Letter to BS: There are no market mechanisms in India to reward a farmer

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I agree with Udit Misra’s “Why farm loan waivers make sense” (December 21). The market can provide better solutions on its own than what the government can do. I may narrate a historical instance related to such a problem, which proved that government cannot match the efficiency prevailing in the private sector.

It was around one year before the declaration of Emergency. Paper being an essential item for education, paper mills had to sell at a price fixed by the government. Paper mills found that prices were unviable, therefore they started taking some cash amount for booking orders and then executed delivery of the order at the official price. Word spread that paper mills are indulging in black market tactics. To check that, the government took control of the distribution of paper through small industries corporations (SICs); to be sold at a no-profit, no-loss basis. However, the publishers complained that SICs are selling at a higher price than what they were getting from the market earlier. 

The government ordered auditing of the SIC immediately. It was found that the extra charge was genuine to meet the establishment cost. The SIC would run into losses at a lower price, which again will come back to the government. However, the government wanted to fulfill its commitment to a lower price of paper used for education. Therefore, paper mills had to make special tinted paper for the purpose of education. They were allowed to increase the prices of paper used for other purposes to cover their losses.

Satish Kapoor, Pune
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