Curbs on agri trade affect price signal to farmers, says Indian CEA Nageswaran
Chief Economic Advisor V Anantha Nageswaran on Wednesday said farmers need appropriate price signals to flow through and curbs on exports affect price realisation. He favoured a balanced approach by terming impact of price rise on consumers a legitimate concern.
Addressing an event organised by Bharat Krishak Samaj in New Delhi, Nageswaran said: “The 1991 spirit of economic liberalisation reforms hasn’t touched the agricultural sector. In the name of supporting farmers, we still continue to have lots of restrictions. Whenever prices rise, we are more focused on the burden that it imposes on consumers, which is a legitimate concern.”
Further, he said: “Farmers’ terms of trade will be affected if we continue to curb food prices. Price signals are important information. Combined with price signals, farmers need an insurance mechanism. Because, if prices go higher this year and farmers end up using that price signal and plant more seedlings next year, probably too much will be produced, and prices will fall. So you need a mechanism to balance out these cycles. Farmers need appropriate price signals to flow through to them.”
Bats for hedging
The CEA advocated hedging mechanism. He said some derivative markets, which are commonly instruments of speculation when it comes to stocks, could be extremely useful hedging instruments for farmers.
The CEA said whether it is export restrictions or free imports, or a ban on futures and options, there is a need to make sure that the Indian farmers get the appropriate signals.
He said amid rising heart diseases and diabetes, continuing to incentivise rice and sugarcane is not compatible with water security, nor with climate goals, and not even on health ground.
Economic Survey’s stress
This year, the Economic Survey stressed the need to move from basic food security to nutritional security amid demand for pulses, millet, fruits, vegetables, milk and meat growing faster than that of basic staples.
“So, farm sector policies should align more with a ‘demand-driven food system’ that is more nutritious and aligned with nature’s resource endowments,” said the Survey.
Out of five policy recommendations made for the farm sector to ensure that the markets function in the interest of the farmer, the Survey said there is a need for not banning futures or options at the first sign of price spikes.
The second recommendation talked about invoking export bans only under exceptional circumstances and allowing domestic consumers to substitute, especially if the agricultural commodities in question are not essential consumption items such as foodgrains.
The Survey suggested re-examining the inflation-targeting framework by excluding food, which has been debated in the country now. While some experts have favoured the view, there is also a contrary viewpoint by a few others.