Waiting for a divine intervention

Last weekend I visited some villages in the Bareilly, Shahjehanpur and Hathras districts of Uttar Pradesh. I had an opportunity to speak with several medium, small and marginal farmers.

Most medium sized farmers had a good standing crop of paddy and sugarcane. Most of them were, however, circumspect about the final yield, in view of the IMD’s forecast of excess rains in September.

Many small and marginal farmers had lost their pulses and vegetable crops due to heavy rains accompanied by strong winds. They were dismayed and worried about their ability to manage the resources to plant Rabi crops, mostly potato and wheat.

Some of them, who had taken advance from the traders, were also worried about the repayment. None of the small and marginal farmers mentioned the terms like crop insurance, bank loan, Kisan credit card, etc. Thankfully, there is an abundance of fodder for their cattle this time.

After a discussion of 10-12hrs with these farmers, NGO workers helping them with farming & other issues, and village leaders I gathered that the inflation debates in Delhi (in the Parliament & outside) and Mumbai (at the RBI and brokerage offices) may not be relevant for these farmers and common men like me, because—

·            Policymakers and analysts may be oversimplifying a very complex problem. Food inflation in India maybe influenced by a myriad of factors, e.g., (i) farm input prices, which are also affected by terms of trade, INR exchange rates, availability of subsidy, etc,; (ii) energy inflation as many farmers use electric or diesel pumps to water their farms, and motor vehicles to transport their produce to markets; (iii) farm labor wages, which in turn is also a function of multiple factors like food and energy inflation, availability of MNREGA wages, & other government cash payouts, demand from construction sector, etc.; (iv) weather condition affecting the volume of production; (v) productivity, which depends on the quality of soil and inputs, farming methods used and availability of equipment; (vi) cost of funds borrowed by the farmers, which also depends on access to institutional finance; and (vii) distance from the market, etc.

Bringing down food prices or slowing down food inflation may adversely impact about 60% of the Indian population that depends (directly or indirectly) on agriculture for their livelihood. The solution may therefore lie in enhancing productivity, market access, access to institutional finance, energy efficiency & renewable energy, land reforms and crop rationalization. Someone may argue that all this is already being done. True, there are government programs and policies for all these solutions but execution is seriously lacking.

·            Presently, the primary problem for a majority of the Indian household could be “price affordability” rather than “price inflation”. They may need either a substantial rise in their real wages or a material deflation in the prices of their consumption basket to maintain their regular lifestyle.

·            Statistical inflation being debated and analyzed by the policymakers and analysts may be entirely different from what a common household or investor faces (more on this later).

Reading minutes of the MPC’s previous few meetings, it appears that the policymakers might be waiting for a divine intervention to change their policy stance, as hardly any effective step has been taken by them to make life of people easier.