Financial Daily from THE HINDU group of publications
Tuesday, Sep 14, 2004
Agri-Biz & Commodities
`Dependence on grain sector not sustainable'
Chennai , Sept. 13
IN a report dated July 30, the World Bank says that the anchor of India's existing policy on agriculture, namely achieving self-sufficiency in foodgrains, is incompatible with both its stated goal of achieving a sectoral growth target of four per cent and with its goals on poverty reduction.
Heavy dependence on the foodgrain sector will require ever higher output and input subsidies (electricity, for example) that are not fiscally sustainable.
Besides, this emphasis will lead to the accumulation of large buffer stocks and exacerbate land degradation problems. Furthermore, it discourages farmers from diversifying to other, genuinely high-value crops.
Public investments in the agricultural sector declined steadily, both in absolute terms and as a share of total investments, largely on account of the sectors growing "subsidy requirements".
This is a serious problem, given that a 10 per cent decrease in public investments leads to a 2.4 per cent reduction in the rate of growth of agricultural GDP.
This decline has, and will continue to, deter private investment as well, according to the report.
This last statement, however, seems a little out of sync with the study team's finding that agro-industrial units, dominated by micro and small agro-enterprises, increased by 4.5 million between 1994-95 and 2000-01 - even as this sub-sector's share in the rural manufacturing sector increased from 65 per cent to 82 per cent.
Subsidies channelled to the agricultural sector by way of MSP, together with input subsidies, are major contributors to the rising, inflation-inducing fiscal deficit in the Centre's Budget, and to the "fiscal crises" in many States - which, unlike the Central Government, they cannot borrow or `inflate' their way out of.
The report, however, fails to highlight disguised subsidies given in the form of bank credit to the agricultural sector in water-short areas, or to the weaker sections in rural India as a whole, only a small proportion of whom are able and/or willing to use bank credit for lasting increases in productive capacity.
This omission is specially striking given the team's view, in a somewhat different context, that straightforward "income support is economically less distortive because it delinks payments from production decisions".
The report concludes with a menu of policy options.
First, India must muster the political will to shift budgetary allocations from subsidies to investments, thereby ensuring an increasing flow of agricultural output in the long run.
Secondly, major food producing States such as Punjab, Haryana and Tamil Nadu, all of whom are "increasingly constrained by water scarcity", should shift their priorities to bring about a more diversified "agricultural and allied services" sector.
In particular, they should, like Karnataka and Gujarat, shift to less water-intensive crops which have a higher value in the "real world", as distinct from the artificially created world farmers in the three States live in today.
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