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Rot in farm produce
The centre has to address the issue of bad debts and enable a sustainable price discovery for agricultural produce
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The NDA-government does not appear to be serious in tackling the problems of the farmers in the country particularly the bad debts and sustainable prices for the agriculture produce. In fact, the stop gap arrangement made by some of the state governments in different parts of the country is unlikely to solve the difficulties faced by the farmers. The initiative taken by the Uttar Pradesh government in waiving off the loans of the small and marginal farmers may be simplistic, but the farmers in other states have begun agitation for loan waivers. The knee jerk decisions of the states are unlikely to address the larger issue of bad debts and low prices of agriculture produce. In Tamil Nadu, the farmers have given the state government two months to meet their demand for a full waiver or face agitation. In Maharashtra, the government has announced loan waiver for the needy farmers with an estimated expenditure of Rs 35,000 crore after prolonged protests by the farmers. On the other hand, Madhya Pradesh Chief Minister has resisted announcement of a waiver, but unveiled a package that includes a settlement scheme to bring the loan defaulter back into credit net with interest free loans. This will also include some sort of settlement with the farmers, who cannot afford to avail fresh loans or cannot repay their debts. Somehow, the governments have not explored the working of the cooperative banks which have been main financiers of the farmers' loans. The cooperative banks are also suffering huge losses because of faulty policies of the Reserve Bank of India (RBI), which refused to exchange their old currency notes after the demonetisation. The cooperative banks have about Rs 44,000 crores in their chests post-demonetisation because the RBI did not allow them to accept the old high value currency notes after three days of demonetization on November 11 last year through a circular issued in the evening. This issue has not been sorted out by the centre as well as the RBI. The cooperative banks are facing closure due to this step of the RBI. On the other hand, farmers in Punjab have also started protests early this week for loan waivers and other interventions. Union Finance Minister Arun Jaitley has already made it clear that the states which want to announce loan waivers for the farmers will have to generate their own resources for this purpose. The RBI has warned of inflationary risks from fiscal slippages caused by large loan waivers. However, it would be short-sighted to see the rising angst in the farm sector as simply the desire of farmers around the country to keep up with UP. There are deeper reasons that must be addressed holistically by the central government in coordination with the states.

The bigger problem is price discovery. In fact, there is decline in pulse and vegetable prices. The RBI has acknowledged that already falling vegetable prices dipped more sharply because of 'distress sales' following demonetisation, and pulses are cheaper because of high output on top of imports. Prices for eggs, oils, cereals and milk are moderating, and while the sharp fall in food prices has kept consumer price inflation tepid, rural distress has been aggravated. The new cattle trade rules threaten the viability of livestock and dairy farming. Banks are awash with funds since the note ban, but rural lending growth has collapsed in the second half of 2016-17 and even has shrunk in several states, including Punjab and Maharashtra. Prices of fuel used by rural households have surged for three successive months. It is this situation on several fronts that appears to have pushed farmers to the wall. In consultation with the states, the centre must reconsider whether it is prudent to narrowly target low food inflation. If India wants to be the world's food factory, its farm policy needs to recognise farmer requirements for state support. If consumers and producers can benefit from a single national market in the GST era, farmers should also have the freedom to sell their produce where and when they want - with a predictable policy framework that enables farm-to-fork supply chains independent of local markets and traders. Labour and land reforms also need to be reviewed to create more opportunities other than farming, and irrigation and other infrastructure projects sped up to boost farm productivity.

News Updated at : Thursday, June 15, 2017
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