In a speech in February last year Arvind Panagariya, the vice chairman of NITI Aayog had expressed rather radical ideas of reform for agriculture sector. Will they be too hot for the PM? This is second part of a multi-part series
Prime Minister Narendra Modi appointed his long-time supporter, economist and professor Arvind Panagariya as the vice chairman of National Institution for Transforming India (NITI) Aayog. As we mentioned in the first part, Pangariya, as an economist is known for his radical views on reforms. Now, since he is the vice-chairman of NITI Aayog, it would be interesting to see, if PM Modi subscribes to these views and actually implement it.
Panagariya while speaking at the CD Deshmukh Memorial Lecture 'A Reform Agenda for India's New Government' on 11 February 2014, almost described a blue print for reforms and growth. Panagariya mentioned reforming the APMC Act in across the country, for all crops and areas. He also suggested replacing the minimum support price (MSP) by the equivalent of deficiency payments, as used in the US.
REVIVAL OF AGRICULTURE
Panagariya said we need to completely reform the Agricultural Produce Marketing Committees (APMC) Act in all areas, for all crops, and in all states. This requires giving greater play to the right to directly purchase and sell, facilitating the emergence of competing private marketing yards, expansion of contract farming, provision of cold storage facilities and the building of supply chains.
He also said that that it is worth considering replacing the Minimum Support Price (MSP), and its associated procurement, by the equivalent of deficiency payments in the US. The latter involve cash payments to farmers whenever the average market price drops below a certain pre-specified threshold. An important advantage of such payments is that they do not require the government to procure food grain. Therefore, the benefits extend to all farmers rather than only the lucky few, often the rich ones, from whom the government procures at the MSP. Furthermore, with no procurement required, deficiency payments can be extended to any crop instead of only those the government wants to procure.
Improving land sales and leasing markets
Land sales and leasing markets are highly distorted in India. We need to bring the policies of those states where these markets are less distorted to those where they are more distorted. Even liberal leasing policies that allow the owner and the lessee to freely negotiate and write contracts would go a long way toward promoting the consolidation of land holdings, which would in turn facilitate mechanization and productivity-enhancing investments in land. We will also make large gains by fully digitising land records and making them publicly available online. A handful of states have done this with positive results.
Use of technology
The next government must also promote the application of new technology at all levels. Drip irrigation and other micro-irrigation methods, so successfully introduced in Punjab, Gujarat and elsewhere, can help raise productivity while also preserving water. We need to speed up research on high yielding varieties of seeds that had formed the backbone of the Green revolution in the 1960s and 1970s. The recent resumption of trials on genetically modified seeds is an important positive step in this direction.
Promoting contract farming & food processing
We must create an enabling environment for contract farming, which can improve technology while also giving our farmers lucrative prices for high quality and specialty produce. India lags far behind its peers in food processing, which can not only give remunerative prices to farmers but can also create vast numbers of good jobs. Contract farming can be the key vehicle for the promotion of food processing.
All these are ideas will mean a total overhaul of the economic structure which has deep political repercussions. Will Modi be so radical in his approach? Or will Mr Panagariya have to lower his expectation from the government?