‘India could meet Sri Lanka’s fate if freebie culture persists’


Ramesh Chand, member of NITI Aayog, says “crazy” farm subsidies leave the sector dependent on government “crutches”.

NITI Aayog member Ramesh Chand says “staggering” subsidies to agriculture leave the sector dependent on government “crutches”.

India could end up facing a Sri Lankan-style economic crisis if it does not shy away from the “giveaway culture” and subsidies in sectors such as agriculture,
Niti Aayog member Ramesh Chand warned, stressing that the “crazy” support measures for farmers have made agriculture extremely dependent on such crutches.

“Our policies and our support for agriculture and many other sectors are moving in such a way that I think a day is not far off when our fate will be the same as that of the Sri Lankan economy if we don’t get it under control.” , said Mr. Chand said, accusing “self-proclaimed experts” of distorting the debate on farm subsidies and the minimum support price (MSP) for crops.

Listing several support measures that are not even quantified when calculating farm subsidies, Mr Chand reckoned that India had already reached the 10% limit of government support for the sector and pointed to the additional costs of implementing the MSP -regime.

“The latest figure says that when we buy something from MSP, the economic cost is 30% to 35% higher than MSP, and even from MSP, the government is not able to dispose of the products. That means paying £100 to the farmer costs £35 to the government,” he noted, explaining that raising ₹3 lakh crore would entail some sort of extra support of 1 lakh crore.

Mr Chand, speaking at the Delhi School of Economics’ annual day event, pointed out that fertilizer subsidies are usually the only number considered when evaluating support measures for the agricultural sector.

“We don’t see how much subsidy is spent as an interest subsidy because if a farmer pays back the loan on time, he gets a 4% subsidy. Some states pay all of the interest for the farmer. Then there is crop insurance, for which 70-80% of the premium is paid by the central government, and there are internal freight subsidies.”

“A proposal comes up every four five months
Niti Aayog has to pay ₹5,000 crore or 6,000 crore for the mills to clear the farmers’ arrears. If you take all these things into account, you will find that we have reached the WTO norm of 10% support for the value of agriculture,” Mr Chand said.

Calling for greater awareness of the dangers of the freebie culture in the ruling dispensation and in the general public, the NITI Aayog member said: “Sometimes I felt that bad money can drive out good money. Now we are experiencing that bad ideas crowd out good ideas. I consider it a very dangerous type of practice.”

Aside from the fiscal implications of devoting large chunks of spending to just one sector, he also said the approach is detrimental to the agricultural sector’s productivity.

“As we spend more and more money on grants and subsidies, the measures needed to boost growth and efficiency are not working. This gets us into a vicious circle.

“With infrastructure and irrigation not improving significantly, no farmer’s leader asks why the area under canal irrigation is decreasing. Everyone says there’s free electricity, so we’re going to opt for more pipe wells… and rising costs mean you can keep asking higher prices.”

Recalling his days as an agricultural economics student, Mr. Chand said that price and non-price factors are seen as critical, but over time non-price factors have taken a back seat and price is only the single dominant factor in policy making , “whether it is political dispensation, peasant groups, or some sort of expert”.

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