The Hindu Business Line : RBI suggests phased reforms in farm sector

THE Reserve Bank of India (RBI) has called for crop diversification and adoption of a phased reduction in cross-subsidisation in administered farm prices as part of measures to achieve the proposed reforms in the agriculture sector.

``The policy of declaring differential and exogenously determined minimum support prices (MSP) has emerged as a major factor inhibiting crop diversification,'' RBI said in its annual report for 2001-02, released on Friday.

From the drought-reduced production of previous year, the country's foodgrain production increased by 15.4 million tonnes to reach a new high of 211.3 mt in 2001-02. Within the foodgrain basket, production of fine cereals — rice and wheat — expanded. Rice production set a new record of 91 mt. In contrast, shortages in oilseeds and pulses production continued, resulting in import of 5 mt of edible oil and 2 mt of pulses, cumulatively worth more than Rs 10,000 crore.

According to RBI, the removal of restrictions on inter-State movements of farm produce and greater exposure of the agricultural sector to international terms of trade will `considerably' improve the price sensitivity of cropping and land use.

Highlighting the issues in agriculture, RBI said variability in agricultural output has emerged as a cause for serious concern. ``Much of this volatility seems to stem from poor performance of non-foodgrains, production of which is related to their excessive dependence on monsoon,'' the report said. Among foodgrains, wheat and rice are largely on irrigated lands, while pulses and coarse cereals are cultivated on drylands.

``Extending irrigation benefits to other crops and induced crop shift would enable the realisation of the objective of demand-driven agricultural growth envisaged in the National Agricultural Policy,'' RBI said.

RBI believes there is an `urgent' need to increase public investment in irrigation and water management. ``This can be achieved by restructuring the existing allocation of resources to agriculture on the one hand and by increasing user charges on the other,'' it said. Besides, investment should be directed towards watershed development `in view of its salutary environmental implications'.

While advocating diversification of agriculture, RBI said it needs to encompass subsidiary farm activities including apiculture, dairy and poultry.

Reiterating that a key objective of fiscal policy for 2002-03 is the acceleration of agricultural reforms, the removal of regulatory and procedural rigidities and an improved infrastructure in the agricultural sector, RBI suggested that measures be taken to promote agro-based industries with export orientation.

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