11 highlights
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It’s not too difficult to explain this sudden rush to ban agricultural exports: inflation. For April, retail inflation was the highest it has been in the Modi era. The last time it was this alarming, Manmohan Singh was India’s prime minister.
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The Union government too kept up its policy of unusually high fuel taxes, thus furthering inflation (given its role as an input in nearly every sector, fuel prices are an especially important factor for price rise).
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High exports, quite obviously, mean higher incomes for farmers. International prices were one reason that market prices of wheat in India were higher than even the minimum support price – the rate at which the government buys from the farmer in certain states. In effect, export bans are an implicit tax on farmers in order to subsidise the Indian food consumer.
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Given the political importance of inflation – high prices can be lethal for a ruling party at election time – governments have put in a stifling range of controls in order to keep prices low for consumers by making sure farm incomes, in turn, remain depressed. To do this, the government imposes strict regulations on imports and exports as well as the marketing of agricultural produce in India.
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Once agricultural policy is seen holistically, however, calculations show that the measures such as export bans end up taking more from the farmer than the government gives by way of subsidies. India actually ends up taxing farmers rather than subsidising them – a rare country to do so.
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As can be seen in the above OECD chart, producer support estimates, or the annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, is -6% in India. In contrast, it is 24% in the Philippines and 15% in China.
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This implicit tax on farm incomes comes at the same time as Indian agriculture is in crisis. Farming in India is characterised by low mechanisation, small plots and very little use of modern techniques. As a result, productivity is low. The yield of rice in India – the country’s largest crop – for example is lower than China and even Bangladesh.
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This, in turn, means agricultural incomes are incredibly low in India. A survey conducted by the National Statistical Office for the calendar year 2019, for example, found that the average daily income for an agricultural household was under Rs 280 ($3.6) per day. Given the average size of a rural household in India is five, this comes to a measly Rs 56 ($0.72) per person per day.
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Ironically, just a day before the Modi government passed three farm laws in 2020, claiming that they would liberalise agriculture by bringing in the free market, it also banned the export of onions. A month later, it also imposed stock limits on onions. Soon after, the BJP-controlled government of Uttar Pradesh ordered potato cold storages to offload stock.
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In fact, during India’s catastrophic Covid-19 lockdown in 2020, it was agriculture that absorbed the workers who were cruelly expelled from India’s cities. As a result, it was the only sector to grow during 2020-‘21. In fact, as the Indian economy has slowed since 2016, agricultural employment has risen.
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If inflation control is the aim, why should it not be done at the consumer end, with the government providing subsidies to lower the price of this food bill? For the ruling party, the decision to force farmers to subside consumers is an easy one. The consumer has far more votes than the farmer.