How India can stop turning its farmers into beggars

When you speak nonsense, you are told to get your head examined. But there are times when you do not even need to do that. You are pre-certified a madcap if you believe that farming can be sustained without subsidies.

We had promised that this week's instalment of "National Interest" would be busting some myths, using data. So why are we, instead of challenging the popular view that agriculture has too much subsidy, justifying it?

Maybe we do need to get our heads examined, but facts first. Broad Organisation for Economic Cooperation and Development (OECD) figures tell us subsidies in Japan account for 56 per cent of its entire income from agriculture, European Union 19 per cent, and the US a mere 7.1 per cent. It's an aside but a good talking point that Japan also protects its farmers by levying a 778 per cent tariff on rice and 252 per cent on wheat imports. So don't also say stop protecting your farmer. Every nation has to do so. The point is, is the farmer as bhooka-nanga in any of the other big economies as in ours?

Our fertiliser subsidies have crossed Rs 70,000 crore. The total electricity subsidy paid out by our states towards farming is also around Rs 70,000 crore. Add to this direct input subsidies, seeds, implements, diesel (until recently), free water, bonuses and so on, and the figure easily crosses two lakh crore rupees. But the farmer is still distressed, agriculture the Cinderella of our economy, and there is clamour for more subsidies. This is the central, agri-povertarian myth we are challenging. India does not need more but smarter subsidies. It is a global truism that bulk of the subsidies goes to big farmers. In India, on the contrary, it goes to big business. The entire fertiliser industry is a scandal built around this, where the fertiliser ministry dispenses the Rs 70,000 crore subsidy directly to manufacturers and becomes a big-time ATM. The farmer, meanwhile, has to beg for fertiliser. Once again, given how cheap subsidies make one kind of fertiliser, urea, there is permanent shortage, even riots for it. Since subsidy in India makes it cheaper than a third of its real price, it is smuggled to neighbours, diverted to other industries, from soap to explosives to milk adulteration, and lately, even "imported" from, say, China and "exported" back to it on high seas, with both parties splitting the subsidy.

If this is not bad enough, this also forces Indian farmers to use too much urea or nitrogen and the other two in the essential NPK (nitrogen, phosphate, potassium) cocktail get left out, destroying tens of millions of hectares of our most fertile soils. The Narendra Modi government has a good thought in giving farmers soil health cards. But it will be defeated by the rotten subsidy economics of fertilisers. There is enormous vested interest, a mafia of profiteering built around this.

What makes Indian agriculture a dog's breakfast is a combination of unthinking farm subsidies and an imprudent food economy. So the second large myth we demolish is a neo-liberal one, that the government is pampering the tax-exempt farmer by giving high procurement prices at taxpayers' expense which also leads to food inflation. Some of these issues have been examined in detail by the recent Shanta Kumar committee on agriculture as well, and I am grateful to its authors for much data.

In India, procurement, or minimum support price (MSP) for wheat is about $226 per tonne. In Pakistan it is $320, and in China $385. No farmer worth his tractor anywhere in the world will say his business is not rotten, but the truth is that most of the countries we compare ourselves with have reformed their farming unlike us. Both Pakistan and China administer farm subsidies directly, as income support.

Both have abolished public distribution systems (PDS). We, on the other hand, "support" the farmers with a conservative price - just six per cent of farmers sell their produce to government agencies - scatter the subsidies in a leaky gravy train, and then hold enormous stores of grain to sell at subsidised prices to the consumer through PDS, which I call the Public Disaster System. We, therefore, distort our food/farm economics at all three points: inputs, farm gate sales and consumption. This humongous arbitrage goes mostly into undeserving pockets, middlemen, inspectors and a monstrosity called the Food Corporation of India (FCI).

Next myth on our hit list, therefore, is that India needs more and more grain for food security. The Shanta Kumar report put India's(drought) buffer requirement at a mere ten million tonne, half to be stored physically and the rest in global futures and options. But that is too radical in a country where the age-old norm has been about 15-20 per cent of annual grain production, that is, 32 million tonne (2014-15 grain production 251, and 2013-14 a record 265 million tonne).

Even if you stretch it further to extrapolate the additional Food Security Act needs for PDS, it comes to 42 million tonne. Today we hold upwards of 60 million. We can easily export ten million tonne - in fact, it was decided to do so two years ago, but the food ministry got cold feet in that CAG, CVC, CBI season. The cost of this extra inventory is more than Rs 45,000 crore, and it benefits no one. After the FCI pays farmers, it costs it another Rs 4.75 per tonne per year to carry the grain - that, even for just this additional amount of grain, adds up to Rs 7,500 crore, and please flag that number because we shall return to it in a minute.

This demolishes our next popular myth of precarious food security, so popular that even brilliantly diligent academics such as Christophe Jaffrelot fall for it. In a recent newspaper column, he said a warning of impending food scarcity in India was the import of "80,000 tonne" of wheat last year. Now, to use a Ganga-Jamuni metaphor, 80,000 tonne when we have 60 million tonne of wheat and rice in storage is not even like a cumin seed in the mouth of a camel (Oont ke munh mein jeera).

Forensic research into this import shows these are minor parcels imported by some makers of branded products needing different gluten and fibre levels, like Maggi and pasta. Or small flour mills in the south where combination of low global prices and freight makes it cheaper to import from Australia than haul from FCI godowns in the north.

You think this broken economics is insane? I will tell you more. Punjab and Haryana, which procure bulk of this grain for the FCI, charge the Centre about 15 per cent of the MSP as cess. In effect, therefore, it becomes a straight gratuity from Centre to them for growing surplus grain.

Then you complain about the Green Revolution farmer getting caught in the disastrous wheat/rice cycle. Why would these states encourage him to move to gobhi, bhindi, broccoli or gherkins when the wheat/rice cycle is a money-churner for their budgets? If you wanted to fix Indian farming, Punjab and Haryana must shift to cash crops, maize (with support price) and basmati, each tonne of which earns three times the revenue of plain rice and consumes two-thirds of the water. Plain rice can move to the eastern states, and for wheat check Madhya Pradesh, whose farmers, powered by Narmada waters, are clocking around 20 per cent growth.

Next to be shot down is the factual abomination that if land is acquired for industry, urbanisation, India will be short of farmland and food security will be threatened. Facts again: India farms in nearly 200 million hectares arable land - that's including land that is double-cropped - and produces grain in the ballpark of 260 million tonne. China farms 156 million hectares, and produces (exhale!) 600 million tonne. Why? It has irrigation, and 63 per cent of its rice is hybrid, while only three per cent of ours is. Why? You ask "jaivik kheti" (organic farming) Luddites of the left and the right. These broad figures I have on the authority of agricultural economist Ashok Gulati.

Here is a very short checklist of how you can fix it. First, round off the total amount of subsidies and pay them directly to the farmer, depending on his landholding. Second, let farm products discover their prices in the market. Third, with support paid in cash, all inputs, including power, should be on market prices. Fourth, all savings and additional investments should go into irrigation and technology upgrades, new seeds, research including GM (genetically modified). See the wonder irrigation has done to Madhya Pradesh.

But also, don't forget that Rs 81,206 crore spent on irrigation in Maharashtra between 2000-01 and 2010-11 increased irrigated area under cotton by 5.1 per cent while half as much spent in Gujarat added 67 per cent. You can see it in the comparative fortunes of the cotton farmers of Vidarbha and Gujarat.

Fifth, accept that drought is an inevitability and so, with climate change, are extreme weather events. A hundred years' data tells us India has a drought every four-five years. So we need a real agricultural insurance system. To fully insure about 70 per cent of all farming in India, about Rs 15,000 crore will be needed annually. A half of this will simply come from not paying the FCI for carrying that surplus grain. Remember that figure of Rs 7,500 crore we said we'd revisit. What kind of insurance? There are many models at work. A genuinely brilliant one sits in the report by PK Mishra (currently additional principal secretary in the PMO) when he headed the committee to review the implementation of crop insurance schemes. More work is being done by other experts that envisages a combination of smartphones, GPS and drones to guarantee a quick payout. And as Gulati says, if Kenya can do it, why can't we? But before that we have to junk these myths that reduce our farmer to a beggar and give us the fake satisfaction of throwing alms that are pocketed by crooks driven by greed, not hunger.