India’s farmers have reason to worry

The third rail of Indian politics has always been agriculture. While the economy has been partly liberalised since opening up to the world in 1991, the process has largely bypassed the three-fifths of Indians who depend for their livelihoods, directly or indirectly, on farming. In September, the government finally introduced a much-needed set of changes to how agriculture is organised and how produce is sold in India. Now tens of thousands of agitating farmers have marched upon New Delhi in protest.
The protests may have less to do with the recent reforms, which allow farmers to enter into direct contracts with purchasers and which eliminate the monopoly government warehouses previously held on the wholesale trade, than those that may be coming. The answer isn’t for the government to reverse course — it’s to go further.
Unlike many other countries, India doesn’t provide direct income support to its farmers. Various farm insurance schemes have also failed to get off the ground. Instead, what the government does is buy produce — mostly rice and wheat. This is then stored in the warehouses of the state-controlled Food Corporation of India and distributed at a subsidised price to the population.
The system guarantees farmers a set price for their output, while their inputs — water, power, fertilizer, seeds — are free or subsidised. It dates from the 1960s, when famines devastated an India that did not grow enough to feed itself. For several humiliating years, the country survived on US food aid — what was then called a “ship-to-mouth existence.”
Following pressure from President Lyndon B. Johnson’s White House, Indian policymakers shifted from imposing a cap on food prices, inspired by Soviet-era economics, to setting a minimum support price, as advised by American economists. That, together with newly developed food grains, became the basis for the so-called Green Revolution, in which wheat production doubled in less than a decade.
Unfortunately, the subsidies for rice and wheat caused too few farmers to plant vegetables, which are subject to major price fluctuations. (They are a constant headache for the inflation-targeting central bank.) Meanwhile, India produces too much grain, which is now rotting in government granaries. Policies designed for an India on the edge of starvation don’t fit the India of today, which should be more worried about quality of its nutrition.
Those policies were also geographically biased, mostly benefiting the prosperous state of Punjab in northern India and neighboring regions. Although it only accounts for 2% of India’s population, Punjab was responsible for four-fifths of government wheat purchases earlier this year.
—Bloomberg