For the Union govt the best farm policy would be to let states deal with it | Business Standard Column

Clipped from: https://www.business-standard.com/article/opinion/for-the-union-govt-the-best-farm-policy-would-be-to-let-states-deal-with-it-120120700112_1.html

If states insist on costly policies, let them pay for their follies

If agriculture is a state subject, why do we need such a large ministry at the Centre for it? It occupies an entire building and its budget allocations are amongst the highest. In 2020 it was allocated Rs 1.42 trillion.

Parliament doesn’t bother very much with it because the real agricultural issues are so local that they mostly get addressed and sorted out in the state assemblies.

It is also not well realised that this ministry is neither a purely economics focused ministry like finance or commerce. Nor is it a purely politics focused one like the home ministry. What it does is mostly image building for the government of the day as being very caring about the farmers.

But fat lot of good that’s done. True, that farm output has increased manifold. But it has done so in an imbalanced way. Farmers, however, have stayed poor. This is because average income per acre rarely exceeds Rs 20,000 per year, and nearly 100 million of the 146 farm households own only 2-3 acres. So as confused and confusing ministries go, the ministry of agriculture is hard to beat. Yet it’s been there since 1947.

One important reason is that you need a minister to answer questions in Parliament for the vast sums the ministry spends. But what’s the other important reason? No one knows. What’s worse, no one cares.

What is to be done?

So the ministry must, at the very least, be restructured, reoriented and downsized. If this is accepted in principle, the PMO can set up a committee to see how best to do it. The starting point for this must be an explicit acknowledgment that agricultural problems can only be sorted out by the states because they are in the best position to do so.

That’s what the Constitution makers also thought. They made agriculture a state subject but put it into the Concurrent List as well. That’s how the ongoing fuss over farm reform provides the perfect example of the wrong agency doing the right thing.

Thus, support price setting should be left to the state governments. Instead, the Centre, via the agriculture ministry, tries to impose a one-size-fits-all policy which just can’t work in an activity that is so diverse and diversified.

Ask yourself: would crops that can’t be grown without massive central subsidies nevertheless be grown in states that would go bankrupt if the full subsidy had to be paid by them? Or if crop switching was difficult, would not support prices be lower?

Punjab is the perfect example of this. Because water is free or nearly so, it has allowed farmers to grow the wrong crops. But the costs are passed on to taxpayers all over the country. As one of India’s foremost experts on agriculture, Ashok Gulati says “Each farm household in Punjab got a subsidy of about Rs 1.22 lakh in 2019-20. This is the highest subsidy for a farm household in India.”

In consequence, he says “the average income of the Punjab farm household is the highest in India — in fact, almost two-and-a-half times that of an average farm household in the country.”

There is only one way of avoiding this inequity: let the states do what they are best equipped to do. And if they insist on adopting costly policies, let them pay for their follies.

Moral hazard

What’s been happening for nearly five decades is called the moral hazard problem in economics. This is that stupid things will get done when there’s protection from the consequences of such stupidity.

Or, as the Hindi saying goes, muft ka chandan, ghis beta Nandan.

Twitter: @tca_tca

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