What 'Diwali' smog conceals

With Diwali a standard cycle has started up over Delhi NCR and other north Indian cities. Balmy post-Dussehra weather has ended and a blanket of smog and polluted air has descended. There will be a flood of cases of respiratory ailments arriving at the hospitals; infants, older persons, and the already sick will experience great distress, and some will die.

Activists will demand (once again) a ban on diesel-powered SUVs of the rich. Other activist voices will call for a ban on Diwali fireworks, especially Chinese ones. And the higher judiciary may even issue notices to state and central governments to fix responsibility and come up immediately with a detailed plan to eliminate air pollution from cities.

However, in about a fortnight, the smog will magically evaporate and media and public attention shift to the next episode in our multi-themed political soap opera. Till about the same time, next year. So, why exactly does the smog happen? The reason, dear reader, is rice.

Rice? Well, it happens that the rice crop in numerous areas of Punjab and Haryana are harvested about this time. The paddy is quickly delivered to FCI godowns. But paddy straw and ground stubble are a problem. Labour is too expensive in these states for ploughing the straw into the fields to enrich the soil; the local cattle (buffaloes) will not eat the straw of the particular rice varieties grown; and rice straw has too high a silica content for it to be safely burnt in biomass power generators. The rational option for the farmer in this situation is to burn the straw on site.

But surely, any intelligent young Indian would ask - why grow rice, a highly water-intensive crop, in Punjab and Haryana which lie in the country's arid zone? Good question, and one that provides interesting insights into our national political economy. Rice cultivation in this region cannot rely solely on monsoon rains and needs supplemental groundwater-based irrigation. Diesel and power have been subsidised to the farmer over several decades. It is only in that last few months that diesel subsidy has effectively been phased out, but near zero marginal cost power supply remains.

Coupled with attractive minimum support prices (MSPs) and policy directives to FCI to procure the bulk of its rice supplies from these two states, an irresistible economic incentive is created for the farmer to grow rice, rather than the alternatives-maize, other grains, pulses, horticulture, that are more suited to the natural ecology of the region.

However, the adverse effects of rice cultivation in the region do not end with the annual smog visitation. For one, withdrawal of groundwater substantially exceeds annual recharge, with the result that the water table falls continuously each year. As the water table falls, each additional kilolitre of water requires more power for its extraction than the last kilolitre. The subsidy on power thus increases continuously and is met from the state budget.

In many regions the water table, which was initially less than 10 metres, has already fallen below 500 metres, leading to a huge adverse impact on state finances. If one computes the true econo-mic cost of rice production in the region, taking into account the subsidy on power as well as health costs of air pollution, the result is likely to reveal far higher economic costs for rice grown in Punjab and Haryana than anywhere else in India.

Given the electoral clout of farmers in Haryana and Punjab, a solution to the problem needs to be crafted carefully. Three corrections need to be effected in parallel. First, the MSP for rice needs to increase each year at a rate slower than that of general inflation. Second, power tariffs need to increase.

Initially all agricultural power use must be metered, so there is no zero marginal cost power tariff, and later gradual annual tariff increases (learning from the successful example of phase-out of the diesel subsidy), leading eventually to true long-run average cost tariffs.

Third, a gradual redirection of FCI's rice procurement towards eastern states which are better endowed with rainfall and labour. These measures will shift the incentives of these farmers away from rice cultivation and towards more ecologically sustainable crops.

Of course, a further political bargain with rice farmers will be necessary to gain their acceptance of this course of action. This could take the form of annual cash subsidies corresponding to the loss in income from rice cultivation during the period of policy correction, and on a sliding scale for an agreed period, perhaps five years, thereafter.

What are the chances that such a plan will find acceptance among the political class in Chandigarh and New Delhi? If the past is anything to go by, it will not happen till one reaches a point of crisis. Such a crisis can take two forms. First, the fiscal situation of the states concerned becomes extremely precarious - policemen and schoolteachers do not receive their salaries, for instance, leading to the prospect of an imminent breakdown of the state administration. Alternatively, the falling groundwater table finally hits hard rock and the pumps go bone dry.

But perhaps we are being unduly pessimistic. Perhaps the political climate in the country has changed sufficiently and policy corrections can now be effected without the whiplash of a crisis.