When Prime Minister Narendra Modi entered office in May 2014, the most pressing item on his government’s food and agriculture agenda was to attack food inflation.
The government, to its credit, wasted no time announcing new measures to tackle the high price of food, holding fast to its commitment to actively find ways to defuse the simmering economic (and political) issue.
The government was aided by a fair dose of luck in the form of declining global commodity prices, including the cost of food. In relatively short order, food inflation came down substantially. Compared to the near double-digit growth toward the end of the previous administration, this was a signal achievement.
Unfortunately for the Modi government, the very steps that were responsible for taming food prices have had adverse impacts on the lives of India’s farmers, whose fortunes were further impacted by a drought followed by unseasonable rains this spring. With global food prices depressed, agricultural exports were badly hit. Taken together, this has been a perfect storm for farmers over the past year. In the coming fiscal year, it is possible that agriculture’s contribution to overall GDP will remain flat.
How has the Modi government dealt with the increasing signs of rural distress? It has been slow off the mark. Its decisions to raise the compensation for affected farmers by 50% while simultaneously lowering the trigger point for compensating farmers who have suffered damage were positive, yet insufficient.
The Modi government should use this experience to invest in a new crop insurance system backed by cutting-edge technology and fully integrated with the prime minister’s financial inclusion and biometric authentication initiatives.
Another missed opportunity for the Modi government is taking on sizeable and costly food and fertilizer subsidies. The government had set up a high-level committee to develop proposals for reforming the body that oversees food policy (the Food Corporation of India) and increasing the efficiency and effectiveness of the food management system. The panel submitted its report, but the government has yet to take its recommendations on board.
In the year ahead, with signs of rural distress on the rise, the Modi government has a full agricultural agenda, which must include tackling fertilizer subsidies as well as upgrading a broken water management system. A failure to do so will have lasting implications for the sector as well as for this government.
(Ashok Gulati is Infosys Chair Professor for Agriculture at the Indian Council for Research on International Economic Relations.)