Fears that the National Food Security Act (NFSA) will have disastrous consequences for the agricultural sector, with farmers deserting their fields, food production plunging lower than the rupee and grain markets collapsing, escalated with the Bill’s tumultous passage through the Lok Sabha. While Gujarat CM Narendra Modi said the Bill was paradoxically aimed at keeping people hungry, Union Agriculture Minister Sharad Pawar, who fought against the Bill for four years, said it wouldn’t work unless the government kept the farmers happy.
Earlier, even as the Bill was being cleared by the Union Cabinet, Pawar had pointed out that it might reverse the UPA’s hard-won track record of improving agricultural production. Heavily subsidised foodgrains for small farmers, he said, might end up being a disincentive for them to farm their holdings. Half of India’s agricultural produce comes from small farms. If there is a reduction in farm output, the demand cannot be met.
Food Bill enthusiasts say that small farmers — who comprise 80 percent of the farming community in India and have holdings of 1.4 hectares or less — generally earn less than they spend. So heavily subsidised foodgrains will result in savings on food expenditure and more spending on nutritious foods.
But Pawar’s concern is with maintaining agricultural production. The NFSA envisages a subsidy of Rs11.50 per kg of wheat, which basically means that while the farmer sells his grain to the government at Rs 13.50 per kg, he buys it back at Rs 2.00 per kg. Now why should the farmer not continue to do that — produce expensive grain and buy it back cheap?
Prima facie, it seems like a good deal, until you factor in the cost of inputs. For example, the Commission for Agricultural Costs and Prices (CACP) pegs the input cost of wheat at 11.28 per kg, while the minimum procurement price is 13.50. In a best case scenario, the farmer can hope to earn around 2.00 per kg. But in the current labour-scarce scenario, he earns more from hiring himself out as labour (cost of which has escalated 400 percent since MGNREGA).
For him, it makes more sense to avail of near-free foodgrains while working on a construction site. Paddy fields left fallow by disinterested farmers are a common sight in parts of Odisha, where a Rs 2/kg rice scheme is already in place.
Food policy activists disagree, saying the small farmer, with his grain supply assured, will use his land for growing nutritious foods and cash crops. They point to the fact that 70 percent of vegetables are produced by small farmers, although they have only 44 percent of cultivable land. So, the NFSA creates a win-win situation: the small farmer saves money, which he invests in his farm to improve production and consumers get access to cheaper agricultural produce.
It is hard to say how the scenario will play out. The outcome will depend on policy initiatives, aimed at giving small farmers a level-playing field.
The impact on bigger farms is equally critical as they generate most of the marketable surplus of foodgrains. On the face of it, the NFSA should benefit them, as government demand for grains would go up. But whether or not they profit depends on the price at which the government procures. The MSP needs to keep pace with input costs.
So the gap between the procurement and issue price widens far beyond the 1.25 crore currently allocated. Also, leakages in the PDS must be plugged to prevent diversion to the open market, as this would depress prices.
The NFSA will significantly impact the open market and, therefore, private traders, who fear they will be displaced. The Food Corporation of India is already the biggest player in the grain market and the Competition Commission of India is investigating whether its operations are eliminating private trade. Last year, the CACP had observed that the “government (is) becoming the single largest procurer and hoarder of foodgrains”.
While the NFSA may deliver in terms of votes in the short-term, the long-term outcome will be positive only if it consciously focusses on the small farm sector and initiates reforms in the PDS, including procurement policy.