Sreelatha Menon: Farmer-friendly rupee

The depreciating rupee has been farmers' best ally in recent years - keeping them from going bust

A year and a half ago, a cotton cultivator in the United States sold cotton at $2.47 a pound. In 2012, the same farmer is getting a mere 82 cents for each pound of cotton lint sold.

However, this fall in price is not forcing the farmers there to commit suicide — for they are backed by a subsidy of as much as $4.6 billion.

In Maharashtra’s Vidarbha, farmers were selling cotton at Rs 6,000 a quintal until a year and a half ago. The rupee was valued at Rs 43 a dollar then. Now, the value has gone down to Rs 53 a dollar. Today, the price comes to Rs 4,300 for each quintal. Had the value remained Rs 43, the price would have been Rs 3,200 a quintal, says Vijay Jhawanthia, a farmer and activist of Shetkari Sanghatana in Vidarbha.

Between then and now, what has changed for the Indian farmer is the value of the rupee. This has artificially raised the price of cotton, or of any crop. Had the value of the rupee remained the same, as say in June 2011, cotton that fetches Rs 4,000 a quintal would have fetched only Rs 3,000 a quintal. Also, soybean that fetches Rs 3,200 a quintal now would have got Rs 2,500 a quintal for the farmers, adds Jhawanthia. So, what did the government do for the farmers? Nothing, he concludes.

Low cotton prices in the world market have caused 2.5 million bales of cheap cotton to make their way to India. Where does that leave the Indian cotton farmer? There are no import duties to protect him. There are no other subsidies either.

Yet, farmer subsidies and procurement rates are often blamed for inflation and other economic woes in the country. Recently, the Prime Minister’s Economic Advisor C Rangarajan blamed subsidies for farmers for increased prices. The Kelkar Committee also suggested removal of farmer subsidies for the economic betterment of the country.

Jhawanthia says if fertiliser subsidies are to be removed, the government should also reduce salaries under the Sixth Pay Commission. If the government believes there is a direct relation between price inflation and money-supply growth, its attempts to reduce the amount of money in the economy have been restricted to villages, while supply has been increased in cities since the 1990s, he says. Foreign direct investment in retail would bring in cheap imports at the cost of farmers, thus widening the urban rural economic gap further, he adds.

But not all farmers are equal. Some are more equal than the rest. Take the case of sugar farmers. Sugar costs Rs 3,024 a quintal internationally at the current dollar rate. It costs close to Rs 4,000 in India. And, to protect  farmers from cheap imports, an import duty of 10 per cent has been imposed. The gesture proves that the government’s heart does beat for at least the sugar farmers.

Pulses, oils and cotton face the same situation as sugar. But the import duties are only for sugar.

Such being the treatment so far, the government did not surprise farmers when it avoided an increase in the minimum support price for wheat this week. Agricultural economist Devinder Sharma says the government’s solutions never take farmers into account. He cites the recent government proposal to do future trading in wheat. “Will it help farmers in any way?” he wonders.