Economic freedom in agriculture

Business Standard     18th May 2020     Save    
QEP Pocket Notes

Context: Being a developmental state, the central planning instinct of the government has been detrimental in solving the boom and bust of agriculture. Economic freedom in agriculture is thus necessary.

Problems in agriculture:

  • Cobweb model: A good harvest is followed with a price crash, and then sowing goes down, which ten increases the prices, and then sowing goes up, this the cycle of pain continues.
  • Hindered price discovery: This has led to discriminatory pricing of agri-produce which is independent of actual demand and supply.

Market economy as a Solution

  • Focus on the three big decisions made by private persons: What to sow, how much money to invest in inputs, and what to store.
  • When these decisions are made well, the food market works well, and vice versa.

Elements influencing these decisions

    1. Ending government involvement: Replacing the existing PDS system with market-based warehousing, which helps in forecasting future shortages and stocking up goods in response.
    2. Futures Market: it encourages private persons to study food economy and thus forecast prices. Removal of heavy-handed restrictions and integration with global futures market is needed.
    3. International trade: Actions of private persons must determine what to import or export. Need to shift from capital-intensive products (wheat, rice) and engage in labour intensive and high value agri-exports.
    4. Internal trade: Removing restriction in intra-India trade, utilizing the idea of Article 301 which states that commerce throughout India shall be free. Need to review administrative barriers.

Conclusion: Careful legal analysis is needed. And the boom and bust, and persistent low income, of Indian agriculture will be solved when we shift from state domination to individual freedom.

QEP Pocket Notes