Panagariya’s prescription - Part II: Revival of Agriculture

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.
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? 



Gama Beta

2 years ago

1. economists need to get on fields and not just take NSSO or similar sampling data.
2.In my place in AP where productivity is high its not affluent who benefit from MSP rather its poor. We never ever sold it to govts. We always sold it to pvt millers by waiting till the price gets higher. This is possible only because we have our own godown worth 50k(just construction cost) that can hold 400 bags of rice. 1400 was the MSP but we always sell it around 1800-2000.
3.Poor on the other hand dont have storage facility to prevent rotting, Need immediate money and hence he is bound to sell as soon as paddy arises but that is a huge supply time and hence low market prices infact less than MSP. He always tend to go to govt procurement centers.
4.I beg panagariya to stay in villages for a year atleast to understand the dynamics. How is Deficiency payments implementable in india? the price in the market varies day by day like NIFTY. How can we set a threshold even if it is a range rather than a absolute number? Costs like transport etc varies highly region to region and all these are to be considered. Despite doing all this our society contains remnants of feudalism where marginal farmers are still depending on medium-large farmers. We need overhaul of criminal justice system, Istitutionalised credit fecilities etc first and then we can talk about deficiency payments.
5. we can say that we should first start and then rectify in the process but that logic doesnt hold when many lives are at stake. Piloting a cash tarnsfer for LPG is ok but not MSP kind of things.
6.Coming to lease i agree that lot of laws need to be reviewed but its not merely legality that prevents many urban migrating families to lease land to farmers back home. Its rather the kabja once given and associated yrs of court roaming that fears the land holders. So we are back to square one where criminal justice system reform is to be the prelude.


2 years ago

Most of the recommendations are fine but for GM seeds. Agriculture policy will have to look at indigenous methods of productivity and experience of Indian Farmers as well as Agricultural research agencies to enhance quality and productivity.

GM seeds are too expensive and can be devastating for the farming community due to the many issues related to the damage and disease. GM seeds would mean a sell out in a way to enslave India on Food. Similar to a ploy that was tried on India and china way back in 1960's by trying to wipe out Asia's Rice Crop due to a specific disease developed that would have wiped out rice. That failed. It was on the agenda and is suspected to be recycled again in the form of technology.

Niti Aayog should stay away from GM seeds. We will only trust our indigenous methods for our food security.

SBI Composite Index for manufacturing sector slips to 51.5

Increase in automotive sales, and benign inflation are the positive factors, but, sluggish credit growth to major sectors and elevated interest rate has dragged the index downwards, SBI said


The SBI Composite Index, an indicator for tracking India’s manufacturing activity, registered a decline on a month-on-month momentum in January, amid sluggish credit growth and elevated interest rates.
The Monthly Index has slipped from 55.4 (high growth) in December 2014 to 51.5 (low growth) in January 2015, the state run lender said in a statement.
“Increase in automotive sales, and benign inflation are the positive factors contributing to the index. But, sluggish credit growth to major sectors and elevated interest rate has dragged the index downwards,” SBI said in the research note.
On a year-on-year basis however, the index inched up to 52.1 in January (signalling moderate growth) from 50.6 (low growth) in December 2014.
The Index captures two components of the manufacturing cycle – month-on-month and year-on-year – growth on a scale of 0 to 100.
Index above 50 implies growth over previous respective period and less than 50 will suggest a contraction over respective period.
The SBI Composite Index rivals the existing data point from British lender HSBC. It has been developed on the basis of the bank’s internal loan portfolio, which mirrors the credit demand in the country, and other data sets available in public domain.
Commenting on the recent marginal pick up in bank credit growth, the report said that this is being driven to some extent by pick up in personal loans, primarily credit card outstanding.
“We believe that such increase may be attributed to the emergence of e-retail platforms, and it remains to be seen whether this augurs well for the revival in consumer sentiment,” the report added.
An index value of less than 42 means large decline, while value of 42 to 46 means (moderate decline), 46 to 50 (low decline), 50 to 52 (low growth), 52 to 55 (moderate growth) and above 55 high growth, SBI said.


RBI allows banks to act as insurance brokers

The new guidelines from RBI allow banks to act as brokers and permitting them to sell insurance policies from different insurance companies


Seeking to increase insurance penetration in the country, the Reserve Bank of India (RBI) has allowed banks to act as brokers for insurers, set up their own subsidiaries and also undertake referral services for multiple companies.
“Banks may undertake insurance agency or broking business departmentally and/or through subsidiary,...,” RBI said in the guidelines for entry of banks into insurance business.
Banks have also been allowed to set up subsidiaries and joint venture companies for undertaking insurance business with risk participation, the central bank added.
They can also act as corporate agents without seeking prior approval from the RBI. However, they will have to comply with Insurance Regulatory and Development Authority (IRDA) guidelines.
Under existing bancassurance guidelines, a bank can act as a corporate agent and sell policy of only one life insurer and one non-life insurance company.
The new guidelines allow banks to act as brokers permitting them to sell insurance policies of different insurance companies.
The guidelines follow an announcement made by the former Finance Minister P Chidambaram in 2013-14 Budget.
“Banks will be permitted to act as insurance brokers so that the entire network of banks’ branches will be utilised to increase the penetration of insurance,” the Budget had said.
There are about 87 commercial banks in the country with 1.2 lakh branches across the country. There are 52 insurance companies operating in India; of which 24 are in the life insurance business and 28 are in general insurance business. In addition, GIC is the sole national reinsurer.


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