Agriculture Reference
In-Depth Information
operations. Each one's interest is different, and so are the dynamics within each
group. For example, within the consumer side, there are those who are below
poverty line (BPL), those above the poverty line (APL), and those who own fair-
price shops, who have been benefiting from rents by often diverting substantial
parts of PDS supplies to open markets.
In a reformed situation, say of food coupons or targeted PDS covering only
the BPL group, if it is perceived that APL consumers and fair-price shop own-
ers will be losing, it is natural to expect resistance to change from these groups.
To defuse any strong opposition to reforms, it is essential to ensure that poten-
tial winners (BPL group in this case) see large and tangible gains and therefore
become vocal supporters of reforms, whereas the potential losers (APL con-
sumers and fair-price shop owners) are offered some alternative options, so that
they do not see themselves as losers but as being asked to move to another, and
perhaps, a better option. This strategy can be carried out, for example, by in-
creasing the subsidy rate for the BPL group, which will make not only more
economic sense, but will also create strong political supporters of reforms. The
APL group can be asked to move to other safety nets, such as Employment
Guarantee Schemes in rural areas, and fair-price shop owners may be offered
to remain a part of the targeted PDS system with increased commissions for
their services that are more transparent and accountable to the beneficiary
groups. In this way, politically, one can minimize the potential opposition to re-
forms within the consumer camp.
But how about the interests of the farmer groups that are likely to feel
threatened by the idea of government's withdrawal? After all, the parastatal
(FCI in this case) was created in 1965 primarily to give effective support to
farmers against any precipitous fall in prices immediately after bountiful har-
vests resulting from the adoption of new technology. FCI was supposed to make
the minimum support price an effective floor price, below which prices will
not be allowed to go. In a reformed situation, one would visualize (1) that the
minimum support price is delinked from the procurement price, so that the min-
imum support price covers only the paid-out costs of the farmers (known in
India as cost A2) and the procurement price is flexible in competition with the
open market value, free from any movement controls, stocking limits, or bans
on futures trading and the like; and (2) that the role of FCI is limited to mini-
mum procurement rather than open-ended procurement.
However, to create support for such a change among farmers who have ex-
perienced only open-ended procurement and at the minimum support price,
which covers total costs (known in India as cost C2) plus some margin, one will
have to create alternative policy instruments that farmers clearly see as benefit-
ing them. One such policy instrument is the introduction of the warehouse re-
ceipt system, wherein farmers have the option to obtain sufficient liquidity (say,
up to 75 percent of the value of their stocks pledged) immediately after harvest
without necessarily selling it at that time. Under the warehouse receipt system,
