In its first year in office, the government appearedto be neglecting agriculture in favour of manufacturing. But it started setting that skew right in its second year. Last September, it appointed noted agricultural economist Ramesh Chand as member NITI Aayog. Chand, who was director, National Institute of Agricultural Economics and Policy Research at the time of his appointment, has been pushing for agricultural reforms for long, but is a bit nuanced in his approach. Excerpts from an interview with Seetha on a range of issues.

How optimistic are you about agricultural growth this fiscal? The first quarter saw some drop when everyone was expecting recovery.

I have been maintaining consistently that if rainfall remains normal, we can expect six percent growth in this fiscal. Rainfall was normal till a few days back, now they say there is a deficiency of five per cent but it usually gets made up.

There is a lot of fluctuation in agriculture growth – it is not even a steady low rate.

Yes, and stable growth is always desirable. But what needs to be asked is, over time is this instability declining? Is there some resilience coming into the system? My answer is yes, it is. In the past, when there were two successive drought years, the decline in output used to be minus 2-3 percent. But this year we are saying only minus 0.2 percent.

Also, the frequency of years with negative growth in a 10-year period, is declining. This is happening because of two reasons. One, the share of livestock in agriculture is rising. And livestock growth is never negative, it doesn’t even go below 3 per cent. So it is imparting some stability to overall output.

Second, agriculture is getting more broad-based. There is a significant decline in the share of food grain in total cropped area now than from what it was 20 years back. There is increase in fruits, vegetables and other crops. There is a big change in terms of both total area as well as output. Through diversification, you reduce vulnerability. There are other reasons also - expansion of irrigation, more investment in agriculture.

Has the approach to pushing agricultural growth all these years been flawed?

From 2006 onwards, the global price situation favoured a big hike in minimum support price (MSP). And we fell into that trap. In the process, we ignored non-price factors – more capital investment, improving irrigation, infrastructure and, above all, to bring policy reform.

Because we were able to give big increases in prices, we said that farmer is happy, so we got content with that. But any increase in price cannot be sustained in the long run. Terms of trade cannot keep rising in favour of one sector for a long period; after some time, they will fall.

And once the option to increase prices got exhausted in 2012, we got into trouble. So that’s why now we have to think fresh, we have to think about investment, about efficiency, irrigation, mechanism for risk. Above all, we have to think about modernisation of markets, bringing efficient and modern technology to agriculture, and all these things require reforms. That is the biggest agenda for development of agriculture.

There is a lot of scepticism about the plan to double farm income by 2022. What are the three things this government has done right to this end?

In India, most of things that matter for agriculture have to be done by states. The one big thing this government did was e-NAM (electronic platform for National Agricultural Market). This will enable farmers to get a good price - that is the main source of growth in income, even if productivity doesn’t increase.

But the success of this initiative depends on how states implement it. If states do it half-heartedly, it will not help. Uttar Pradesh is also part of eNAM, but they have done it only for wheat. They have selected six markets, all for wheat. Haryana has included the Karnal market and wheat. They should have included at least basmati rice, where there are possibilities of getting high price from traders elsewhere.

Second, Pradhan Mantri Krishi Sinchai Yojana. Though the centre’s own resources are not adequate, National Bank for Agriculture and Rural Development (NABARD) has been roped in to provide some capital to states. This can make a big difference.

Third, often farmers don’t opt for new crops or make the required investment in agriculture because of risk. Crop insurance is another initiative which can provide incentive to the farmer.

But there are reports that it is not working well...

This has just started, there will be teething troubles. These are initiatives the government has taken, we have to see how they progress. If there are problems, solutions can be found.

Three things the government still needs to do?

One, pursue market reform agenda with states seriously. Second, persuade states to undertake reform in land lease law. NITI Aayog has developed a model land lease law. Some states are moving on this. But from centre, it needs to be pushed. Third, bring a balance between subsidy and investment. We are facing a water crisis, but we are doing nothing to prevent states from giving free power. The centre should work harder on sensitising states to the harmful effects of these.

When you as NITI Aayog go talk to the states, do you find a realisation among governments. . .

Realisation is there, but will is not there. They are not able to muster courage and say that this is something we need to do. They are doing wrong political calculations that they will be in trouble if they take these steps. Whereas now people also want reform, they want assured power and they are willing to pay a reasonable tariff.

When you start looking at agriculture, there is so much to do. We, at NITI Aayog, have identified six areas for reforms - market reforms, trade reforms, factor market (land and credit), forestry sector, water, technology, R&D and extension.

There is a view that agricultural subsidies, in their present form, are skewed and that this needs to change...

I would not say skewed, but they have reached a stage where the harmful effects are more than their beneficial effects. The water table is going down, indiscriminate use of fertilisers in some cases is causing water pollution and so much money is going into subsidies that we do not have enough money to put into infrastructure. So it has so many implications, that is why I say there is a need to bring balance between the two. I am not saying abolish subsidy.

Should we shift to cash transfers as a way of delivering subsidy?

Now this is my personal view – not as member NITI Aayog – I feel we have not yet reached a stage where giving subsidy in the form of cash can be more efficient than giving subsidy linked to input. Why?

One, earlier estimates said 16 percent of farmers are tenants. The latest estimates put this figure at 20 percent. If tenancy is not recorded, then you are denying the tenant-farmer subsidy. And they are the really needy persons. The pre-requisite of cash transfers for farmers is legalising tenancy. Without this, the landowner will get the subsidy and the actual tiller will not. This is a serious problem.

Two, we need to distinguish between subsidy support and income support. Subsidies are normally given to promote use of a particular input or practice which is considered desirable and it must be linked to that.

Giving uniform subsidy across the country on a per hectare basis is not a good idea. In Punjab, a farmer is using 150 kg fertiliser, in a remote arid district of Rajasthan he is using only 10 kg. If you give the same subsidy to everyone, then one will reduce his consumption, another will increase. Has any study been done on the impact on food grain production of such redistribution of subsidy or other production?

There is also a problem on agricultural credit. Small farmers are finding it difficult to access credit

The problem with institutional credit is not so much class variation as regional variation. Per hectare loan in Punjab, Haryana and south India is many, many times more than in eastern India. You show me a small farmer in Haryana who is getting less credit per hectare than a large farmer. But because the percentage of marginal farmers is much higher in Bihar or Assam and eastern India, if you take a national average, it looks as if small farmers across the country are not getting credit.

If you look at credit as a percentage of production or as percentage of expenditure on input, in Tamil Nadu, definitely, it is much more than cost of input in the agriculture sector. Credit is being diverted for non-agricultural purpose, because it is cheap. But if you look at eastern India - Bihar, Jharkhand, West Bengal - Assam, it is not more than 10-15 per cent of cost of input.

Whenever prices of particular commodities spike, there is panic reaction to cool prices by upping production or through imports. The following year there is a glut and the farmers suffer. Governments are constantly caught between consumer interest and farmer’s interest. What is the way out?

As long as production fluctuation continues, price volatility will also continue so long as we do not have two measures for price stabilisation - trade or stock. You don’t see fluctuation in rice and wheat (of course, production in these is also not fluctuating). The reason is that the government is playing the role of stabiliser through its inventory. Now we are planning to do the same thing in pulses. That role of storage is very important.

In many countries, the private sector plays that role of stabilisation. But since we have the Essential Commodities Act, it restricts the ability of private sector to play that role, large players cannot hold stock for stability. So we need to do something to let the private sector also play this role of stabilisation through storage.

You spoke about trade as another tool of stabilisation. But our agricultural trade policy is also not consistent...

I will not say it is not consistent; it is consistent. But the measures they are using are not transparent and sometimes they look harsh and invite criticism. That is the problem. The ultimate responsibility of a government is to help farmers when they are facing a crisis and to help consumers when they are facing a crisis, to balance the interests of society.

Take banning the export of onions. If they have a transparent criteria, that if onion prices start shooting up, we will move gradually in the direction of putting some check on export, making export less attractive, that will help. One way out is start with duty of 20 per cent, if that is not helping raise it to 40 per cent, then perhaps go for minimum export price but ban only in the extreme instance of all these failing. But those things should be based on specified criteria, so that stakeholders don’t feel it is unfair. I have been asked by the Prime Minister to develop a mechanism, a trigger when particular actions will kick in.

It will not affect our credibility in export markets if we don’t put an export ban. But for every country, the domestic constituency is more important than what you earn through foreign exchange.

Have you had any success in NITI Aayog in getting states to understand the need for reforms and how are they responding?

When we prepared the task force [on agricultural development] report, we consulted every state. Based on their views, we gave some recommendations which mentioned these reforms, like land lease law. I will say that we are about to get the biggest success there. States are doing it.

Then we also tell states that you should promote custom hiring of tractors. For a small farmer, it is not economical to buy tractors. So if you promote custom hiring, like Ola and Uber, you make every farmer a tractor owner without actually owning it. Some states are already working in that direction.

Is there anything the centre can do apart from just persuasion?

Yes. It can give incentives. In the case of e-NAM, we are giving Rs 30 lakh. Similarly, suppose we want to tell the states not to impose 15 per cent commission and other incidentals in the grain market, preventing private player from coming there. A way out could be that for one or two years, if states are reducing commission from 15 percent to 10 percent, centre can say we will meet part of the revenue shortfall. That is what we are doing in Goods and Services Tax.