GS1-Factors responsible for the location of primary, secondary, and tertiary sector industries in various parts of the world (including India).

Sugar Industry- Apart from Rangarajan's formula; what other possible policy decisions could be taken so that the 1) Sugarcane farmers have some respite and 2) The sugar costs (still one of the highest in the world) come down.

The question is based on premises that

1. Sugarcane farmers are suffering

2. Cost of sugar manufacturing is high

should I take these as the premise? 

Yes sir            

Premise 1 is debatable. However if the intention is to 'help' the sugarcane farmers, should we treat them specially or to leave it to the market forces?

Sir, Sugarcane as an industry has its own share of problems, one of which is competition with other agro commodities which receive their incentives. So we can't really leave it to the market forces unless we delink their effects on Sugar industry.

So what do you want? low sugar costs which can be achieved by removing all interventions or keep subsidizing the sugar cane farmers.

Sir, Not sure

It is now almost universally 'agreed' understanding that giving subsidy makes a sector inefficient. so the 'mantra' for any sector to become efficient is to 'reduce' if not do away subsidy but sugar cane farmers are a strong political lobby and hence they are now 'addicted' to subsidy. Economically there is no doubt that intervention has to go but politically it is right now at least not likely. Building up efficiency under the 'subsidy' umbrella is a solution that requires 'enlightened' people. However with the only option left we need to see whether it is possible.

There is excessive government intervention at present sir, that also creates issues, ranging from setting prices (FRP, SAP) to market control. what about export subsidies sir? Is that justified or not? Sir right not the Mill owners give FRP (the state's minimum assured price to farmers) to the farmers. Why doesn't the state govt directly give it to the farmers instead?

Agriculture has traditionally been subsidized and protected as it is important in a nation holding its sovereignty. Hence no nation wants to let go 'subsidy' especially in agriculture sector, to that extent it is justified if not as a necessity but as a necessary evil.

It is a question of a robust delivery mechanism and about the 'desired' outcome.

Sir Govt is providing short term solutions (Soft loans to Mills and 10% blending of ethanol to petrol) but what would be a sustainable and long term solution to this perennial problem facing farmers?

what is the perennial problem faced by the farmers?

Sir I think regulations and hast selling of produce

is that the problem?

if that is so fixing a base price for the crop is good or bad?

Sir a base price would definitely help, but that is only break even, for a sustained earning it should be market determined

"market determined" means "not fixed". 'conflict of interest' between mills and farmers

has it been created by 'fixing' the price?

Yes sir

Let me clarify some points

To understand the special treatment to agriculture we need to understand certain things

1. free market will result in demand matching the supply at the market determined cost and price

2. However, when it comes to items like food grains, sugar, salt etc which are 'essential' for living, the first duty of the country is to enable a provision that allows it to ensure that for all its citizens

3. for a developing country and poor country to become independent, a critical factor is that no other country can arm twist it in this aspect

4. any country that suffers a famine, will be very vulnerable to yield to the whims and fancies of a super power which can dictate terms with food supply

5. Thus there is a special treatment to the agriculture sectors which make the country self reliant and to an extent sovereign

Strategically, I would like our country to have a robust self sufficiency in this sector and also keep sustainability in mind (as against the market driven resource exploitative methodologies). Hence the government intervention in such critical areas is bound to remain even at the cost of some 'inefficiencies'.

Now you can think on these lines and arrive at your own opinion

Sir there is a concern of excessive use of water and electricity in agriculture as they are below market rates available to farmers. This could one of the 'inefficiencies' as mentioned by you.

Right, on the money

Also sir, to approach this topic from the guidelines you just suggested- we've to know that agri industry in India is not remunerative or lucrative enough. That is one of the reasons the govt has to intervene, and guarantee certain prices

Yes, agriculture has not been remunerative.

In fact I expected that as an answer for the question - the perennial problem of the farmer

DBT can be used in place of Subsidy as it will reduce govt spends in delivery of subsidies sir?

DBT, fixed price - you name it. All are some form of intervention whichever is effective can be used !!!