May 01 2014

Not by incentives alone

Your columnist was asked to review a dissertation on the Potential and Prospects of Food Processing in India submitted by a participant in the Advanced Professional Programme for Administrators (APPA) at the Indian Institute of Public Administration (IIPA). This programme is meant for mid- career professionals, and in addition to theoretical inputs on various aspects of administration and management, participants are expected to do a monograph on a subject they have been associated with , and which has relevance and meaning to the practice of public administration.

Going through the monograph made one aware that the problem lies in the way we examine the issue at hand. In the first instance, we feel very happy with our global position in the production and consumption of almost everything. Well, the credit for this goes to the sheer size of the country, our growing numbers, and of course our ability to present data in neat (structured) formats. We are also very good at highlighting what we are good at, and we can often find some comparable parameters which make us feel so positive. Thus the growth of the food processing sector is higher than that of manufacturing sector, and both FDI and private equity funds have found merit in selecting this as a preferred loci of investment . The report then lists out the rationale for food processing, gives information from the CIPHET (an ICAR institution) regarding post harvest losses and mentions all the platitudes on the subject – from the report of the working groups of Planning Commission to reports of various Task Forces constituted from time to time. It talks about programmes, incentives, subsidies, policy support, cost norms, pattern of assistance and even convergence. However, this is not the core issue. The report then assumes (rather naively) that if all the incentives are in place, there would be a spurt in this sector. However, it does not happen like this. There is little correlation between ‘policy pronouncements’ and investments in this sector.

The core issues are as follows: why have states not amended the APMC Acts? What is the political economy of the existing ‘markets’? Who gains from these monopolies? Why do we keep harping on assistance available for terminal markets and wholesale markets without asking the question: why has no terminal market come up during the entire XI Plan and the first two years of the With Plan? Why have even approved projects not taken off? Was there a problem with the way in which policy was made? Did we not tweak the incentives properly? What are the actual experiences of the entrepreneurs who have tried setting up these projects? What kind of collaterals are the banks looking at?

As such, this study, as also others of this genre must go beyond the formal questionnaire approach and talk to the players on the ground. Then they may learn that the basic assumption that the state will ‘transfer land for terminal market’ to the selected ‘consortium’ is wishful thinking of a very high order. In most states, the problem is that while the selection of the ‘consortium ‘for establishing the ‘terminal market’ is done by the agriculture or the horticulture department, the transfer of land has to be done by the revenue authorities. Given the level of mistrust within the governemtn, and each functionary adopting a holier than thou approach , especially on account of the post facto ‘witch hunting’, land transfer has become a bottleneck. One can of course argue that these issues can be resolved in high level meetings at the level of the chief Secretary – but why don’t we examine another possibility – that of allowing terminal markets on lands belonging to private individuals/group of farmers or their co-operative, include the land cost as part of the project cost while retaining the upper limit of subsidy at 40%. What this means is that as against the normative cost of Rs150 crore, projects could include another twenty to thirty crore as land cost. If for the last seven years governemtn has not been able to spare land for a terminal marker, should we spend the next three years trying to hold co-ordination meetings, or allow the cost of land to be included in the project cost? After the decades in the government, I am inclined to support the latter view. Therefore we need to ask some pertinent questions, ensure land transactions at market prices, and understand the economics of the entire value chain- rather than tamper with individual components in a piecemeal manner.

Rural infrastructure is another important factor. Without roads and power, the best policy document on food processing will yield nothing. Thus investments on rural power grid and rural roads will lead to many more young people setting up pack houses and purchasing pick up vans to transport fruits and vegetables from the hinterland to the factories or markets. In today’s context, infrastructure is as important as land and labour as a factor of production. In fact, labour mobility is at an all time high, and improving yields with better seeds and inputs can also be achieved by individual effort . However, infrastructure requires state support , but once established, it will help every sector – not just food processing and agriculture. Good roads are important for every vehicle-from reefer vans to ambulances ,public transport and private vehicles.

Before I close, let me make another proposition. There are states which have abolished /amended the Act, and others which have not. Let us therefore focus our attention on the states which have done so – Bihar, Karnataka, Maharashtra, AP, Tripura, Kerala, Uttarakhand and Rajasthan. Let Punjab and Haryana and NCT of Delhi lag behind till they ‘reform’ their act. There is after all the old adage that if you treat compliance and non-compliance with the same yardstick, there is no reason for intuitions to comply!