Modi promises ‘new deal’ for India’s economy

“About one-third of the increase in farmers’ income is easily attainable through better price realisation, efficient post-harvest management, competitive value chains and adoption of allied activities. This requires comprehensive reforms in market, land lease and raising of trees on private land. Agriculture has suffered due to absence of modern capital and modern knowledge.” — NITI Aayog policy paper, 2017

The Narendra Modi government has been striving to revitalize the Indian agriculture through range of initiatives for the past six years keeping the farmer and his income as the central focus. While these initiatives are significant, the measures announced by Finance Minister Nirmala Sitharaman as part of comprehensive economic package to reform agriculture are bold and transformational. They have potential to raise farm incomes, get rid of vested interests, encourage private investment in building value chains and infrastructure, bring new technology and competition, create jobs and make agriculture an attractive option for the youth.

The reforms in agriculture, which have been compared to the seminal 1991 economic reforms by some experts, have been announced at a time of unprecedented crisis created by coronavirus. They show that Prime Minister Narendra Modi has used Covid-19 adversity as an opportunity to unleash the enormous potential of India’s farm sector and unshackle farmers from the crippling constraints they have faced over the decades.

In a way Prime Minister Modi has given a “New Deal” to farmers. In one go, the government has decided to amend the Essential Commodities Act to enable better prices for farmers and formulate a central law to provide adequate choices for selling farm produce at remunerative prices, inter-state trade without barriers and e-trading of the produce.

The government has also decided to create a legal framework to facilitate contract farming, enabling farmers to engage with processors, aggregators, large retailers and exporters in a fair and transparent manner.

But the “New Deal” is not about agriculture alone. The government has brought about reforms in a range of sectors as part of its efforts to make India an attractive investment destination.

In his address to the nation on May 12, Modi gave a clarion call to make India self-reliant and the Rs 20 lakh crore comprehensive economic packages he announced lays emphasis on land, labour, liquidity and laws particularly MSMEs, and the vulnerable sections of society.

The carefully deliberated package unveiled reforms in several key sectors – coal, minerals, power, defence, civil aviation, atomic energy, space – with greater role to private sector. It also announced that all sectors will be open to private sector and the number of public sector enterprises in strategic sectors will also be between one to four. There was thrust on creating social infrastructure. This will surly boost the concept of minimum government and maxim governance.

The reforms continue to lay thrust on promoting ease of doing business. Alongside efforts are also being made to attract companies looking to shift manufacturing facilities from China.

The challenges posed by COVID-19 are steep and IMF has projected global growth in 2020-21 to fall to minus 3 per cent terming the Great Lockdown due to coronavirus the worst recession since the Great Depression, and far worse than the Global Financial Crisis.

India’s economy is projected to face its worst recession in four decades and contract by over five per cent this fiscal. RBI has said that the GDP growth for 2020-21 is expected to remain in the negative territory with some pick up in the second half. The economic growth slowed to 3.1 per cent in the January-March quarter, the slowest pace in 11 years.

The challenges provide Modi a moment like that faced by former US President Franklin D Roosevelt who brought the United States out of Great Depression while also paving the way for America’s rise as a superpower.Roosevelt boosted morale of the American people, identified problems and found solutions. He offered a “New Deal” that included financial reforms and public work projects. Modi is trying to do the same with a vision that India emerges as a major hub of global supply chains in the post COVID era and attains faster economic progress.

He has identified self-reliance as the mantra to achieve the goal of making the 21st century India’s century and “New Deal” in agriculture also falls in that pattern. The vision of self-reliance rests on the pillars of economy, modern infrastructure, technology-driven systems, demographic dividend and harnessing the full potential of cycle of demand and supply chain, which is India’s inherent strength. The reforms are aimed at rational tax system, simple and clear rules, good infrastructure, capable human resources and a strong financial system.

By announcing these variety of policies and some long pending reforms it clear that the Modi acknowledges the grave challenges of a looming economic depression and certainly laid the foundation of economic revival. Initial reactions of the industry and market was subdued not because they are not optimistic but for two reasons, the one is of course related to strict Lockdown which is now nominal, however the second is red tapsim and it is the real concern. As a first generation entrepreneur I recall the first hand pain, agony and harassment of pre 1991 Inspector Raj, liberalization halted it to some extent but still bureaucracy has made its nest in the power corridors and Modi has realized it, the vital reforms pending for decades is outcome of this realization. Surely it is high time to halt this un-caged red tape march for the success of Modi’s new deal.

Self-reliance will help India emerge on its own in the tough global business environment. The policy thrust of the past six years on steps such as DBT and PM Jan Dhan Yojana kept the government in the good stead when the coronavirus threat first emerged as it was in a position to transfer cash to targeted beneficiaries without leakages.

The one sector which offers brightest hope in the coronavirus-induced atmosphere is agriculture, which supports over 50 per cent of livelihoods in the country. This percentage will increase as lakhs of migrant workers have gone to their villages due to the threat posed by coronavirus and are not likely to return to the cities in a hurry.The reform decisions in agriculture, which were pending for a long time, will ensure that any other coronavirus-like crisis in the future has minimal impact on the sector crucial for the country’s food security.

The reforms will offer opportunity to diversify farm production, raise productivity, produce crops of desired quality and create efficient value chains for farm produce by creating cold storages and bringing investments in processing and handling infrastructure. They will prevent post-harvest losses and prevent suppression of prices due to glut.

The NITI Aayog policy paper on doubling farmers’ income cited an estimate prepared by ICAR-CIPHET to state that the harvest and post-harvest losses for major food commodities covering crops, livestock and fisheries was Rs 92,651 crore during 2013-14. For the total food sector, it comes to Rs 107994 crore. These estimates also say that 5.8 per cent of food output gets lost during harvest and transit.

The need is demand-driven value chains and not production-driven supply chains as they do not help farmers get remunerative prices. The Essential Commodities Act, 1955, was brought at the time of food scarcity and shortages but India today has surplus food. As part of reforms, the government has announced that food stuffs including cereals, edible oils, oilseeds, pulses, onions and potato will be deregulated and stock limit will be imposed under very exceptional circumstances like national calamities, famine with surge in prices.

And in an assurance to remove risk for investments in agriculture infrastructue, the government has said that no such stock limit shall apply to processors or value chain participant, subject to their installed capacity or to any exporter subject to the export demand. The new central law will break the monoply of APMC mandis and they will also get more efficient due to competition.

The contract farming will also help farmers get an assured return of their produce unlike the present when farmers feel helpless if the prices crash due to glut in production. The role of middlemen will also be dented. Risk mitigation for farmers, assured returns and quality standardisation will form integral part of the framework being formulated by the government. Formation of 10,000 FPOs over five years will improve the collective bargaining of farmers. The economic package also provides support for allied activities for farmers including bee-keeping to supplement their income.

It provides Rs 1 lakh crore Agri-Infrastructure Fund for farm-gate infrastructure for farmers, Rs 10,000 crore scheme for formalisation of Micro Food Enterprises (MFE), Rs 20,000 crore for Fishermen through Pradhan Mantri Matsya Sampada Yojana (PMMSY) and Animal Husbandry Infrastructure Development Fund of Rs. 15,000 crore.

In the present circumstances of economic turmoil the Centre had to bite the bullet and it has sooner than later. However the positive aspect in this difficult time is that Prime Minister still enjoys the overwhelming support of the people and perhaps Modi’s new deal will lay the foundation for future economic stability and prosperity.