Further re-drafting, for comment. This one is about agriculture. I've taken existing material and refined it. Please provide thoughts/comments asap. This will be continuously improved over the next few years.
NOTE: I can't emphasise enough that any attempt to implement reforms outlined below will fail (and even backfire) without prior governance systems reforms.
Farmers are some of the most skilled citizens of India who are being held back by a regressive regime that blocks their growth at each step. Food security and costs are undoubtedly a major area of concern, but shackling agriculture is not the solution. India is blessed with the world’s largest irrigated area and perhaps some of the most fertile lands. We believe that India can, by unshackling agriculture, supply not only its domestic needs but to the rest of the world. Sadly, existing policies curb farmers’ freedoms, distorting incentives, lead to low agricultural productivity and significant volatility in production.
Our policies have also turned the terms of trade against agriculture through a ban on exports, on dumping from abroad, and on restrictions on the movement, storage and processing of agricultural commodities. Coercively low agricultural prices (often irrationally volatile) have impoverished farmers, resulting in rural poverty, indebtedness and unemployment.
Excessive government control and restrictions on the freedom of farmers have resulted in negative subsidies (a drain from famers to cities) and barriers in access to technology. The Indian farmer does not get the chance to prove himself. The fact that the Aggregate Measurement of Support (AMS) was confirmed to be negative is substantial proof of the built-in animus against farmers. Farmers have become heavily indebted. Agriculture has become a losing vocation. This has led farmers to prematurely leave the farm. We need orderly structural change, not policies that micro-manage agriculture on behalf of farmers and create massive distortions in their incentives.
Our policies have led to the declining productivity of inputs, excessive ground water withdrawal, poor soil fertility, insufficient use of farm-yard manure, rapidly declining agro-biodiversity and insufficient use of technologies are key challenges. There is almost no farm machinery in India that uses electronic sensors or control systems. Green houses are not adequately used. This leads to severe inefficiency in use of existing resources.
On the other hand we have subsidies which do much greater harm than good:
- subsidised power leads to excessive groundwater use, instead of creating incentives to use water saving technologies such as drip irrigation and water harvesting. Crop production has shifted towards water hungry crops. Bajra and maize were extensively grown in north India in the past, but with power subsidy, wheat and rice are now the main crops, severely depleting the water table;
- ultimately it is citizens who pay for these subsidies, as governments never produce any wealth;
- most subsidies end up in the pockets of the rich (e.g. companies that produce fertilisers, particularly urea; the politicians and the bureaucrats involved in their distribution). Low fertiliser prices have also led to smuggling of Indian fertiliser to neighbouring countries; and
- the subsidies create inflation through deficit financing, which erodes the value of the rupee in the pocket of the farmers.
Inadequacy of the M.S. Swaminathan report
We have concerns about the report of the National Farm Commission under the chairmanship of Dr. M. S. Swaminathan. We believe its recommendations are likely to enhance farmer dependence on subsidies and create new and ineffective bureaucratic programs, instead of liberating the agriculture industry from the stranglehold of government. We believe the intent of the report is best achieved through market-based reforms.
A market-based agriculture policy
While agriculture is a crucially important sector for the country, there is a very limited role for government to play in this sector, largely related to light-handed regulation for conservation of biodiversity, the water table and the environment; and regulation of private enterprises engaged in logistics, crop insurance and other support. The government and citizens should recognize and honour farmers by empowering and liberating from shackles of the government, letting them compete in the open market. This will motivate farmers to adopt modern technology and to innovate.
We will remove all restrictions on the production, movement, and pricing of agricultural inputs; and restrictions on post-harvest treatment including marketing and exports. Such market-based reforms of agriculture will ensure that hundreds of millions of farmers get a new lease of life, being supported by large private market investments in logistics chains.
Freedom to produce and trade
We will ensure untrammelled freedom of access to market and technology to farmers. Self-sufficiency is not the way to achieve food security. In a global market, the farmer will do best through free trade in food products. The market offers in-built incentives for productivity and efficiency:
- the free market looks ahead (futures markets) and even stores food for emergencies. Any extreme shortfall will usually be met by the market through timely imports;
- access to the global food market will ensure low food prices through imports from the more productive nations; and
- the market will keep farmers on their toes, motivating them to be even more competitive and innovative. All progress is underpinned by competition, innovation and productivity.
We will ensure a predictable export-import regime that allows farmers to trade their products globally, without any exception. Mill-owning lobbies often fund politicians to block exports, such as cotton exports. This leads to a ‘switch on, switch off’ export policy which harms farmer and brings India into disrepute. Indian businesses should survive on open competition and quality, not on lobbying.
All unnecessary regulatory restrictions on the farm sector will be removed, such as rules about the minimum distance between farm and mills.
One of the great opportunities for Indian agriculture comes through the increasing wealth of China, particularly with its increased demand for meat. We will regulate meat processing in a human and hygienic way, so farmers can take advantage of the many international export opportunities in this sector.
Strong land rights and responsive land market
Over and above the strong emphasis on land records and corruption-free land system, we will ensure free entry into and exit from the agricultural vocation.
- A farmer will have the right to dispose his land to anyone at any price without unnecessary intervention by the government. There is one aspect of land use that is of some concern: the tendency for fertile land to be converted into urban use land. We believe that market forces should generally determine land use and that increasing productivity can potentially offset some of the loss of agricultural land, but urbanisation is best undertaken on infertile land. Where market forces seek the conversion of fertile land to non-agricultural use, we will clarify the conditions for such transfer and introduce checks and balances such as public consultation, supply of agricultural offsets (i.e. alternative land suitable for agriculture) and other such mechanisms to stop the rapid depletion of agricultural land.
- Ceilings on land are inconsistent with liberty and free enterprise, and lead to enormous corruption and cheating. All land ceiling laws will be repealed.
- We will facilitate voluntary consolidation of land through an ongoing land exchange process. This exchange will enable mutual land transfers where participants decide to exchange ownership. This will significantly reduce barriers to productivity.
Ending MSP and price deregulation in three years
The minimum support price (MSP) system has created massive distortions, such as by encouraging rice crops in water-scarce Punjab, and has destroyed the entrepreneurial dynamism of the Indian farmer.
Like with other industries, the government should focus on infrastructure provision for agriculture and development of well-regulated markets, not on regulating prices. As market signals are freely transmitted to farmers, they will seek the most competitive yield. We will deregulate prices for all agricultural produce, while retaining a floor price in selected cases during a phase-out period (of around three years).
Phasing out of government loans
Without waiving any government loans to farmers, we will impose a moratorium on any coercive recoveries. Instead we will consider options to sell such loans to the private market, with conditionalities on how these loans are to be recovered. No new loans will be issued by the government to the agriculture sector; instead well-regulated private loan markets will be encouraged.
Deeper markets to serve the rural sector
We will encourage well-regulated markets in a range of services for the rural sector, such as:
- private markets to insure crops. Through honest disclosure, Indian farmers will get the opportunity to avoid significant loss from unforseen contingencies;
- private information networks that offer internet access to villages; and
- private laboratory networks for soil testing and certification of produce.
More responsive cooperative farming regulation will be introduced, and cooperative department officials firmly prevented from undertaking corrupt, whimsical actions. This will ensure that farmers can organise and seek professional management inputs to facilitate agro-processing, thereby enhancing their incomes.
Subsidies and unnecessary interventions phased out
We will phase out all agricultural subsidies including irrigation (water) and electricity subsidies.
We will phase out Agricultural Produce Marketing Committees (APMCs) which function as wholesaler cartels in mandis. Some of this reform has already been initiated by the Modi government. Opening markets will allow traders and farmers to buy and sell freely, making India a national market. By liberating the market, we expect FDI in retail and private competition to facilitate cold-chains. We expect large retailers to directly purchase produce from farmers to minimise the rotting of perishable goods. This will increase returns to farmers and lower prices to consumers.
We will phase out the Food Corporation of India (FCI) and substitute it by market based, private enterprise competitive marketing and warehousing networks.
The Essential Commodities Act will be repealed.
Finally, as soon as the direct anti-poverty programme has been rolled out, the Public Distribution system (PDS) supported by compulsory procurement will be repealed.
Organic farming not to be supported by government
Excessive use of pesticides is harmful to humans and wildlife. As mentioned earlier, we will tightly regulate the use of pesticides. However, there is no nutritional difference between fertiliser-pesticide grown crops and organic crops. We do not see any need to support the organic farming sector. There is a growing demand for organic produce and we have no issues with such food being sold, subject to honest disclosure of the source.
Genetically modified crops allowed under rigorous regulatory regime
It is inappropriate to prevent India from benefitting from modern science. However, any genuine concerns should be identified and analysed on evidence. In principle, we support genetically modified organisms (GMO) wherever proven safe through a strong regulatory framework.
For instance, Bt cotton doubled India’s cotton output in five years and made us the world’s largest exporter. But in November 2009, Monsanto scientists found the pink bollworm had become resistant to the first generation Bt cotton in parts of Gujarat. Monsanto responded by introducing a second generation cotton with multiple Bt proteins, which was rapidly adopted. Bollworm resistance to first generation Bt cotton was also identified in Australia, China, Spain and the United States.
The use of GMO imposes a duty of care on suppliers to educate and monitor farmers. Professor AK Gupta of IIM Ahmedabad notes that he has not come across a single Bt cotton field with refugia (i.e., non-Bt cotton rows on the border). The resistance to Bt gene is an obvious consequence.