India could end up facing a Sri Lanka–type economic crisis if it doesn’t shun the “culture of freebies” and subsidies in sectors like agriculture, Niti Aayog member Ramesh Chand warned, stressing that the “mind–boggling” support measures for farmers has made agriculture extremely dependent on such crutches.
“Our policies and support to agriculture and many other sectors are going in a direction that if we do not put a check on it, I think a day is not far when our fate will be same as that of the Sri Lankan economy,” Mr. Chand said, blaming “self–anointed experts” for skewing the debate on farm subsidies and minimum support price (MSP) for crops.
Listing out several support measures that are not even quantified while calculating farm subsidies support, Mr. Chand reckoned that India has already hit the 10% limit of State support for the sector and flagged the additional costs of implementing the MSP regime.
“The latest number is that if we are buying anything at MSP, the economic cost comes to be 30%–35% more than the MSP and the government is not able to dispose the produce even at the MSP. This means that to pay ₹100 to the farmer, it costs ₹35 to the government,” he noted, explaining that a procurement of ₹3 lakh crore would thus entail some sort of additional support of ₹1 lakh crore.
Mr. Chand, who was speaking at the annual day function of the Delhi School of Economics, pointed out that fertilizer subsidy was usually the only number considered while evaluating farm sector support measures.
“We don’t recognise how much subsidy is going as interest subvention as if a farmer repays loan on time, he gets subvention of 4%. Some States pay the entire interest for the farmer. Then there is crop insurance, for which 70%–80% of the premium is paid by the Central government, there are internal freight subsidies.”
“Every four five months, some proposal comes to Niti Aayog to pay ₹5,000 crore or 6,000 crore for the mills to clear farmers’ arrears. If you reckon all those things, you will find that we have reached the WTO norm of 10% support for value of agriculture,” Mr. Chand said.
Calling for greater awareness about the dangers of the freebie culture in the ruling dispensation and the public at large, the NITI Aayog member said: “Sometimes, I used to feel bad money can drive out good money. Now, we are experiencing bad ideas are driving out good ideas. I consider it as a very dangerous kind of practice.”
Apart from the fiscal implications of dedicating large parts of its spending on just one sector, he also said the approach is detrimental to farm sector productivity.
“Since we are spending more and more money for support and subsidies, the measures which are needed to give a push to the growth and efficiency are not working. As a result, we are caught in a vicious cycle.
“Since infrastructure and irrigation are not improving much, no farmer leader is asking why the area under canal irrigation is declining. Everybody says there is free power so we will go for more tubewells… and increasing costs means you can keep demanding more prices.”
Recalling his time as a student of agricultural economics, Mr. Chand said price and non–price factors were considered critical but over time, non–price factors have taken a back seat and price is just the only dominant factor for policy making, “whether it is the political dispensation, farmer groups or some kind of experts”.