Credit Suisse, NREGA and Sugarcane

Credit Suisse is a Swiss bank. And like many other foreign banks which are in the process of setting roots in India, it too has begun to come out with policy studies/reports. In addition, we have several consultancy firms, both national and international, which have been regularly coming out with such studies/statements and also are being increasingly asked by the State governments and the Central governments to write the farm policy. Mckinsey & Company wrote the infamed Vision 2020 policy of Andhra Pradesh, which was discarded after the inglorious exit of the former chief minister Chandrababu Naidu.

Tata Consultancy Service (TSC) was invited by ICAR to examine its research activities and look at the future. Food Corporation of India also had entrusted TCS to do a study on the public distribution system, and how to make it more effective.

McKinsey also wrote West Bengal’s policy, and more recently we have the PricewaterhouseCoopers write the Karnataka Vision 2020. At this rate I wonder what will be role of Planning Commission and the State Planning Boards in the years to come? They are already becoming reduntant, their job being increasingly outsourced. But that is not what we are going to discuss today. I am looking at a recent report by Credit Suisse that examines the role of NREGA in Uttar Pradesh especially on sugarcane plantation. Interesting isn’t it that foreign banks appear so interested in micro-analysis, and more importantly how they give it a twist that suits their thinking.

In his recent column in the Economic Times, Rajrishi Singhal (I like his column, and eagerly look forward to it) quotes a report by Credit Suisse: “The government’s national rural employment guarantee scheme (NREGA) has resulted in shortage of agricultural labourers in the region. Migration of labour from Eastern UP and Bihar has slowed cosiderably as work is easily available under NREGA. The average daily labour cost has increased from Rs 50-60 per day to Rs 60-100 per day (NREGA daily wage is Rs 100 per day in UP). labour shrtage and cost affect cane more than R-W (rice-wheat). For one, cane requires about 75-90 man days of labour per acre, while R-W requires about 60 man days per acre per year. Moreover, many jobs in R-W cultivation is readily mechanisable (harvester combines, threshers etc. readily available for hire in the region) while cane is not amenable to mechanisation (due to lack of or high cost of machinery in the area or due to lack of technology).”

He goes on to write: “there is another government policy — ostensibly to insulate poor farmers from the vagaries of an unpredictable marketplace — that is also boomeranging on the people it is supposed to protect. Many years ago, the government introduced the minimum support price (MSP) to assure farmers of a reasonable price for their produce. The government announces a price at the beginning of each crop cycle, thereby providing an artificial and administered floor price below which market prices can’t fall. Sometimes, competitive politics forces the government to announce further price increases in mid season.

Again, nothing arguable with this noble objective says the author. But as the report from Credit Suisse says: “Over the last four years, the increase in rice (+61 per cent) and wheat procurement prices (+69 per cent) have significantly outpaced the increase in cane price (+31 per cent).” The writer concludes that the end consequence of this shift in cropping pattern is already showing up in the inflation indices where, despite the downward pressure exerted by petro-products prices, inflationary pressures exist for food items.

I must add here that I have not read the original report prepared by Credit Suisse. But I find the blame on NREGA for the shift in cropping pattern to be deliberate. Although, the report does say that it is one of the reasons for the shift, but the way the writer has tried to examine the noble intentions and how it can sometimes go wrong clearly tells you how we want to look at the agrarian issues, the role of NREGA and MSP included.

I have at the same time been following the writings of Harvir Singh of Business Bhaskar and Harish Damodaran of Hindu Business Line. Both have been keeping track of the upheavels in the sugar sector, and of course have a much better understanding of the agricultural scenario. Both blame the ad hoc government policies for the mess that the sugar sector is in. It is because of the faulty cane pricing policy, and the knee-jerk reactions leading to temporary bans on exports and the threat of importing raw sugar at zero duty, among other decisions that has led to the present crisis. This year, 2008-09, sugar production is estimated to fall to 15 million tonnes, from 26.3 million tonnes in 2007-08 and 28.2 million tonnes in 2006-07. In just two years, sugar production has slumped by half.

Now you can’t attribute this decline in area and production even remotely to NREGA. Even if the daily wages work in favour of rice-wheat rotation, it cannot have such a significant impact so as to lead to a shift in cropping pattern from sugarcane to R-W on such a large scale.

When the wholesale price of sugar started to came down even from Rs 1200 per quintal, it became difficult for both the cane growers as well as the sugar mills to surive. The cane arrears had reached its peak at the end of the three years period. The case of cane arrears is still pending before the Supreme Court. Under such difficult scenario, farmers found a solace in rice-wheat rotation. Over the past four years, the MSP of rice and wheat had seen a quantum jump thereby making its cultivation more profitable and assured than cane. Farmers were quick to seize this opportunity and shift to rice-wheat pattern.

Between 2004-05 and 2008-09, support prices of wheat has gone up from Rs 640 to Rs 1080 per quintal, while that of common rice from Rs 560 to Rs 900. I am glad that the rise in rice-wheat prices came to the rescue of the cane growers in UP. Otherwise, we would have seen a spate of farmer suicides in the sugarcane belt.

And then, the NREGA and the higher MSP for wheat and rice is also being blamed for the inflationary pressure on food. I wonder where were the economic analysts when the real estate prices zoomed, and housing went beyond the reach of an average person on the street. In the past four years, property prices witnessed an unprecedented increase of 450 per cent. Not even one of the economic newspapers (and the electronic media) ever questioned this scandalous rise in property prices. It looks as if property and real estate has no influence on inflation, and does not impact the masses, including the poor farmers and NREGA workers.

But then that is in reality the main reason behind the economic crisis that we find ourseleves confronted with. No one wants to address the fundamental flaws, we are only trying to find escape routes. And the removal of NREGA and MSP is something that the neoliberal economists and policy makers are actually striving for. They think the answer to the crisis lies in taming NREGA and the MSP. Credit Suisse, McKinsey and PricewaterhouseCooper are the instruments being used to demolish the safety net that have been created, and with a noble intention.

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