The Financial Express
By Ashok Gulati and Raya Das
The unseasonal spell of rains and even hailstorms in some parts of the country in second half of March has aggravated concerns regarding rabi harvest, especially wheat. Wheat is grown on almost 34 million hectares and is the second-biggest staple after rice. As we write this, the Union government is still figuring out the extent of damage to rabi crops. What we know is that wheat was at mature stage, and country was expecting a bumper harvest of 112 million metric tonnes (mmt). This hope may not materialise fully now.
The first key issue now is to assess the extent of damage, both in terms of quality and quantity of wheat and other crops. And second is what policy action can be taken to tide over this difficulty farmers face as well as to ensure food security at the national level.
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Punjab seems to have been hit a bit harder than many other states. The state’s agriculture department has been looking at a 10-15% yield loss on about 40% of the wheat area that seems to have been adversely impacted by rains. However, the governmant of Punjab (GoP) is currently assessing the damage by girdawari (field inspection) and patwari system, and a final picture is yet to emerge.
India is a large country, and many people are not aware that Uttar Pradesh produces almost twice the wheat (at 35 million tonnes, or mt) that Punjab does (17 mt). Madhya Pradesh produces about 18 mt of wheat, and Haryana and Rajasthan produce about 12 mt and 11 mt, respectively. Bihar produces about 6 mt. Given this widespread nature of wheat cultivation, chances are that the overall wheat production in India will not suffer dramatically, even if the damage is a little more in Punjab than in other states. The quality loss (shrivelled grain, lustre loss, discoloration, etc), however, is likely to be more severe a problem than quantity loss.
So, how does one compensate the farmers for their losses (quantity and quality)? The best policy instrument for these types of weather-related damages, be it unseasonal rains, hails or heat waves, is the PM Fasal Bima Yojana (PMFBY). This was a major initiative that the Modi government launched after two successive droughts of 2014-15 and 2015-16. Under this scheme, farmers bear only 1.5% premium of the sum insured for rabi crops while the rest of the premium is equally shared between the Centre and the states as subsidy on the total premium. Over the last six years, farmers paid a premium of about Rs 25,186 crore but received claims worth Rs 1.26 trillion (as on October 31, 2022). There can’t be a better deal than this for farmers. Still, Andhra Pradesh, Bihar, Gujarat, Telangana, Jharkhand, West Bengal opted out of the scheme, citing ‘financial constraints’. Punjab persistently opposed and never implemented the scheme. Now is the time for them to think and join PMFBY. Else, they should be ready to shell out money from their own budget to compensate farmers for their losses. States need to remember that the frequency and intensity of such events is likely to increase in the face of worsening climate change.
There is no doubt that PMFBY needs to be made smart and transparent with application of modern technologies to assess the damages. Drones and LEOSs (Low Earth Orbit Satellites) with all-weather stations spread across the country is the way to go. The patwari system is not fool-proof and is ridden with corruption at several places. This does not give confidence to reinsurers, which are critical players in this game—and therefore the premium remains high.
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For national food security, Food Corporation of India (FCI) can relax quality specifications for its procurement operations with a view to meet its target of 34 mt. The Centre can also help by giving a bonus of, say, Rs 100-150/quintal to farmers to sell it to the FCI. This would ensure enough buffer with the FCI. If it still finds that the quantity loss is much more than expected, and the procurement is much below the target, it can lower import duty from 40% to, say, 10%, and let imports of wheat flow. Last year (FY23), India exported more than 5 mt of wheat and wheat flour despite bans on wheat exports. Luckily, the global prices have come down sharply over the last one year (see graphic), which makes for a good opportunity for the Centre to build the buffer stock. Wheat price was hovering between $260 (Latvia) and $274 (EU France Grade 1) per tonne in March 2023 (IGC, 2023). Interestingly, the rice stocks with the central pool are more than three times the buffer stock requirement on April 1, 2023. FCI, thus, has the flexibility to substitute wheat with rice in its public distribution system (PM-Garib Kalyan Anna Yojana), wherever feasible, or even go a step further and give the option of direct cash transfers.
Overall, our take is that there is no need to panic. If we use the right policy instruments, and well in time, both the farmers’ interests as well as the national interest of ensuring food security can be adequately safeguarded. Once these steps are taken, even the Reserve Bank of India can heave a sigh of relief as retail price inflation of wheat, which was hovering at 25% in February 2023, can be easily brought down to less than 10% in April. Already, FCI’s unloading of more than 3 mt of wheat in the open market in February-March has dramatically brought down wholesale prices of wheat, from Rs 2,700-2,800/quintal to very close to the minimum support price (MSP) of Rs 2,125/quintal. In fact, in many states, reports suggest that market prices have gone below MSP. It won’t be a surprise that wheat retail inflation may also drop to below 10% by April-May 2023.
Writers are respectively, distinguished professor, and research fellow, Icrier | Views are personal
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