Why stop the milk train?

Export of powdered milk and certain wheat products has been stopped. The reason given is inflation. Is it possible to justify sectoral and commodity restrictions for macro-economic management in a liberalised economy? If so, then why not ban trade in metals and other construction materials? Why only agricultural goods? We spend thousands of crores on employment guarantees. Milk procurement has been the only really successful income-raising programme we have had in the rural sector, with animal husbandry accounting for around a third of rural income and so we curtail the global demand for the sector. It’s a Kafkaesque Policy World, liberalisers become licensors.

There are more immediate reasons to stop all this. It is well known that many cooperatives are in deep financial trouble. In parts of rural India, subsidiary employment of women in agriculture in diversifying activities like animal husbandry went down in the 90s as compared to the 80s of the last century. Dairying was perhaps a bright spot, but in pressure. At the Dairy Congress in Kolkata in December, I argued for a bifocal strategy. In the uncovered areas, expand the old style policies with an improved version, building on past experience of the doodhwala. But in developed segments of the dairy industry, it was suggested that we push a comprehensive domestic high value added and export strategy with a technology and SPS plan. In particular, two aspects would be the focus. One would be agro-processing technologies for newer products emerging in the sector. Amul has already sent me the probiotic ice creams. The other major aspect would be to produce milk products specifically for export markets. There was an economic rationale for this since India had demonstrated cost advantages in the milk and milk products sectors in most domestic resource cost calculations. The problem was not that India was not competitive, but that the EEC and US gave huge subsidies, to the tune sometimes of 80 per cent of their costs.

It was necessary to push export markets; this would need market strategies, but also pricing with subsidies in a WTO context. Some expenditure, for example, for EGS for women could be used to subsidise milk or product exports with better results. Of course, an aggressive WTO negotiation strategy is needed to avoid export subsidies in the long run.

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We should, in fact, prepare a strategic plan and lobby for outcomes. I suggested that the industry largely cooperative, should implement it regardless and that if they got going, the policy maker would anyway fall in line. Little did I know that the policy maker was waiting to wallop any such idea.

Does this mean that people like me are insensitive to inflation? Of course not. I do not believe in purely monetarist theories of inflation and supported the Government’s pump priming leading to the industrial revival and the growth performance of the last two years. But for people like me you can reach a stage where as great Neo-Keynesian economist, feared that prices start chasing wages. At that stage caution is well advised.