📰 Reducing farm distress during a pandemic
The government has an opportunity to help farmers who are battling declining demand and lower prices
•Social distancing and living under a lockdown appear to be the only effective ways of dealing with the pandemic. As India lacks the resources to significantly ramp up testing, imposing a lockdown was the government’s preferred option. Although there is limited evidence to suggest that this strategy may be working in containing the spread of the virus, its after-effects on thousands of migrant workers is already out in the open. Distrustful of the government’s promise of providing support, most migrant workers decided to walk back to their home States despite efforts by the state machinery to prevent them from moving out.
Impact on agricultural income
•Migrants are not the only ones who are facing the after-effects of the lockdown. With the economy coming to a complete halt in most of the informal and formal enterprises in urban areas, the lockdown is also likely to affect the large population in rural areas, a majority of whom are dependent on agriculture. At a time when the rural economy was witnessing declining incomes, both for casual workers and self-employed workers, even before the pandemic broke out, this lockdown is only going to hurt the agricultural economy further. Even before the lockdown, rural wages were declining in real terms but there were hopes for agricultural incomes rising with food prices rising until January 2020. However, recent data on prices suggest that the trend is reversing with the decline in agricultural prices in most markets.
•In the short run, we will likely witness a breakdown of supply chains of agricultural produce with no facilities for transportation of produce. This is likely to hurt those engaged in the production of fruits and vegetables, which are perishable goods and cannot be stored. With horticultural production exceeding foodgrain production in the last decade, many farmers are likely to face uncertain or no markets for their produce. Media reports have already confirmed that farmers are finding it difficult to dispose horticultural produce. Some of them have taken the extreme step of destroying their produce.
•There will also be short-term impacts on foodgrains and other rabi crops that were ready to be harvested at the beginning of April. In some cases, harvesting may be postponed but it is difficult to do so beyond a week or a fortnight. While the government has exempted operation of agricultural markets and mandis from the lockdown, it will be difficult for farmers to harvest the agricultural produce in the surplus States of Punjab, Haryana and Uttar Pradesh in the absence of migrant labourers. Even if standing crop is harvested, April is the labour-intensive month. Labourers are required for packing, processing, transporting and selling the produce. This year is expected to register a record in the production of cereals, pulses, cotton and oilseeds. Most of these are labour-intensive crops and the absence of working labourers during the harvest and post-harvest season is likely to affect the prospect of higher incomes in agriculture.
•Some of the short-term impacts may affect price realisation by farmers but the real worry for farmers is going to be the decline in prices for the majority of agricultural produce. There are already signs of a collapse in agricultural prices, which predates the outbreak of the pandemic. The food price index of the Food and Agricultural Organization, which was showing a rising trend in food prices until January 2020, reported a 1% decline in prices month-on-month in February 2020. This is likely to worsen further, particularly for cash crops. It is well-known that commercial crop prices follow a similar pattern as other primary commodities, particularly petroleum prices. With the sharp decline in petroleum prices, most of the commercial crops have seen a downward pressure on prices, which is likely to worsen in the coming months. But even for foodgrains and other crops, there is likely to be downward pressure on prices due to declining demand. The slowdown in the economy domestically and the expected recession worldwide will contribute to lower demand for agricultural commodities. At a time when the agricultural sector was already battling declining demand and lower prices, the faint hope of better prices appears unlikely to materialise. It is the decline in prices which is likely to hurt the income of farmers in the long run more than the short-run supply disruptions and labour shortages.
What the government can do
•While it is clear that agriculture will be affected due to short-term disruptions and the long-term economic impact of the pandemic, there is an opportunity for the government to help farmers through state support. Political expediency and fiscal concerns led the government to stock up foodgrains, with the Food Corporation of India (FCI) reporting 77 million tonnes of cereals in stocks as against the buffer requirement of 21 million tonnes as on April 1. However, with the lockdown forcing a humanitarian crisis and with most migrants heading back to the rural areas, it is also time for the government to release the food stocks through the public distribution system. The Central government has already announced that for the next three months, 5 kg of free grains will be distributed in addition to what people are entitled to under the National Food Security Act, but this has not yet reached the State governments due to the lockdown. While this may free up FCI godowns to some extent, it will be prudent to extend the scheme to all residents, particularly migrants who may not be able to avail of free grain in urban areas.
•While raising procurements is desirable and may be necessary for the forthcoming rabi crops, the state is also expected to intervene and assure remunerative incomes to farmers. One way of ensuring this is to reduce the input costs through existing schemes of subsidies such as the fertilizer subsidy and through price reduction in petrol/diesel meant for agricultural purposes. But for the immediate short-term, farmers need to be compensated for the loss of income and the best way to do it is through the PM-KISAN scheme. Unfortunately, the only announcement in this regard is the disbursal of the first installment of the transfer which is due in April. However, the scheme only used two-thirds of its budget allocation for 2019, so efforts should be made to not only enhance the coverage monetarily but also include tenant farmers and wage labourers who are as much dependent on agriculture as the land-owning cultivators. Such a step is necessary not just for the survival of the agricultural sector but also for the overall economy which is expected to see a sharp slowdown and decline in demand. While income transfers may not be the best way of supporting the agricultural sector at times like these, they are the best available instruments to raise rural incomes and create demand.
The Centre can afford to step up its COVID-19 assistance to a higher scale; fiscal deficit is no worry
•The three-week long lockdown imposed on the country, it can be argued, was an over-reaction. More widespread testing of possible cases, “social distancing”, self-quarantining by the elderly, and selective lockdown of sensitive areas (as the Chinese government did in Wuhan) might have been quite adequate. But while this can be debated, what cannot be is the utter thoughtlessness that has accompanied the actual lockdown.
•Ameliorative steps made necessary by it should have been announced simultaneously, to prevent the mass exodus of migrant workers which occurred not because of any “Fake-News”-induced panic, as the government claimed before the Supreme Court, but out of sheer desperation. Instead, some steps were announced by the Finance Minister a full 36 hours into the lockdown; and they were minuscule.
A comparison
•Indeed, India stands out among all the countries of the world as much for the scale of the draconian measure it has imposed as for the extent of unconcern it has displayed for the working poor affected by it. In the United States, for instance, where the lockdown has raised the number of persons filing unemployment claims from 2.8 lakh to 6.6 million in a matter of days, those affected can fall back on unemployment benefit; and the government has approved a package of ameliorative steps costing roughly 10% of that country’s GDP to cope with the crisis. In India by contrast, the Finance Minister’s package comes to less than 1% of its GDP; and much of it is just a repackaging of already existing schemes. New expenditure comes to just a little over half of the ₹1.7-lakh crore earmarked for the package.
•Besides, none of the steps will help the migrant workers; not even the larger foodgrain ration which in principle could, because most of them would have ration cards back home rather than in the places where they stay. But much has already been written on all this, and I need not repeat it here.
What can be done
•What I wish to argue here is that this niggardliness is totally unwarranted on economic grounds. Many economists and civil society activists had suggested a cash transfer of ₹7,000 per month for a two-month period to the bottom 80% of households to tide over the crisis, in addition to enhanced rations of foodgrains and the inclusion of certain other essential commodities within the ration basket. The cost of their proposed cash transfers alone would come to ₹3.66-lakh crore, which is more than 10 times the cash transfers provided in the Finance Minister’s package. Providing assistance on the scale proposed by civil society organisations is necessary; it will no doubt pose logistical problems, but not financial problems.
•Even if all of it is financed through a fiscal deficit for the time being, the economic implications of such an enlarged deficit would not be forbidding. These implications can manifest themselves in two ways: one is through inflation, and the other by precipitating a balance of payments problem. Let us consider each of these.
•As long as supplies of essential commodities are plentiful and these are made available through the Public Distribution System to the vast majority of the people, so that they are insulated against the effects of inflation, any inflation per se should not be a matter of great concern. This is the case in India at present.
Foodgrains aplenty
•The supply of the most essential of goods, foodgrains, is plentiful. Currently there are 58 million tonnes of foodgrain stocks with the government, of which no more than about 21 million tonnes are required as buffer-cum-operational stocks. This leaves a surplus of 37 million tonnes which can be used for distribution as enhanced ration, or for providing a cushion against inflation.
•The rabi crop is supposed to be good; as long as it is safely harvested, this would further boost the government’s foodstocks. There are some reports of labour shortage holding up harvesting. This may be a temporary problem that would disappear once the lockdown eases; but if necessary Mahatma Gandhi National Rural Employment Guarantee Act work can be extended to cover harvesting operations in areas experiencing labour shortage.
•Likewise, the supplies of other essential commodities which consist of manufactured goods and where output has been demand-constrained all along, will get boosted in response to higher demand; and in special cases, imports may have to be resorted to. There is in short no reason to think that inflation of a worrisome magnitude will follow if the fiscal deficit is increased.
•There is an additional factor here. The increase in total demand caused by an initial increase in demand, which is financed by a fiscal deficit, is a multiple of the latter. Now in a situation like the present, when even if the lockdown is lifted social distancing and restrictions on social activities will continue, the value of the multiplier will be lower than usual. People in short would hold on to purchasing power to a much greater extent than usual because of the continuing restrictions on demand, which would act as an automatic anti-inflationary factor.
•Of course there will be shortages of some less essential commodities and also hoarding on account of such shortages. But since these shortages will be expected to be temporary, a result of the pandemic unlikely to last long, there will be a damper on hoarding.
Issue of deficit
•True, if inflationary expectations are strong and persistent, then the prices of non-rationed commodities may rise sharply for speculative reasons; but the government can prevent such expectations, by adopting measures such as bringing down petro-product prices, taking advantage of the collapse of world oil prices. A larger fiscal deficit, therefore, need not cause disquiet on account of inflation.
•On the balance of payments front, the worry associated with a larger fiscal deficit is financial flight caused by frightened investors. Some financial flight is already happening, with the rupee taking a fall. This flight is not because of our fiscal deficit but because, whenever there is panic in financial markets, the tendency is to rush to dollars, even though the cause of the panic may lie in the United States itself.
•But India has close to half a trillion dollars of foreign exchange reserves. These can be used, up to a point, to check the flight from the rupee to the dollar. If the flight nonetheless persists, then India will have a legitimate reason for putting restrictions on capital outflows in the context of the pandemic.
•We are currently in a bizarre situation where cross-border movement of people is virtually barred, while cross-border movement of finance is freely allowed. If the hardships of the people caused by the pandemic, and the lockdown it has created, are not ameliorated through larger government expenditure, because of the fear that the larger fiscal deficit required for it would frighten finance into fleeing, then the privileging of finance over people would have reached its acme.
•This must not be allowed. The Centre must not worry about its fiscal deficit; and since the State governments will bear a substantial expenditure burden on account of the pandemic, the Centre must make more resources available to them. It should raise their borrowing limits, perhaps double their current limits as a general rule, apart from negotiating the magnitude of fiscal transfers it should make towards them.
📰 Empowered group joins forces with private sector, UN & NGOs
Panel opens dialogue on production of health gear and PPEs
•The government on Sunday said it had set up an empowered group, chaired by NITI Aayog CEO Amitabh Kant, to undertake discussions with the private sector and international organisations on actions planned and challenges faced in dealing with COVID-19.
•The empowered group, constituted on March 29, has already had several rounds of meetings with U.N. agencies, the World Bank, the Asian Development Bank, the civil society organisations and development partners, and industry associations, such as the CII, FICCI, Assocham and Nasscom, on “their contribution to the response, their plans for the coming weeks and the issues they are facing, and their expectations from the government”.
•Since March 30, the panel has conducted six meetings.
•Mr. Kant has also reached out to over 92,000 NGOs/civil society organisations, appealing to them to assist the government in identifying hotspots, deputing volunteers and care givers to deliver services to the elderly, persons with disabilities, children, transgender persons and other vulnerable groups and create awareness about prevention and combating stigma. He has also requested them to provide shelter to homeless, daily wage workers and urban poor families and set up community kitchens for migrants.
•“The committee has opened up cross-sectoral dialogue within the private sector and start-ups to engender collaboration among them to produce health equipment and PPEs,” the release said.
