Column : Noise versus reforms

Currently, there is a lot of noise about whether the recent spate of reforms undertaken by the government such as FDI in multi-brand retail, insurance and pension sectors will, in any way, hurt the common man. The Opposition is saying that the recent spate of economic reforms are certainly not in the best interest of the common man, whereas the ruling party feels otherwise. To understand the noise, we need to fit ourselves in the shoe of the affected parties.

Let's talk about FDI in retail. Here the affected parties are the farmers, local kiranas and the common man. To understand the veracity of the argument that farmers are going to get hurt, we will have to take note of what is happening currently. As of now, if the farmers are to sell their produce, they have two options. First is to sell directly to the central government outlets such as Food Corporation of India (FCI) and National Agricultural Cooperative Marketing Federation of India Limited (NAFED). Second is to sell to the state governments' designated commissioned licensed agents operating in the mandis (markets).

The central government operates as a welfare-state by procuring items from the farmers at a price (also called minimum support price) which is higher than the market price, and, in return, selling these procured items to the consumers through the public distribution system (PDS, better known as ration shops) at a cheaper price. The basic assumption for the welfare state to function is a situation where the farmers can walk to any of the NAFED or FCI collection centres and can sell their produce at the minimum support price (MSP). Likewise, the poor people are able to procure items from the ration shops at a subsidised rate.

Typically, MSP is higher than the market price, and one would think that farmers would gain every time the government announces the MSP. In reality, however, things are different. First of all, every village does not have NAFED or FCI outlets. And, even if there is an NAFED or FCI outlet, the government may not procure if the farmers bring their produce before/after the dates of procurement. The government generally announces the dates of procurement, and many times the farmers do not have the information on these dates. Worse still, sometimes, the government announces procurement dates a month or two after the harvest time, making it impossible for the small farmers to sell their produce at the MSP. In India, as many as 80% of the farmers are small farmers with less than 1 hectare of landholding. These marginal farmers do not have access to cold storage (and hence waiting capacity), and have no option but to sell their produce to the middlemen or traders. It is interesting to note that in the state godowns that offer storage facilities, it is difficult to get space without any political connection.

... contd.

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