Mr. Ashok Gulati–From plate to plough: Waiving off loans not a solution – The Financial Express–14.03.2018—–*****

First, let us compliment both the parties—farmers and the state government—in Maharashtra’s agrarian crisis for reaching an amicable solution, at least for the time being, and averting a major chaos or violence. Farmers deserve appreciation for their disciplined, committed, non-violent ‘Long March’, and the Fadnavis government (GoM) equally deserves admiration for gracefully accepting most of their main demands.
Second, will loan waiver or the MSP in line with the Swaminathan formula of cost plus 50%—two of the main demands accepted—solve Maharashtra’s agri-problems?
Our candid response is ‘certainly not’.
The current agreement is only a temporary relief, and much more needs to be done to ensure that Maharashtra farmers prosper in a sustainable manner. What is the root cause of this crisis? Since the time the Fadnavis government took over in October 2014, Maharashtra has had three years of negative agri-GDP growth, and only a year of positive growth. It was –10.7% in 2014-15, –3.2% in 2015-16, 22.5% in 2016-17; and the growth is likely to be –8.3% this year, 2017-18, as per GoM. The overall four-year average agri-GDP growth is flat zero. This is at the root of increasing farm distress.
Except sugarcane farmers, cultivators of most of other crops have suffered badly. Cotton, for example, had a massive pink boll worm attack, destroying almost 44% of cotton crop. Market prices of soyabean, tur and chana went way below MSP, and sorghum MSP did not cover its full cost of production. This speaks of acute distress, akin to agriculture emergency, in certain pockets. The state government tried to heal, but it was not enough.
If we have to get Maharashtra agriculture back on track, we must understand its water situation and re-align cropping patterns in line with this scarcest resource.
If there is one state, where ‘more crop, per drop’ has any meaning, it is Maharashtra.
Maharashtra has only 19% of its cropped area under irrigation, way below national average of 47%. So, first priority has to be to increase the irrigation cover.
The paradox of Maharashtra is that sugarcane, which occupies just 4% of the state’s gross cropped area (GCA), takes away 65% of irrigation water; cotton, soyabean, sorghum, maize, gram and tur, which together occupy more than 60% of GCA get about 8% of irrigation water (see graph). Unless this is corrected, and irrigation water is distributed more equally, the crisis will return as soon as Maharashtra faces drought.
Compulsory drip irrigation in sugarcane, which may cost the state government about Rs 7,000 crore, can save about half of irrigation water, which if diverted to cotton, or sorghum, or maize, or soyabean, can significantly improve productivity and bring widespread prosperity. And, much of this can be done within two years, at most, in a mission mode.
Maharashtra is also a land that boasts of largest number of dams and major and medium irrigation schemes. During the 10 years of the 10th and 11th Five Year Plans (2002-03 to 2011-12), it incurred a cumulative expenditure on these schemes to the tune of Rs 1,18,235 crore at 2014-15 prices. But it increased the irrigation potential only by 8.9 lakh ha, of which, only 5.9 lakh ha was utilised during that period. This amounts to a cost of around Rs 20 lakh/ha of irrigation potential utilised at 2014-15 prices. This is nothing short of a scam where money seems to have disappeared as water disappears in sand.
Without increasing transparency and better governance, major canal irrigation schemes are an exorbitantly expensive proposition. It would be much better to go for solar-based drip irrigation, and solar crop acting as a third crop on farmers’ fields, with facility to put the surplus power back into grid at prices that have 15% premium over the cost of coal-based power supplies. This can improve their irrigation, augment yields, and also give them regular assured income, acting as insurance during droughts. Financing of such a scheme can be done either through private sector participation or long-term loans from multilateral agencies.
The loan waiver was already agreed last year, and little more tweaking with it will only increase the costs, which may raise the earlier estimated costs of Rs 34,000 crore to, say, Rs 40,000 crore. As per the Maharashtra government, up to December 2017, only loans of about Rs 11,000 crore have been settled with farmers. One doubts whether the remaining loan waiver can be done in the next six months. One will have to wait and watch.
However, the biggest gaffe is in saying that they have accepted MSP pricing based on Swaminathan formula. First, MSP pricing is done by the Centre, and the Centre is talking of cost A2+FL (paid out costs plus imputed family labour cost), and not comprehensive cost, C2, which was the real bane. In any case, if Maharashtra is really giving cost C2 plus 50% as MSP, it will have to raise sorghum MSP by more than 90%, of cotton by about 60%, groundnut, soyabean and maize by about 40%, which will be an invitation to disaster in markets. Even for 1.5 times the cost A2+FL, sorghum MSP needs to go up by more than 40% and cotton by about 20%. Can Maharashtra do it? Only time will tell.
Wisdom lies in thinking clearly before taking the plunge. No cost-based pricing, be it C2 or A2+FL, without looking at the demand side can be successful in a market economy. It will only lead to major distortions leading to huge efficiency losses. A more efficient, transparent and equitable option will be to give direct income support on per ha basis into the bank accounts of farmers.
By Ashok Gulati and Gayathri Mohan

via From plate to plough: Waiving off loans not a solution – The Financial Express

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