COVID RECOVERY PACKAGE: AN ANALYSIS (Concluding Part)

Author: Pranab Kanti Basu*

Devious Intentions

The government has used the human catastrophe caused by Covid 19 to cynically push their political economic agenda.

  • Privatisation of coal mining
  •  Implementation of National Mineral Policy 2019, of creating Exclusive Mining Zones where licences to private parties will be expedited bypassing forest land and environment obstacles.
  •  Measures to allow greater private sector participation in space, atomic research and power distribution.
  • Increasing limit of foreign investment in defence manufacture.
  • To ease it’s privatisation agenda Nirmala Sitharaman, the Finance minister, has inaugurated a new concept ‘corporatisation’ in place of ‘privatisation’. She explains that this means the PSEs will be listed and their shares traded.
  • Abolition of list of sectors reserved for PSEs

The government has learnt its lessons well from the IMF: use distress to force your policies on borrowers. GOI ties loans to state governments to adoption of their reform agenda

  • States can additionally borrow up to 0.5 % of their SGDP
  • They can borrow an additional 1.5 % of SGDP subject to fulfillment of ‘conditionalities’
  • One nation one ration card scheme
  • Ease business restrictions at district level
  • Power distribution liberalization
  • Revenue generation by local bodies

Agriculture: There is a lot of hype about the steps announced to curb the stranglehold of mandis on agricultural trading.

The mandi system has come in for a lot of justified criticism. Under this system, farmers are prevented from selling their produce directly, but must take it to the mandis where it is auctioned off under the supervision of an agent of the Agricultural Produce Marketing Committee. The ostensible reason for preventing direct sale was to prevent exercise of coercive power by politically and economically powerful traders on small sellers. But the idea, like the licensing system, was perverted. The auction is a sham and commodities are procured by big traders at throwaway prices with the collusion of APMC representative. Often agents buy off the products from the producers at source and bring it to the mandis. Further, the wholesalers operate within designated areas giving them the privilege of monopoly (monopsony for the economics literate!) within their designated area. The whole system is weighted against the small producer, who frequently receives less than the minimum support price (MSP).

This system, however, has been modified in favour of farmers by various states. WB, for instance, has done away with designated areas and allows competition among buyers.

The government has proposed termination of the mandi system; permitting producers to sell anywhere within the country (one country one market); amending the Essential Commodity Act to remove restrictions on stockholding and trading in agricultural commodities. They are touting these measures as benefitial to farmers as the mandi system will cease.

Removal of restrictions on stockholding and trading is actually designed to benefit the large contractual supply chains run by big houses. The provision allowing farmers to sell their wares anywhere in India is eyewash. Will the small farmer in Bengal sell watermelons in Gujarat? It is meant for the big houses that can now spread the net of contract farming.

What could have been done?

Any structural change announced at a critical moment, particularly when the poor are dying in droves, is diversionary tactic. The need is immediate and it would require measures that immediately improve the lot of farmers: increasing procurement and distribution; compensating for farm losses on account of unharvested crops caused by migration of labour; waiving outstanding loans; giving grants to start farming activities.
This is definitely not the time to think of structural reforms. The mandi system definitely needs to be changed. But some states are already moving in the right direction. Agriculture is a state matter and the GOI must respect the federal structure. The governments needs to inject funds through SHGs and Panchayats to introduce e-marketing faculties to the farmers. This will need both infrastructural investment (e.g. some laptops and smart phones) and training expenses.

Note: This is the second and concluding part of the article. The first part can be found here: https://ipdonline.net/2020/05/18/covid-recovery-package-an-analysis/

*Pranab Kanti Basu is a Professor of Economics for over 40 yearsHe has been teachinin universities like Viswa Bharati and Calcutta University. He has taught Economics in Ashutosh College, Kolkata for a large part of his teaching life.

Kindly note that the point of views expressed in the article are entirely the author’s personal views. IPD takes no responsibility for the same.

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