Professor Abhijit Sen
has been a member of the Planning Commission since 2004 and can be said to be one of the key people behind India’s agricultural policy, with the government having drawn on his skills as the head of several committees examining critical issues.
In an interview, Sen spoke about the effects of deficient rain during the June-September monsoon and agricultural reform. Edited excerpts:

How different is this year’s drought compared with those of 2009 and 2002?

As of now, it looks quite similar to 2009 though quite different from 2002. In 2002, we had a very good June, a very bad July, pretty bad August and September.

In 2009, we had a bad June, a very good July and a very bad August. This year, so far, has had a bad June, a pretty bad July, and August has looked good, but we don’t know how long it will last. It looks closer to 2009 than to 2002.

In what other ways, does the situation now compare with 2009?

We certainly have much more foodgrain stocked than we had in 2009, although even then we were pretty comfortable. The way we are better off is that the rural economy had two very good years, 2010 and 2011, both in terms of production and prices. You may have been complaining about inflation, but a lot of it was actually going to the rural economy. Therefore, I think the ability of the rural economy to take a hit is much better now than I think it was in 2009. That shows up in the recent NSS (National Sample Survey) 2011-12 consumption survey data as a huge increase in rural incomes between 2009 and 2011. The second strong plus is that no state this year is rushing in to declare a drought. Some states have declared it for a few districts. When the central government announced the diesel subsidy scheme, the reaction showed there was less likelihood of panic.

The bad thing, which was there in 2009 as well but obviously a bit more now, is that we went into a drought after a year in which our growth rate had fallen. 2008 had about 6% growth; 2011-12 had 6.5%. Both years are similar. So we have signs of strong confidence amongst people who should really worry about a drought, while signs of total disarray among those who normally never think about it.

Is the government’s announcement of about
2,000 crore for drought relief in five states adequate?

There would be something that would have been disbursed, but it would have been nothing like the announced amount. But the nature of crisis, if it is a real crisis, is such that the amount it costs is not that much.

States can cut down spending everywhere else and manage the drought, and then ask the Centre to pay back. Yes, the central government has to say it is ready to help, but the decision of where to spend and on what has to be taken by the states.

Do you think there might not be a new package?

No, there are certain packages which will flow in automatically on any year, like the crop insurance money which will flow in any case. The government has already declared districts that had less than 50% rainfall on 15 July will be eligible for certain kinds of subsidies which will also extend to those districts that had 15 days of scanty rainfall continuously. Most of the work has to be done by the states and most states will do it. Some states will be laggards and they will get the political flak for it.

But would the spending grow bigger, especially if an El Nino sets in and threatens yields?

There are a lot of things that can go wrong. We are roughly the same or slightly better than how we were on this date in 2009. Then in 2009, an El Nino did set in and September was bad, but even after the worst drought in 38 years, agriculture did grow by 1%, it didn’t go down.

But what are the chances of this year’s drought being worse than 2009’s?

It is too early to say. For 2009, we initially expected agriculture to decline by about 2%, the initial CSO (Central Statistics Office) estimates also showed about -2%, but the final data showed that things weren’t that bad at all. So I don’t want to go around predicting negative growth now.

Do you think the third drought in a decade could reverse the benefits of high economic growth that had come to the rural economy?

I think there are two unrelated things here. The first thing is to recognize as a country that climate change will expose us to extreme events like droughts more frequently and that we have to be prepared for worse weather in the future.

The second part, of whether it will affect the economy, we have data that shows that the rural economy did pretty well in 2010 to 2012 after all that (the 2009 and 2002 droughts).

But the growth rate has come down in 2009-10.

Growth rate did come down, but if you look at the poverty numbers, it was over 7% lesser than the poverty rate in 2004-05. I don’t know what poverty numbers this NSS will throw up, but it will be at least 7% lower in two years. So, we are talking about very large positive changes in rural areas, despite the two droughts.

What could be the reasons for these changes?

Agriculture is doing better, partly that and partly non-agricultural sources of income coming up in rural areas.

We have seen high inflation for a couple of years now. What do you think has gone wrong?

Till 2008, there was no inflation in protein-rich food items. Between 2004-09, prices of milk, meat, fish, eggs were actually climbing less than average inflation. Rice, wheat and pulses were driving inflation then, but that changed after the drought. The impact of water shortage on animals tells for a year or more after it, and that is reflected in the rising prices of protein-rich food. That effect should have been clearing out, except that we have another drought now.

Couldn’t foreign direct investment (FDI) in retail help improve the supply chain and, therefore, inflation?

My honest professional opinion is that the supply chain problem would remain, FDI or no FDI. Why aren’t supply chains better already? The return on investment made into improving supply chains has been rather low. There have been Indian players who put in a lot of money into this a long time ago. Most of them pulled back.

Now you think those people have some technology, suited to Indian conditions, which can solve such a huge problem in Indian conditions. I’d like to see that technology and why no Indian company has been able to do it. If there were such a technology that could have solved the supply chain problem, it would have happened long back.

Could wastage not be stemmed by more investment in cold chains?

We have high losses, but we have also had a history of exaggerating losses on the supply chain. If the actual losses were that high, the returns on investing in cold chains would have also been high.

People are underestimating the jugaad in the existing economy. The proportion of the Indian consumer’s spending on produce that the farmer gets is higher than what the American farmer gets out of the American consumer’s spending. The processing, packaging and the infrastructure you’re talking about is what adds to the cost of the produce for the consumer.