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The Rediff Business Special/ Crossfire debate

'India can survive even without any bilateral or multilateral trade'

Rediff On The NeT has made arrangements to carry the transcript of the popular television programme Crossfire. We present the ninth of the series, which debates whether India's agricultural exports and imports must be liberalised. The show features Union Minister of State for Agriculture Som Pal and Shetkari Sangathana leader Sharad Joshi. The moderator is A&M editor Sreekant Khandekar.

Sreekant Khandekar: Good evening and welcome to Crossfire, the weekly programme of business and economic debate. Tonight's topic -- should imports and exports of agricultural goods be opened up? Or should exports, as is currently the case, be permitted only after domestic demand has been met? Equally, should imports be allowed only if they don't hurt Indian farmers?

Although agriculture accounts for every sixth dollar in Indian exports, it has been an ignored area of the Indian economy. The issue of food availability and distribution has been brought into sharp focus in recent months by the spurt in prices. So is the Indian farmer heavily subsidised? Or is he the unacknowledged victim of government neglect?

To discuss these issues we have with us Som Pal and Sharad Joshi. But before that let us listen to the views of Dr Ashok Gulati of the National Council of Applied Economic Research and Brigadier Anil Adlakha, executive director of the All India Rice Exporters Association:

Brigadier Anil Adlakha: Our government does not have any long-term, clear-cut policies for exports. We all make certain pronouncements on exports which get changed on political pressure. For example, in the case of rice we have been hearing more often than not that we should export rice. Suddenly we had the minister saying we should not export rice. Again we had him saying, 'No, no, we should export rice.' We must have a consistent policy for the farmers, for the millers, for the exporters and able buyers, a policy that states that India is a reliable supplier of rice. Otherwise, if they find that India cannot supply rice next year, they will drop us.

Ashok Gulati: In agriculture, it's a mess. You have water, canal waters and markets systems that don't work. In the credit sector, the default rate is as high as 50 per cent. It is the institutional changes that are required. Who is paying any attention? If you look at the rural credit, it is collapsing. If you look at the canal structures, they are collapsing. From where will you get growth in agriculture?

Sreekant Khandekar: Let me begin with you Som Pal. Brigadier Adlakha says that government policy on exports is entirely erratic. Would you agree?

Som Pal: I agree with his view that we don't have a consistent farm policy.

Sreekant Khandekar: Why not?

Som Pal: Take, for instance, tea. We did not have any policy but we are coming out with a comprehensive national policy which will be consistent and which will be in the interest of the farmer. On the rice front or any export, it is a matter of surplus. If we do not have surplus, how can we export? Even if we have a policy but we don't have surplus to export, how would we export? So to that extent I don't agree.

Sharad Joshi: No, I think there is some contradiction here. If you want to have a consistent policy and you say that any time you have a surplus, you will export, then the two don't go together. Our exports have an ethnic character. It is the non-resident Indians who purchase alphonso mangoes, for example. Out there, there is a character of cousin-to-cousin dealings. When in the ministry of commerce, you find a quota release for onions, then a trader here telephones his cousin and finds out if he can export something. So it is entirely ad hoc.

Now my point is, the idea that you should export only when you have an agricultural surplus is wrong. In fact, if you allow exports you are more likely to have a surplus. This has been experienced often in cotton. So the theory that only when you have a surplus you should allow exports is basically incorrect.

Som Pal: My point is that we must have consistent exports based on consistently increasing production system. That is a prerequisite. Only then we can have the policy. Otherwise, we can't have it.

Sharad Joshi: There are other irregularities. For example, it is often said that you should prefer export of value-added products rather than the raw material. But our experience is that often in case of agro-processing, the value added is less than the cost added, particularly because of our dependence on foreign technology.

Bombay textile mill owners try to say that we should not export cotton because it is really required for the handloom people. But the handloom people do not even consume probably three per cent of the total production! The mill-owners hide behind the shield of the handloom producers and get cotton at almost one-third of the international price.

Moreover, at the time of any harvest, these owners start giving the prognostics that the production is not enough, that we'll have to import. Later, we learn that we have more than enough! So some of these basic theories have a hidden element of animus towards farmers.

I am quite sure that Som Pal must be doing his best to fight those things. But let us start by admitting that for 50 years we have had this trouble.

Som Pal: I can surely say with confidence that unless we have some surplus over and above our necessary consumption we cannot export. But in the case of cotton, Joshi is right. The practice so far has been that budgeting and the projections have been made by certain vested interests. The interest of handloom weavers as the supreme one has never been catered to. The interest catered to is someone else's. Exports and imports have been decided accordingly. Therefore I agree with Joshi that in case of cotton, we have been having surplus. But even then, the export and import policy has been defective.

Sreekant Khandekar: Som Pal, the farmer's complaint is that the converting industries -- in this case which convert cotton into cloth or into yarn -- are inefficient. Therefore farmers have to pay the price for their inefficiency. Otherwise, these industries cannot be internationally competitive.

Som Pal: You are perfectly right in observing that. Usually the farmer is being made to pay for the inefficiency of the industry. This applies to sugar, this applies to cotton, this applies to so many others. But the case of rice and wheat is different.

Sharad Joshi: I would make an exception in the case of foodgrains. I would agree with the minister.

Som Pal: Yes, exactly, yes!

Sharad Joshi: Let's say that foodgrains would be exported only when there is a surplus. On all other items, I agree. I do agree.

Sreekant Khandekar: I agree, I agree. I do agree.

Som Pal: They are agreeing to it. Recently you must have seen that we are lowering import duties. We are putting more things under Open General Licence. Another list of 100 or 200 items is being prepared by the commerce ministry. We are moving to the WTO direction which requires all quantitative restrictions be removed. So only in very, very selective cases we will be using the tariff as a sort of small protection.

Sharad Joshi: Quantitative rather than quota restrictions?

Som Pal: Yes.

Sharad Joshi: There is a good case. Amul is a well-known processing unit, but you'll find that they pay a lesser price for the milk than the Surat dairy does. Because even in case of Amul, the value added tends to be a little less than the cost added. Now that's a common phenomenon.

If you permit me, I would like to comment on Ashok Gulati's point on lack of proper infrastructure. We desperately need infrastructure, credit and technology.

Sreekant Khandekar: Som Pal, how do you as a minister and as a politician, reconcile the interests of the grower, the buyer, and the consumer? For instance, in the case of onions your government tried, not successfully, to import onions so that prices could come down. But didn't that hurt farmer interest?

Som Pal: You see, the gap between the prices which are received by the farmers and the prices which are paid by the consumers is too wide. This is a known phenomenon particularly in case of perishable commodities. The unique nature of farming is such that the farmer has to carry on with all the expenses on his economic activity as well as on family. It is not a regularly accruing income stream. Therefore his financial tolerance level wears out when the harvest comes in. Therefore he has to do a distress sale which is taken advantage of by the traders. Usually it is the traders who corner all this produce. And when there is a shortage, they hike the prices disproportionately.

Sreekant Khandekar: But some of it would go to the farmer, wouldn't it, some of the increased price?

Som Pal: Not always. It does go to the farmer only in a case when prices rule higher at the time of harvest, otherwise not.

Sreekant Khandekar: You're a farmer of onions, what would you say?

Sharad Joshi: This conflict of consumer and farmer interest is a little fake. I think ultimately opening up of frontiers, as the minister was saying, allowing non-foodgrain products to come in or go out, will be in the interest of the farmers. After all, Indian farmers, unlike French farmers, are not asking for a total ban on import of, say, British beef. We are also prepared to accept Australiian pulses if they come cheaper and better. We won't stand in the way of the consumers' interest.

About the middleman's role. I think the real reason for the gap between the consumer's prices and the farmer's prices is that the farmer's prices tend to be functions of Bharat incomes as I call them, while consumers' prices tend to be functions of Indian incomes. The gap between the two has been expanding all the time. Fifty years ago the ratio was 1 to 1.4; today it is 1 to 10.4

Sreekant Khandekar: The ratio of what to what?

Sharad Joshi: The ratio of agricultural per capita income to the non-agricultural per capita income in 1951 was 1 to 1.4. So if the farmer's per capita income was Rs 10 then, it was Rs 14 for the non-farmer. Today it is Rs 10 to Rs 104.

So the differential between the farmer's and the consumer's prices is because of that.

Sreekant Khandekar: There's been talk about the new agricultural policy. What's the situation on that?

Som Pal: You see, the agricultural policy draft is ready. It has been circulated to all the ministries, and they have all sent in their comments. Now a Cabinet note is being prepared. First it will be approved by the Cabinet, after which we will throw it open for debate in Parliament and then before the whole nation.

On free trade or non-free trade, multi-lateralism as created by the WTO arrangement or bilateralism, I have a very conclusive view. Ultimately it is the internal strength of your economy and the competitive strength in terms of cost as well as quality that matters. You can survive only if you have that intrinsic strength.

Whenever the so-called developed economies enter into some economic management they have to vouch for both the sides, demand and supply. If they increase the supply, demand gives way; and if they manage the demand, then supply gives way. In the case of India, we have to manage only the supply side. So far as demand is concerned, we have such a large population and such a gap of demand fulfilment that for several decades to come, we won't have a difficulty of a market. We can survive even without any bilateral or multilateral trade. I have all the confidence.

Sreekant Khandekar: Do you agree with that view?

Sharad Joshi: Let me tell you about the index of negative and positive subsidies. How much negative subsidy does the farmer bear? The figure is Rs 1 lakh 13 thousand crore (Rs 1.13 trillion). Whereas the positive subsidy he gets on inputs is barely Rs 140 billion. Secondly, I would like to know, today we have about 65 per cent of the population dependent on agriculture. By the end of five years, what would be the proportion if your policy is scrupulously followed? Is there going to be something like a failure standard?

Sreekant Khandekar: What do you mean by failure standard?

Sharad Joshi: For example, we fix a target that states the population dependent on agriculture must come down to say, from 65 per cent to 50 per cent. But we should consider that if it does not come below 60 per cent, then our policy has failed. It should not only be a target, it should be a...

Sreekant Khandekar: A challenge? Mr Minister, do you see the policy moving this way?

Som Pal: I do agree that the Indian farmer has been subjected to negative subsidy. I agree with him that the only one parameter to which farmer responds quickly and substantively is the price and the market. And production itself is not the end. The amelioration of the condition of the growers is the end.

Sharad Joshi: Let's have a free market. For example, today the agricultural market by and large is the APMC market. It's a government imposed monopoly sort of thing. Let me give you an example. Every developed country has a network of supermarkets. In India we have been discouraging the governmental level of formation of supermarket networks.

I think if we go slow or reduce the monopoly of the APMC's and allow private enterprise to come up in the form of a network, it would be a good incentive for farmers to produce both primary and secondary produce.

Som Pal: You see Joshi, I do agree with you that the market system for the farmer has been imperfect and it has been kept stifled. It has not been allowed to grow in a natural manner.

Sreekant Khandekar: But what will you do about it?

Som Pal: Firstly, Indian agriculture has always been starved of capital. More capital has to be injected into the farming sector. Credit has to be made available on a higher scale. Only 17 per cent of the total credit goes to agriculture in the Seventh Plan. In the Eighth Plan it is less than 14 per cent.

Sreekant Khandekar: But Joshi seems to be suggesting that if you give better prices....

Sharad Joshi: I think that Budget allocations and credit facilities are chicken feed. You're taking away from the farmers Rs 1.13 trillion which they would have got every year!

Sreekant Khandekar: Gentleman, I am sorry but we are running out of time. Thank you very much for an interesting discussing. Thank you for being on Crossfire.

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• Opening up the insurance sector: 'Will financial infrastructure be with Indians or with MNCs?'
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• Is the tariff structure hurting Indian industry?
• The BJP's national agenda for governance

Kind Courtesy: IN TV

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