Originally Published 2010-03-12 00:00:00 Published on Mar 12, 2010
It is lack of access to easy credit and high rates of interest that are behind the fall in private investment in agriculture
Anomalies in agriculture: What are the solutions?
In Budget-2010, Finance Minister Pranab Mukherjee pointed out that agriculture was the weakest sector of the economy today. It is because of the crisis in agriculture that we are having such a difficult time coping with food inflation. If the urban middle class is reeling under its impact, imagine how the poor in the countryside are dealing with it.

Between Budget-2010 and Economic Survey-2009-2010, many anomalies in agriculture and public distribution system have been addressed. An important point that has been revealed in the Economic Survey is the consistent decline in private investment in agriculture. How to make more credit accessible to the middle and small farmer, however, remains somewhat nebulous both in the budget and the survey.

It is lack of access to easy credit and high rates of interest that are behind the fall in private investment in agriculture. Without investment in irrigation storage and farm equipment, there cannot be a significant rise in productivity. It is of utmost concern that Indian agriculture has low productivity in all major crops as compared to most other farming countries in the world and even as compared to China.

The farmers who have huge debts also cannot invest, and on this front much progress has been made towards debt relief. Around 3.68 crore farmers have benefited from the scheme involving a debt waiver, and debt relief has amounted to Rs 65 319.33 crore. Crop loan repayment has been extended by six months and the interest rate subvention of 1 per cent has been raised to 2 per cent for timely repayment of loans. This means that for the farmers who are able to repay on time, the interest rate is only 5 per cent. What about others?

For higher agricultural productivity, farmers need to access nutrient-based fertilisers at cheap rates and a change of the subsidy regime has been suggested. Instead of giving subsidies to the companies producing fertilisers in bonds, direct cash subsidies are being contemplated.

The Economic Survey has proposed a coupon-based fertiliser subsidy that will be given to all farmers but more to the small and medium farmers and they can trade these coupons for purchasing fertilisers. But they could use the coupon to buy anything else if they wish — for example, they can buy a TV set or sell it freely to others. Does it not amount to giving the farmer too much of a free hand?

For more efficient public distribution of foodgrains, necessary to minimise the impact of the food inflation on the poor, another option has been offered that will take care of the many “leakages”. No grain will be given at a subsidised rate to the PDS shops and they will be free to charge the market price while selling grains irrespective of who the customer is. Coupons would be given to BPL families and ration shops would be allowed to accept such coupons. Shopkeepers will not have the temptation to adulterate foodgrains for BPL families when they would be getting the market price through coupons. The shops can trade their coupons for cash from banks. But will this work?

Surprisingly, the government has cut the budget for the monitoring of food and civil supplies and strengthening of the PDS. For the 2010-11 fiscal, the overall outlay for monitoring and research in foodgrains and management and strengthening of PDS, Rs 40.40 crore was allocated in 2009-2010. But the actual expenditure was only Rs 14.60 crore. For this fiscal year, the outlay has been brought down to Rs 29.60 crore and for PDS, it has been cut down from Rs 7.20 crore last year to Rs 3.91 crore because the Ministry of Consumer Affairs could not spend the money and only spent Rs 2.83 crore. Perhaps better utilisation should have been the aim instead of a lower allocation.

The Economic Survey has also mentioned the need for maintaining proper and efficient buffer stocks and has rightly pointed out that the very purpose of such stocks is defeated if the FCI sticks to the buffer stock norms and insists on maintaining minimum stocks, especially in cases when releasing of such stocks fully would bring down the prices. A better solution would be to release foodgrains directly to retail consumers which would immediately lead to downward pressure on prices. India has a huge buffer stock of foodgrains and still there has been such a hike in the prices in recent months. What is the purpose of the stocks which are just lying in storage at a great cost to the exchequer?

One subject that needs attention and has not been duly addressed in the latest Economic Survey is the issue of raising the minimum support price (MSP) of wheat and rice over the past few years and which have contributed in no small measure to the food price inflation. There has been a substantial increase in MSPs to incentivise farmers to increase productivity and production. But it has always signalled a higher floor price of the produce which has led to rising foodgrain prices every season.

The increase in the MSPs has, however, not led to small and medium farmers from enriching themselves as they have no easy or direct access to the agricultural market. It is thus a questionable move why the government has gone on raising the MSPs when the small farmers are not seen to be gaining from it directly.

In the production of pulses, India has faced smaller output in the last few years (14 to 14.8 million tonnes when the demand is between 17 and 18 million tonnes) and there has been a persistent gap between demand and supply. The steep rise in the prices of pulses is due to the fact that the shortfall in production has not been met by timely imports. And there are very few countries that export dals. In oilseeds, we are more or less import-dependent and over the years, oilseed production has just declined in the face of fierce competition from abroad.

Cheap imported palm oil was hard to compete with and oilseed farmers switched over to other types of crops. In the Budget, there is a provision of Rs 300 crore to organise 60,000 pulses and oilseeds villages and also provide integrated intervention of watershed and related programmes.

The Finance Minister has laid emphasis on cold storage facilities in order to preserve the produce longer. These are important for enhancing the farmers’ incomes and their ability to purchase goods and services.

It is the consumer demand emanating from the rural and farming sector that held up the total demand for goods and services in the country in the months following the global financial crisis. The factories kept busy catering to the demand from rural India and that is why we did not witness a collapse of the demand in the face of the global meltdown and industrial growth, even though it declined in the past two quarters and is again rising in an impressive manner.

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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