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The political economy of reforms in Punjab

The political economy of reforms in Punjab
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First Published: Sun, Apr 11 2010. 09 27 PM IST

Updated: Sun, Apr 11 2010. 09 27 PM IST
Two seemingly disparate developments could, if they were to unfold according to plan, lay the basis for a change in polity defined around the rich farmers of Punjab.
At one level, the debate on food security has focuses on the Central government’s questionable practice of procuring for its food stocks largely from Haryana and Punjab at a price (that is continually bumped up) not made available to farmers elsewhere in the country.
At another, the Punjab state government is supposed to convene a meeting of its cabinet later this week to peruse and hopefully approve a proposal that would kick off power sector reforms pending since 2003. Once operational, the process will most certainly (progressively) spell the end of the practice of providing free power to farmers—another sop that has benefited rich growers.
If these two come together, either simultaneously or otherwise, it will level the playing field. If the price incentive is available to all farmers in India and at the same time the electricity the Punjab farmers consume is priced and paid for, then it will certainly alter the power equations in the state with the rest of the country.
The history of Punjab politics is such that it has revolved around the powerful and wealthy farmers’ lobby—no government has dared to take them on. While the state government may turn back yet again, the same may not be true with what the Central government has in mind.
The debate on food security has become contentious, especially in the last few weeks, after Congress party president Sonia Gandhi took up the issue following her appointment as the chairperson of the National Advisory Council (NAC)—an entity that will ostensibly be an advisory body on policy issues. Most believe, with reason, that instead the NAC will drive policy change in the Congress-led United Progressive Alliance government. Gandhi’s intervention has forced a rethink on the quantum (35kg instead of the proposed 25kg) of foodgrain to be allocated and making food security universal.
While this is likely to be incorporated, the fine print also raises the issue of reworking the current foodgrain procurement strategy of the government—which restricts it largely to Punjab, Haryana and western Uttar Pradesh. The proposal is to procure it from as many regions in the country as possible.
The advantage is twofold, both of which will reduce the economic cost (about Rs19 per kg) of procuring and storing foodgrains, and hence reduce the fiscal cost of providing food security. For one, it will reduce the transportation cost, which is estimated at Rs4 per kg. Second, it will lower the storage cost (Rs3 per kg) and also cut down the loss due to wastage (as has happened in Punjab, with surplus stocks rotting after being kept in the open).
What has been left unsaid is that it will break the monopoly of the powerful farm lobby and take the incentives of state-supported farm prices to farmers in Chhattisgarh (described as the new rice bowl of India), Bihar, Madhya Pradesh, Andhra Pradesh, and so on.
Till recently, the farm lobby wielded strong political influence—recall leaders such as Devi Lal, Chaudhary Charan Singh and others. According to an agricultural economist, such was the power of these leaders that they would even decide who would be the chairman of the Commission for Agricultural Costs and Prices—the body that recommends the procurement price policy to the government.
Coincidentally, the Punjab government has shown its inclination to bite the bullet and proceed with the long-delayed electricity reforms. It is among the six states that have not unbundled—separated the functions of generation, and transmission and distribution—from the state electricity board since it became mandatory after a Central law was passed in 2003.
The buzz now is that it has decided to proceed with the process and a report in The Economic Times on 9 April said the Punjab government had requisitioned extra police (trained in guerrilla warfare) from the Centre to tackle industrial action threatened by employees.
The logic of unbundling is to reveal the actual extent of losses accruing by way of transmission and distribution and on account of the free power extended to farmers.
The Punjab State Electricity Board’s losses were about Rs1,400 crore in 2008-09 and the power subsidy was costing the state exchequer about Rs2,600 crore. Leave alone charging farmers for electricity, the power consumed by them is not even metered. According to the Comptroller and Auditor General of India, which submitted a scathing report on the state government, 943,000 agricultural power consumers remain unmetered.
It is likely that the state government may blink yet again and bury the proposed power sector reforms. The question is how long it can avoid doing so. The extent of losses is such that it is already beyond the point where it could be absorbed and is now becoming a severe drag on the state’s finances. It is largely a political question that will have to be answered by the Punjab state cabinet later this week.
It is clear that the throw of the dice favours change. While it is difficult to predict the direction and pace of change, at the least it is apparent that it won’t be status quo.
Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at capitalcalculus@livemint.com
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First Published: Sun, Apr 11 2010. 09 27 PM IST