Nobody believes that agriculture minister Sharad Pawar has resigned because of policy differences. He is miffed at being denied no 2 status in the Cabinet. He may also be preparing for life after UPA 2 – the next general election may give him a chance of becoming PM at the head of a coalition of regional parties.
Nevertheless, the issues on which Pawar quarrelled with the UPA government were important. Sonia Gandhi’s National Advisory Council wanted ultra-cheap food for all. Pawar was the one Cabinet member who dared oppose Sonia. He said the public distribution system lacked the capacity for the task, which also had horrendous fiscal implications. He lost this battle, but helped dilute the Food Security Act’s provisions to affordable levels.
Pawar held that, despite its rhetoric about uplifting rural areas, New Delhi constantly sabotaged farmers. Pawar wanted to allow sugar mills to freely produce ethanol directly from sugarcane, but was shot down: the government decreed that ethanol could only be produced from molasses. Pawar lost many battles to liberalise agricultural exports.
Earlier this year, without even consulting Pawar, New Delhi banned cotton exports after intensive lobbying by the cotton textile industry. Fortunately, the ban was soon rescinded. Otherwise it would have affected cotton planting this season, creating a real shortage.
When the cotton export ban was imposed, Gujarat CM Narendra Modi accused the government of robbing Gujarat cotton farmers of Rs 2,000 crore. This rang political alarm bells. Gujarat goes to the polls in December, and Modi cited the cotton export ban as evidence of Congress’ anti-farmer bias. Panicky Gujarat Congressmen ran to New Delhi to protest that Modi had been given massive election ammunition. So, the government rescinded the ban. Tellingly, the government listened more to an opposition CM like Narendra Modi than its own agriculture minister.
All export bans have been justified by fears that allowing exports would stoke inflation, hitting urban consumers. Pawar consistently argued that this amounted to a tax on farmers to subsidise urban consumers, and was both unfair and counter-productive.
He said the key solution to inflation was higher production, not export bans, and taxing farmers through export curbs discouraged additional production. He was surely correct in this argument. Indeed, the head of the Commission on Agricultural Costs and Prices, Ashok Gulati, has proposed that whenever the government bans something like cotton exports, it should compensate cotton farmers for unjust taxation.
Frequent commodity export bans, often with retrospective effect, have given India a terrible reputation. Seen as an unreliable supplier, it has to discount prices to compensate. This again is at the expense of farmers.
Most Congress politicians are paranoid about not having enough food to meet the needs of the public distribution system. In 2008, there was a sharp rise in world food prices, and India immediately banned exports of wheat, non-basmati rice, and some other commodities. Consequently, domestic grain stocks shot up.
For years, government food procurement has been far higher than food sales. So, government stocks are now at a record 75 million tonne. India does not have remotely enough storage capacity for this, and so 20 million tonne are stored in the open under plastic sheets. Millions of tonnes will rot. A more aggressive export policy, favoured by Pawar, would have prevented this.
In October 2011, the government finally acknowledged its folly, and lifted the ban on export of non-basmati rice, wheat and sugar. However food minister, KV Thomas, a personal appointee of Sonia Gandhi, sees export bans and physical controls as the solution to every problem. Procedures for the export of sugar are so complex that very limited exports have actually taken place after the lifting of the ban.
In the case of wheat, the world price was below Indian price last October, so exports were unprofitable and did not materialize. However, in the last month world food prices have shot up because of a scorching drought in the US. This has made Indian wheat exports profitable again. Yet food minster Thomas’ first reaction to the US drought has been to suggest banning wheat exports again.
Now, food inflation has been high for several years. But the answer has to be additional production, not export bans or constant crackdowns on stocks held by traders, another favourite remedy of Thomas to end supposed hoarding. The most strident price rises have occurred for meat, fish, dairy products, fruits and vegetables. All these are perishable and cannot be hoarded.
No doubt Pawar has resigned for narrow reasons of self-interest, not concern for farmers. Yet he needs to be applauded for consistently championing liberal policies to benefit farmers.