials of the project or subsidies? The farmer does not fix fertilizer prices, it is the government. Let the government withdraw and industry decide. But then the balance sheet should be drawn up first.

In case farming becomes un-remunerative, the farmer will abandon it. It will lead to shortage of food grain production in the country. The sufferer will be the national food economy alone. The country will be compelled to import food grains. There will be foreign exchange outflow. Shortages will have political consequences. Already the effects of shortage of farm hands has been felt in states like Punjab and Haryana ever since the rural employment guarantee scheme provided employment to the farm labour in their villages. This was when wage rates were doubled, which made them far better than the payment under the rural employment guarantee scheme. The farmer understood the economic benefits better without the expert advice of renowned economists. He could do his calculations mentally. Think of the economic fallout of mass exodus of the farmer to non-farm employment avenues! How much fuss can be made about the fertilizer subsidy in such a scenario, when both shortages of farm hands and food grains loom large on the near horizon?

It is wiser economics for the government to invest more in the farm sector. It should not be mislead by theories of “inappropriate economics” for a country of the size of India in buying the economic reforms by reducing or abolishing subsidies under the influence of international organizations like the International Monetary Fund/World Bank. Farming needs to be treated as the “priority Sector” for all economic policies for all times. It is more than production of enough food to meet our internal demand. It is one of the biggest employment providers. On a long term and sustainable basis, it is the best employment provider. Industrialization is a late comer but may disappear earlier, if depressions and meltdowns indicate anything. Farming deserves all the investment and support of the government. Food is always in short supply in the world. All conflict, violence and fights on our planet are for food only. The farmer is the best paragon of “food security”. He symbolizes food security. A strong farm sector lends any government the strength that makes it a strong and successful government. It helps it win friends domestically and influence nations in the comity of nations. Whatever food is available has to be shared, which means proper supply and distribution mechanism. Even saving of grains may have to be promoted by opting for non-cereal foods for one meal, one or more days. It was not for nothing that the Indian society had long placed a very high value on “fasting” on a weekly or fortnightly or at least a monthly basis. As an instrument of proper management of the food economy, such fasts play a strategic role. Besides promoting consumption of less palatable farm, forest or lake produce, it encourages savings of cereals, to facilitate proper and equitable availability and distribution in society. It helps meet shortages that crop up from time to time, especially when agriculture depends more on the monsoon.

Government should continue to invest in agriculture by making available fertilizers, irrigation water and electricity to the farmer at below cost price. What goes into the pocket of the farmer is really investment of the government by encouraging people to engage in a low income business like farming. The government reaps the benefits of assured food security and savings on imports of costly grains from abroad. The savings in foreign exchange can be diverted to other essential imports. It is no subsidy. Our  economist have got it all wrong. They should better apply themselves to understanding the reality of India. Foreign economic theories may not be appropriate to Indian conditions. Their attitude and mindset alienates the farmer from the government. They play with figures but do not take into account the figures largely ignored by their statisticians. What data, if any, do they consider of the loss suffered by farmers by thunderbolts caused by weather (WMD in the language of the weathermen) that results in vegetables like gourd or water melon getting ruptured? These are regular occurrences due to the vagaries of weather and there is no compensation to the farmer, though the market in agriculture produce doubles  its margins because of consequential short supply.

Economic reform cannot begin and end with the markets only; they must necessarily include farmers.


Advertisements

, , , , , ,

  1. Leave a comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: