Sailenda passed away on 18 October 2013. He was 90 but he was not remembered at all. Only Mainstream carried an excellent obit- http://www.mainstreamweekly.net/article4535.html
An alert and thinking mind, he wrote on various subjects, all in-depth. Here is one he wrote in 1959 in Seminar
Seminar 2, October 1959
Food For Forty Crores
Marketing and price stabilization
Sailen Ghosh
In today's situation, with food prices rising, increased food production is more necessary for price stabilization than price stabilisation is for food production. Therefore, the marketing methods required for the stabilisation of price deserve consideration as an independent subject.
On a long-range view, however, the question of price stablisation measures as an aid to food-production remains quite important, the barrier to increased production being the cultivators' fear that bumper crops might cause prices to deop to levels which would reduce rather than increase their net income. The memory of the price falls in 1954-55, when the market was glutted with foodgrains, has not faded away. From this point of view, therefore, incentives by way of guaranteed minimum prices still remain a condition for increased production.
The maintenance of price levels between the minimum and the maximum, which is another name for price stabilization, certainly yields better production than high prices alternating with uneconomic ones. In a year of high food prices all the producers do not receive substantial incomes. It is true that in recent years the terms of trade between the town and countryside have turned in favour of the latter, as a result of which the rich and the middle peasants have been better off. But high prices have meant near-starvation for small producers, a part of whose requirements must be met from the market, in the lean season. For them, naturally, improvement of land or the purchase of fertilizers and better seeds has been out of the question. A period of high prices cannot also be conducive to higher food production.
The question of the price stabilization of foodgrains has three aspects: (i) it must protect adequately the interests of producers and consumers, (ii) it should maintain parity between industrial and agricultural goods, and (iii) it should maintain a relative position among agricultural commodities themselves. Finding the level at which these three contending pulls can converge is extremely difficult.
As has been stated above, stabilization means movement of prices within a range which, of course, should not be too wide.[1] If the price range is too wide, no reasonable cost structure of the economy can be maintained, for on food prices depend wage demands, industrial cost and the general price level. Among the tree aspects mentioned above the last one is particularly relevant to the question of increasing food production. Even if there is an imbalance between the other two aspects production will not suffer immediately, although food producers on consumers may be hard hit.
Producers of food cannot easily switch over to industrial production. Neither can consumers switch over entirely to industrial consumption. But if food prices are maintained at a low level, relative to the prices of commercial crops, there will immediately be a diversion from food crops to cash crops. On the other hadn, if they are too high, the balance in the economy will be lost; production will switch over from cash crops to food crops, inviting a crash in food prices and contraction in its production in the following.[2]
Since it has now been established that stabilization of prices serves the purposes of both increased food production and healthy economic growth, the methods of marketing which promote such stabilization can now be discussed. Before we come to any conclusion it is worth examining what has happened to the marketing methods so far adopted.
First, the country was divided into five wheat zones and two rice zones. The movements of wheat and rice into and out of the relative zones was banned, except under special permits.
Secondly, in certain States, maximum wholesale prices were fixed for the two most important cereals. Wholesale dealers were licensed and the Essential Commodities Act, 1955, was applied to them. But this Act any wholesaler might be required to surrender part or the whole of his stocks at the average price of the preceding three months. In certain scarcity areas within these States foodgrains were distributed at controlled prices through fair price shops.
Interim Pattern
Thirdly, State trading of an interim pattern was announced and sought to be introduced. According to the salient features of this scheme (i) the wholesale traders in wheat, rice and a few major cereals would be licensed, (ii) the wholesalers would be under legal compulsion to pay to the producers not less than the specified minimum prices, and sell to the retailers and, when required, to the government, at controlled prices; (iii) suitable official agencies would function to scrutinize returns from the licensed wholesalers, supervise their operation and, if necessary, to requisition their stocks; (iv) the official agency would also make direct purchases only from such producers as would prefer to sell to the government directly; (v) there would be no general arrangement for policing retail prices; the regulation of transactions and prices at the wholesale level would discipline the retail prices indirectly.
Application
I should be noted that the interim pattern of State trading was not much different from measure No. 2. The novelty lay in the decision that the measure would be applied to India as a whole, whereas formerly it existed only in some States. Mention should, however, be made of the fact that licensing of wholesalers has not yet made much headway in most of the States.
In addition to the above measures selective credit control was adopted by the Reserve Bank. Though this was a monetary and not a marketing measure its purpose was to influence the market by preventing the hoarding of foodgrains.
Inflationary Effects
The effect of these measures was inflation rather than stabilization. It will be seen that State trading, which was conceived as a measure to check the inflationary effect of deficit financing in the coming years, became the immediate cause for a price rise. The questions which arise are: How did it happen? Was the measure fundamentally wrong? Or was it due simply to wrong implementation?
The object of food zones was to "marry" deficit States to surplus States in order that the demand on government supplies and, therefore, the need for procurement could be reduced. But a natural process of adjustment the prices could be kept even and the cross-movement of foodgrains eliminated.[3] The principle was commendable, but the food zone could not work successfully.
Surplus States
The governments of surplus States sometimes felt that they were losing profits which they would have earned otherwise by supplying grains at government-to-government level. A more important reason for the unhappiness of these governments over such zones was their fear that the cost of living of their respective electorates would go up. They preferred State-wise zones which would keep down the cost of living within their boundaries, and which would also give the politicians a chance to distribute patronage.
Within these zones private traders also hoarded stocks; the constituents of the zone being under different provincial administrations which could not normally be expected to launch a concerted anti-hoarding drive, they found it quite safe to build stocks at one place and then to transfer these to some other States if necessary. Smuggling across the borders of zones also went on a pace while for each obstruction at the check-post the traders 'compensated' themselves by raising prices outside the zones.
Smuggling
The temptation to smuggle foodgrains became particularly strong at places where the disparity between the price within and without the zone exceeded two rupees. There are, after all, some costs and risks involved in smuggling and unless the attraction is sufficiently high, nobody finds in pleasant.
The changes made from time to time in the boundaries of the zones – both before and after the Asoka Mehta Committee Report[4] - robbed them of their effectiveness. What is more, such changes in themselves helped profiteering by some traders, although to some others they meant serious losses. The process can be explained thus: When some deficit States were left out as a result of changes in the zonal formations, the traders who had stocked foodgrains in the deficit areas made unexpectedly huge profits, while those who had stocks in the surplus areas lost heavily when faced with a sudden downward movement.
Licensing
The main objective in licensing the wholesalers and applying the Essential Commodities Act to them has been defeated wherever the measure has been adopted. Licensing reduced the number of traders and therefore reduced the competition between them. The cultivators during the last decade, despite their rather weak bargaining powers, found in this competition an opportunity to better their incomes to some extent.
The licensed dealers were no angels; they submitted incorrect returns with grossly deflated purchase accounts, and exploited their position and "prestige" to personal advantage. A goodly portion of the purchases made under official licence thus escaped into the blackmarket.
"Compensation"
A queer phenomenon could be observed in this connection. The controlled price applied to the limited business transacted officially, and for this reason the wholesalers tried to 'compensate' themselves in their other sales substantially, as a result of which the ruling market prices were unusually high.
Under the interim pattern of State trading, licensing, on an all-India scale, though pushed half-way through, has yielded the same results as described above. The threat of direct, although limited, government procurement has worsened the situation. Despite the announcements of a bumper harvest the producers and traders were convinced that a shortage in the market would be created and the price line impossible to hold. They, therefore, did not like to miss their chance. They decided to hold on to their stocks. After all, even if the worst happened, could they no bank on getting from the government the procurement price announced for the entire season? And the peculiar naming of procurement prices as minimum prices whetted their appetite further. The substantial producers often purchased the grains sold by smaller producers.
Hoarding
Hoarding by the producers in the present circumstances is an indisputable fact, however strongly some legislators may deny it. This does not mean the traders did not stock grains. In fact, whenever any producer decided to sell, the traders approached him and offered him a few annas more than the government price in order to corner the stock. They did not flinch from doing so because they were certain that the price would not only come down, but would rise considerably. The net result was that the procurement, wither through the government's own agency or through that of the wholesalers, was very low.
On the other hand the supply commitments rose steeply because the wave of price rises spread quickly. Thus the wide gap between the commitments and the supply aggravated the crisis after State trading was launched.
From this some people have deduced that had full-fledged State trading been started this year, instead of diluted State trading, things would have been much better. Such reasoning is fallacious. Ajit Prasad jain, until recently the Union Minister for Food, argued that he did not have the funds for monopoly trade and neither the machinery. Even if a few hundred crore rupees had been made available to him for home procurement, with adequate provision for staffing his organization, could be have succeeded?
The essential point seems to be forgotten that in our economy the producers' (and the traders') psychology plays a very, very big part. Experience shows that in India small shortages have led to large price rises, while some small surpluses have caused sizeable falls in price. Can the explanation be any other than the influence of producers' and/or traders' psychology?
Producers' Psychology
In the current year despite a food production of 73 million tons as against 62 million tons last year and 68 millions in the year before that, the producers' psychology behaved in such a way that for all practical purposes it was a year of shortage in the market. It was not, after all, even the second of a series of bumper crop years, and the effect of the previous acute shortage year was not going to be wiped out completely. Anyway, according to the producers, the situation was worth watching to withhold stocks from the market.
In this year of poor arrivals in the market any monopoly procurement by the government in the name of State trading would be a failure. Since the government's monopoly would be in the wholesale trade only, the retailers' guise assumed by the wholesalers' agents might create a difficult situation which could not be controlled without extending check posts to the remote interior. The private traders would carry on their operation with the conviction that they would have a flourishing underground trade. Attempts at compelling producers to part with any quantity in excess of their consumption requirements would rouse widespread resentment which no ruling party would relish. It would lead also to concealment, corruption of petty officials and, more important, to a diversion away food crops.
A producers' strike is a terrible thing. People who always find a panacea in State trading and who quote the examples of State monopoly trade in Canada, Australia and Burma, forget that these are all surplus countries; the producers' resistance is not encountered there. Even in Italy and Japan, where there is no such surplus, at least the producers were not used to high expectations when State trading began. There is a wide difference between the steps that can be taken in a surplus country and a deficit country, because in the former procurement merely has a price support function.
Period of Glut
There is also a difference between the steps that can be taken in the same country in a year of glut and a year of shortage in the market. In India we lost a golden opportunity in 1954-55 to create stocks when the crops were bumper, and when the producers' and traders psychology was influenced to the extent that large scale dehoarding took place.
Large scale purchase operations by the government, for State trading or any other purpose, can only be undertaken in a period of glut when traders or producers do not expect high rewards. The word "glut" has been deliberately used here because the distinction between the normal surplus and the actual surplus is not often made, and any surplus year is considered suitable for large scale purchases.
'Surplus'
Our concept of 'surplus' needs careful examination. Experience has confirmed that the normal surplus, which is the excess of production over consumption requirements, becomes the actual surplus when prices are stable. Under inflationary conditions, however, the actual surplus (i.e. market arrivals) turns out to be smaller than the normal surplus and the market tends to behave as it would in a year of shortage. Similarly, under deflationary conditions, because of panicky sales, the actual surplus becomes larger than the normal surplus.
A programme of large scale purchases must take this important point into consideration. This does not, however, mean that there can not be any purchases in a year of shortage. The emphasis here has been on large scale purchases if full-scale State trading is to begin.
The theory that even in a year of over-all shortage fair size procurement can be made in surplus pockets, without giving a boost to prices, is subject t a number of qualifications. It will depend on (i) how much surplus there is in that pocket, (ii) how much the trade would normally buy from that area, (iii) how much the government proposes to purchase and at what price, (iv) at what price the government sells, and (v) whether the traders are able to smuggle out any quantity. Even from a commonsense point of view the theory should be modified, because communications and the means of transportation are not so undeveloped in any part of India as to allow a price depression to continue in some parts while price rise in most other places.
Large Imports
Does it than mean that the starvation of the poorer sections of the people must be accepted as inevitable? The answer is: we have to begin, in such circumstances, with large imports. The order of magnitude would be much greater than the 3 million tons recommended by the Asoka Mehta Committee. Even if we can manage to secure 10 million tons in a single year, instead of three and half million tons annually for three years, the price stabilization effect will be not three times, but perhaps several times, more.
That we might find if difficult, almost impossible, to get such large quantities, is another question which we shall discuss later. But there must be no illusion about the fact that in a year of shortage, unless the government acquires two to three times the quantity of shortfall in production, prices can not be stabilized. The essential point here is that, once the government can command the stock, the initiative passes into it's hand. And then, even in a deficit year, the government can procure stocks without rigging the prices.
If, however, for foreign exchange reasons, or for fear of cutting down on some other items of the Plan, food can not be imported, and if for any political reasons imports even on a deferred payments basis can not be arranged, one should at least be clear from the start that there is to begin with, no other democratic solution in a year of shortage. And for our purpose the year of shortage includes, as has been explained above, periods such as the current year which, inspite of having some surplus production, reflects a shortage in the market. (In the particular case of this year, out of 73 million tons, nearly 5 million tons must have gone to replenish the stocks in the trade [called pipeline stocks] that suffered heavy depletion last year; the remaining 68 million tons was, therefore, insufficient to meet the consumption level of an increased population).
Food policy-making is like a game of chess. A chess player has to think three moves ahead before he takes the first move. Similarly a food policy-maker should plan his series of moves. Unfortunately we often tend to declare, or even adopt, the third move when perhaps we have not even taken the necessary first move. The policy of State trading is an eloquent example of this.
Ineffective Interference
Even before the first steps were taken to create conditions which could make State trading a success it was decided to adopt it as an immediate practical course. Next it was found that we had neither the resources or the machinery to implement it, not even the initial stocks to create a favourable atmosphere for it. The measure that followed was a pale shadow of State trading. And ineffective interference, it is known, always leads to disastrous results. Unnecessarily, too, much opposition from vested interests was roused by this precipitate action.
State trading of the ultimate pattern, which envisages the reorganization of the grain trade on a comprehensive cooperative basis, starting with the assembly of co-operatives and ending with consumers' co-operatives, is undoubtedly desirable. If the State could buy through producers' co-operatives they are likely to coalesce in most cases. And until the domination of the (economically) better placed person can be eliminated – it will take decades to eliminate – the producers will dominate the co-operatives. That is to say, the co-operatives, in the near future, are likely to be so many pressure groups in favour of the substantial producers).
Evaluation Report
The programme Evaluation Report of the Planning Commission shows that most of the co-operatives suffer from such domination; very many of them are also spurious, acting as benamdars of some particular businessmen and enjoying tax exemptions and even subsidies. Where the civic consciousness of the people is low and illiteracy wide-spread the true sprit of co-operation will take time to grow. Where the emphasis is on quantity, on covering the country within a given period, the tendency will be towards 'quota fulfillment', stressing the form at the expense of the content. This is the ideal situation for vested interests to become entrenched in the co-operatives.
Co-operatives
Even if we discuss the quantitative growth of co-operatives, nine months have already passed since the Nagpur Resolution, but how many co-operatives have we built? To complete the build-up of service co-operatives at this rate, within three years, is an impossible proposition n. The relevant point here is that there was over-optimism and unrealism in the calculations which suggested that State trading of the ultimate pattern would be a practical measure within the next four or five years.
If State trading of the final pattern is ruled out for the present, and if State trading of the interim period in the conditions of shortage is disastrous, the only way out is open market operation. If, however, last year's bumper crop is followed this year by a bumper crop the situation will change radically, and a change-over to State trading may be possible. Obviously such State trading will, in the beginning, depend on procurements from the market rather than through co-operatives which in most parts are yet to be formed. But if Nature turns out to be ungenerous the immediate task is to import large quantities of grain, use them as buffer stock, and start open market operations.
Rice and Wheat
It is true that imports have to be mainly in wheat. But buffer stocks of wheat will also create an impact on the rice trade. Releases from wheat stocks will mean that poorer sections of the rice-eating population will be tempted to satisfy a part of their demand with that grain. It will bring down with it both the demand and price of rice.
The principle of the buffer stock operation is to buy wherever prices tend to fall and sell wherever prices may rise. If large imports are really made they might strike terror into the hearts of the hoarders and, therefore, price falls at places would quite possibly take place. Although buffer stock operation is also a form of limited State trading there is an important difference between the two.
Price Levels
In buffer stock operation there is no fixed procurement price for the entire season though, of course, there might, and should, be a general promise never to let prices fall to uneconomic levels. Fixed procurement prices are always an incentive to producers to hold on to their stocks until the last moment. They are an invitation to the producers to try all other avenue before coming to sell to the government. Under this system the government becomes the buyer of the last resort. And that is exactly why procurement on this basis can never be substantial. It is worth repeating that in scarcity conditions, when there is no fear of a depression of prices, both substantial producers and traders will inevitably take advantage of the "fixed price" pattern of our State trading and reduce the actual surplus.
Flexibility Needed
But under buffer stock operation, whose very essence is to play on the price uncertainty of the producers, the government agency retains its flexibility. The purchase price is never publicly announced, although the sale price may be publicized. About the range of purchase prices only the instructions are issued departmentally. It must be remembered that State trading, by definition, is not committed to fixed prices; it can adopt flexible prices if it so desires. But there is a basic difference between State trading and buffer stock operation.
The principle of State trading is to buy as much as possible, whatever the price situation, because its supply commitments must be discharged. The principle of buffer stock operation, on the other hand, is to stop purchasing whenever prices rise above its calculated range, its only obligation being to buy the maximum quantity in a situation of falling (or stable) prices. Freedom from fixed supply commitments gives buffer stock operation a flexibility which is far more effective than State trading in controlling prices.
State trading, particularly its existing variety, often tends to become a victim of circumstances. Ethical questions need not be raised to challenge the propriety of playing on the producers' uncertainty about prices. In any case the producers do not lose in a period of shortage, or reduced actual surplus, and it is far more ethical to give food to our millions at reasonable rates. Moreover, once the situation is under control by means of such an operation, minimum prices, variety-wise, can be announced not only for the entire season, but for a fairly long period such as five years.
Open Market
But there is a difficulty in the open market operation in foodgrains which is unlike the Reserve bank's open market operations in gilt-edged securities. The transactions in this case will not be limited to cities like Bombay, Calcutta and Delhi. The foodgrain trade is spread all over the country. When the present hoarding psychosis has been subdued there may be a price fall in certain areas, while price rises may occur in other districts. The open market operating agency must therefore be posted, at each level, with day-to-day market information for each important centre within its jurisdiction.
The purchases and sale agencies at the base must also have the initiative to act. Since the procurement price will not be a fixed thing, but will very from place to place and even from producer to producer, within the range, the agencies must possess tested sincerity and integrity. It is, in fact, here that the greatest problem will arise. Flexibility go prices will give the members of the agency staff great opportunities for selfish purposes, which may result in considerable corruption and thieving.
Alternatives
Five types of trade are generally suggested for the stabilization of foodgrain prices. They are (i) complete free trade, (ii) cordoning of big cities, free trade in the rest of the country, plus buffer stock operation, (iii) zones on the principle of marrying deficit States to surplus States, plus buffer stock operation, (iv) State-wise cordons plus purchase and sales by the government without rationing, (v) State-wise cordon, plus strict government procurement and rationing.
Of these the first, i.e. complete free trade, can be ruled out. In the thirties there was complete free trade but the factors which restrained prices at that time are absent today. The limiting factors then were the import and export prices. Whenever prices rose at home they were checked by import arrivals. Whenever prices fell exports propped them up. Thus complete free trade was compatible only with international free trade when the market prices were automatically restored to the equilibrium level. Today the told standard does not exist, the balance of payments difficulties have become a problem in most countries, and both export and import controls hold sway all over the world. In the absence of the natural limiting factor complete free trade within the borders of the country can only be an extremely unwise step.
The fifth measure, i.e. State-wise cordon and rationing is quite feasible and effective, but difficult politically. It would mean forcing producers to part with their stocks, in excess of what is considered by the State to be their consumption requirement. The consumers would also be forced to accept whatever is supplied to them, leaving little scope for consumer choice. In rationing, quality is also bound to suffer.[5]
Real Choice
The fourth measure is not advisable because it would not enjoy any of the advantages of rationing while yet being saddled with all the disadvantages of control. Thus the real choice is between the second and third types of trade suggested above. Of these the zone system suggested in the third type would mean free trade within large areas, each covering two or three States. True, the risk of smuggling out of the zones exists. But if the difference between the prices within and without the zone is not allowed to be large, the temptation to smuggle can be effectively countered. Of course to narrow the disparity to such an extent is difficult. It requires the formation of much more balanced zones. But there are difficulties inherent in such at tempts. An example will clarify the position.
At present the difference between the prices in West Bengal and Orissa is as high as Rs 12 per maund. If this huge price disparity is to be narrowed down the inclusion of
West Bengal and Orissa within a single zone may be necessary. But such a proposal would inevitably arouse complaints from Orissa. It will be argued that the income of the people of Calcutta is sufficiently high to enable them to bear a rise in prices, while that of the average Orissan is not.
West Bengal and Orissa within a single zone may be necessary. But such a proposal would inevitably arouse complaints from Orissa. It will be argued that the income of the people of Calcutta is sufficiently high to enable them to bear a rise in prices, while that of the average Orissan is not.
Counter-Argument
However, a deficit State such as West Bengal can also advance a counter-argument that the average income of Calcutta's population might be a little higher, although certainly the income of the people of Midnapore district is no higher than that of the Orissans. On what grounds, then, should they be deprived of the bejefits of the zone system?
Since this kind of controversy can never be resolved to the satisfaction of any party, the best course seems to be to adopt the second type of trade which suggests the cordoning of big cities, free trade in the rest of the country, plus buffer stock operation. The only argument to be advanced against it is one involving the cross-movement of grains. But today there is no acute shortage of railway wagons and the probable cost is also not too high. Moreover, when buffer stock operation is placed on a sound basis and ware houses are built all over the country, the cross-movements can also be reduced to a minimum.
Stabilisation Board
It is in this context that the setting up of a Price Stabilisation Board and a Foodgrains Stabilisation Organisation assume importance. The recommendations of the Asoka Mehta Committee for the appointment of such a Board, and to set up such an organization, should be considered wise, although the Union Food Ministry has turned them down. Possibly the Union Food Ministry was afraid that the appointment of the Price Stabilisation Board as a policy making body would constitute a challenge to its authority. But price stabilization is not entirely the function of the Food Ministry or, for that matter, any Ministry, although foodgrains constitute the real core of the price structure.
As the above Committee pointed out, the price of competing crops such as cotton or oil seeds, and of industrial products such as cloth, fertilizers, iron and steel etc. are also very important from the point of view of an effective price policy for the market and have to bear a reasonable relationship to food prices.
Board's Composition
It is only a Board composed of the representatives of the Ministries of Food and Agriculture, Finance, Commerce and Industry, Railways, the Planning Commission and the Reserve Bank of India which can "examine not only the food prices as such, but also the prices al all related consumer and producer goods, for example, cloth, oilcake, fertilizers, iron and steel, etc,. study the various margins maintained at different stages before sale to the cultivator and make appropriate suggestions." Thus the broad pattern of an integrated price structure can be evolved while avoiding the evils – the distortions of and obstructions to the normal functioning of market forces – of a rigid integration of price structure. The Foodgrains Stabilisation Organisation, however, should be under the Food Ministry to discharge specific "functions of open market and sale, procurement of foograins and maintenance of stocks". It need hardly be gainsaid that for both the Board and the Organisation the effective functioning of a Price Intelligence Division is absolutely essential. Any default on its part in collecting suitable regional indices will mean the floundering of such a Board and Organisation.
Warehousing
Connected with the question of buffer stock operation is the programme of building warehouses. Since the overwhelmingly large portion of our buffer stock will be in wheat, the need for proper storage facilities is all the greater. It is known that paddy can be kept sound for nearly three years, but if wheat is to be preserved for more than six months elevators must be used. However, for the long-range operation of buffer stocks irrespective of the variety of foodgrains, practical grain cleaners, moisture testers, screw conveyors, bag conveyors and grain driers are necessary.
One can not help feeling that the warehousing programme is being pursued leisurely by the government. If price stabilization has to be carried out, it must be given top priority, and the storage targets of the Second Five-Year Plan – 350 warehouse of Central and State Corporations, 1,500 godowns for marketing societies and 4,00 godowns for large-sized societies – should be fulfilled ahead of schedule.
Now, perhaps, we can turn to a discussion of some of the other problems concerning price stabilization of a more or less long range character. The question of increasing the holding power of particularly the small producers is very important in this context.
Storage
The Ford Foundation team has suggested that storage must be made a definite part of the price stabilization scheme. It said: "Godowns at the village level are badly needed. Most foodgrains are stored in home-made structures, there is much greater danger from weevil or rodent infestation or from dampness than in masonry godowns with a wooden, stone or cement flooring. Only storage owned by the cultivator, or by his co-operative, will provide him with a stable market at the time of harvest". Thus the construction of godowns at the village level will give a fillip to food production.
Earlier in this article it has been explained that the peculiar characteristic of the Indian bania is his inability to be deterred by selective credit control. He has enormous liquid funds at his disposal which hardly enter the portals of the banks. He generally advances his money to the cultivators when the crops are in the fields, which keeps the latter tied to hi. In order to dislodge him and impart stability to the trade much better and much larger agricultural credit should be distributed. This can only be done by building a network of genuine credit and marketing co-operatives.
Consumer Goods
The Rural Credit Survey Committee recommended that "agricultural credit societies may also supply their members' requirements for basic, but standardized, consumer goods on the basis of indents or established demand". The significance of this statement is not always properly grasped. In North Vietnam the government sends vans out into the villages to distribute cloth and other industrial products at reasonable prices; when the vans return, they bring loads of foodgrains and other rural products. Exactly the same thing may not be applicable to our conditions. But the principle must be the same.
It is easy to accuse the producer of boarding, but if foodgrains are his only source of income he is likely to want to make the best bargain out of them. When we contemplate forcing him to dehoard, either by market pressure or through a people's campaign, we must at the same time think of giving him an incentive to sell. The supply of cloth, oilcake, iron and steel, edible oils and kerosene at reasonable rates through co-operatives might remove some of his legitimate fears and thereby induce such sales.
Marketing Societies
Since credit will be linked with production, and also with marketing – the former is necessary to assess the producer's credit needs and the latter to ensure recovery – an important role can be played by marketing societies towards price stabilization. This also was emphasized by the Rural Credit Survey Committee. "When production loans are given by credit societies, the borrower sings an agreement to deliver the crops raised with the loan at the marketing society to which the credit society is affiliated, and that the marketing society may recover his production loan for the credit society either out of the sale proceeds of the crops or out of any advance it may advance on the produce left in the godown". The import of this statement is that loans may be advanced against mortgaged crops. The process immediately brings into the hands of public bodies some stocks of foodgrains which may act as a stabilizing factor.[6]
Hire-Purchase
If we now leave the question of price stabilization and discuss other marking methods that might work as an aid to food production, the system of hire purchase must claim our attention. Individual cultivators are often heard to say, "I can not save, but if I take a loan, I pay it back". This proclivity of the peasant can be put to good use if the hire purchase system is introduced on a wide scale. The peasant may be induced to buy durable goods, for example corrugated tin sheets, to improve his household, and will work hard to pay back his loan in installments. This marketing method will spur him to increase production.
None of the measures suggested above are impracticable. Imports of 10 million tons were inconceivable sometime ago. Now, with the new 'Food for Peace' programme of the U.S.A. – which, of course, is not het finalized – imports of 7 or 8 million tons of foodgrain from that country alone may not be very difficult. Negotiations with Burma and the Soviet Union might also yield results.
Secondly, cordoning of the big cities and allowing free trade in the rest of the country will help prices to find their own level. Since the evils of free trade would be countered by buffer stock operation, price stabilization will be possible without any rigorous control. A Price Stabilisation Board will bring about an integrated and yet not-too-rigid structure of prices. A Foodgrains Stabilisation organization will operate the buffer stock.
No Disequilibrium
The success of all these measures, however, will depend upon the condition that there will be no fundamental disequilibrium. If, as a result of huge and uncontrolled deficit financing, too much purchasing power is pumped into the system, no price stabilization is possible. Large-scale borrowing programmes and measures to mop up excess profits, wherever they appear, might succeed in mitigating the incidence of deficit financing up to a certain state. Beyond that stage there is no remedy.
[1] It cannot be too narrow because that is operationally impossible, and the costs of storage, transportation and maintenance of an organization have necessarily to be met.
[2] This does not, of course, mean that there should be no variation between the price of foodgrains and of cash crops. If there is no variation, or if the variation is forced to be too narrow, the proper allocation of resources and due adjustment of supply and demand can not be brought about.
[3] Cross-movement of foodgrains means the flow to and from various areas caused by the price rise or fall.
[4] The Asoka Mehta Committee recommended that 'once a zone is formed it should be maintained on a relatively long-term basis so that the trade patters are not disturbed frequently.
[5] The quality of foodgrains deteriorates under rationing, because, with a fixed price, the producers do not find any attraction in separating stone from grain. The procurers do not have any flexibility in matters of payment and therefore, the producers know that they would not get an extra anna for their extra labour of chaffing grain; rather the chances are that the grain might lose in weight. Neither at the distribution point can the dealer afford to clean and chaff the grain; he might be penalized by the Inspector were he to charge a 'naya paisa' more per seer; rather his interest would be to increase the weight by adding stones.
[6] There is a related suggestion for the collection of land revenue in kind in order to obtain control of stocks. It is impracticable and unwise. This question was gone into by the Asoka Mehta Committee and the disadvantages were found to be too many. First, there are people who pay small amounts of land revenue. If it is paid in kind, often 5 to 10 seers only may have to be collected. A mix-up of different varieties and qualities of grain is of use to none. Secondly, there will be scope for the corruption of petty officials; a risk not worth taking for the small advantage which the system offers. Thirdly, before warehouses are constructed at all levels, the cost of transportation of these grains will be considerable. Fourthly, in a period of rising prices, a particular amount of land revenue can be represented only by a decreasing amount of foodgrains which will mean a loss to the State.
Even when prices are stabilized there will not be any stationary price which would determine the exchange of land revenues against some crops. The application of the minimum price to these transactions will mean a loss to the producer, whereas the application of the maximum price will mean a loss to the State.
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