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AGRI-Budget: Address Farm Inefficiency

agri budget, extension, water model

Agri-Budget: Addresses Farm Inefficiency

Dr Gursharan Singh Kainth
GAD Institute of Development Studies
14-Preet Avenue, Majitha Road
PO Naushera, Amritsar-143 008
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Indian economy has been basking in the glow of unprecedented growth in the recent past. It has moved on to a higher growth trajectory – 8 per cent or more compared with the earlier 5 to 6 per cent. And the way to make the growth curve more inclusive is to pay greater attention to agriculture and rural infrastructure to raise the income of the rural masses, which has been hit hard by the poor performance of the farm sector. Poor performance of the agriculture sector has been masked by the robust growth in the service and the industry sector. Growth rates of less than 3 per cent on the average over the last six years have left rural per capita income virtually stagnant in contrast to the increasing income in other sectors.

To improve the economic viability of farming and ensure that farmers earn a minimum net income, Sh P Chidambaram, Union Minister of Finance sets out an 18-point agricultural agenda in his budget speech. Of these, two items awaits and or is under consideration of certain reports on agriculture, seven items like pulses mission, training farmers, reviving the collapsed agricultural extension work of 1960s are just announcements; seven more are existing schemes, with more or less increase in allocations and only two, namely, Social Security for Rural Poorer and Ground Water Recharge, constitute fresh initiatives Excluding fertilizer subsidy, the total allocation for agriculture and rural development is Rs. 50122 crores-an increase of 25 per cent over 2006-07.Agriculture took up the bulk of FM speech which he justified by quoting his favorite poet Thiruvalluvar: if plough men keeps their hands folded, even sages claiming renunciation cannot find salvation. The budget rightly laid emphasis on agriculture as the vital area and outlays for programmes on increased farm credit, irrigation, watershed management, seed supply, training and visits like extension services, agricultural research and encouragement to food processing represent a substantial rise from the previous levels. Various measures proposed in the budget for agriculture are:
• Extension of farm credit targeted to Rs. 225,000 crores from Rs. 1, 95,000 crores.
• Addition of 50 lakhs new farmers to the banking system.
• Increasing irrigation outlay by 35 per cent from Rs. 7000 crores to Rs. 11,000 crores
• A new scheme called aam admi bima Yojana provides death cum disability insurance though LIC with a sum of Rs. 1000 crores as central government share. The same amount will be contributed by state governments on the behalf of the beneficiaries..
• Issue of Rural Bonds to the extent of Rs.5, 000 crores by National Bank for Agricultural and Rural Development (NABARD).These bonds will be guaranteed by the government and will be eligible for suitable tax exemption.
• The 2 per cent interest subvention scheme for short term crop loans will continue in 2007-08 with a provision of Rs. 1677 crores.
• Continuation of Rural Infrastructure Development Fund with a proposal to raise the corpus o f RIDF-XIII in2007-08 to Rs. 12,000 crores.
• Continuation of National Agricultural Insurance Scheme (NAIS) with a provision of Rs.500 cores.
• Introduction of weather based crop insurance scheme on a pilot basis through Agricultural Insurance Corporation with an allocation of Rs100 crores. The scheme will be operated on an actuarial basis with an element of subsidy.

Union Budget, therefore, doled out gifts aimed at giving a major boost to the ailing farm sector but failed to pay the ground for rural renewal capable of tackling supply shortage and crippling debt. Finance Minister has aptly quoted Pt. Jawaharlal Nehru’s famous statement made in 1947: “Every thing else can wait but not agriculture”. Unfortunately it appears that agriculture not having to wait is an idea whose time is yet to come. Infact, these are all familiar nostrums, and if they were such good and reliable remedies, why are farmers still committing suicide, and why do farm production and productivity continue to remain at rock bottom? Union budget almost ignored three boiling issues namely, farmers suicides due to rural indebtedness, relentless decline in farm capital formation , which has fallen from 2.2 per cent in 1999-2000 to 1.9 per cent in 2005-06,mainly due to fall in public investment and decline in food production. Infact there was no public investments for long and this is just a start. It will also help attract private investment. Majority of the farmers owe less than two hectares and could not make any investment on their own. Budget remained silent about private investment in agriculture.

No doubt rural credit is doubled, but the agricultural output remains the same. As a result, rural indebtedness per head has increased. The additional flow of credit to agriculture would require a more vigilant monitoring by the bankers of its productive use by the farmers. They are prone to use farm credit for other non productive purposes. In addition, such figures alone are not sufficient to prevent farmers affected by the economic penury from committing suicides. They have limited access to regular cheap credit and many borrow from local money lenders at exorbitant interest rates plunging them deep into debt trap. Farmers need improvements in their repaying capacity. First improve the debt servicing capability of farmers’ before increasing farm credit. Infact farmers need more than else the assured market- only then it would lead to more production. Dr R Radhakrishna Committee is in the process of finalizing its recommendations to government. The committee is looking into various aspects like demand for loan waiver and increase in investment in farm sector. The key finding of the committee is that interest rates for cars and homes are lower than farm loans with farm paying as much as 18 to 25 per cent. States of Bihar, Uttar Pradesh and Punjab are the ones with the worst problems.

The proposal of restoring local water bodies as well as for groundwater recharge is also welcome one. However there is no mention of steps to improve the efficiency of water use on the model developed by Ministry of Water Resources. It is not clear why one more demonstration model of water harvesting is needed while it is envisaged that More Income per Drop of Water Movement will cover every block of the nation. The need to revitalize the extension system is also welcome, but the method proposed to be adopted is unlikely to have the desired results. Agriculture Technology Management Agency (ATMA) is chaired by the District Collector who is again unlikely to spare time having many other jobs at hand. Failure of Training and Visits programme (T&V), which was based on huge World Bank loans, needs to be examined and further strengthened/revived. T&V programme collapsed due to mismanagement on the part of implementing agency. Soil health enhancement is a pathway to higher productivity. The idea of reforming the fertilizer distribution system is good and it will be better to deliver the subsidy directly to the farmers. They can purchase the needed micro as well as macro nutrients based upon their soil health. Government intends to implement a pilot programme in at least one district of each state during 2007-08.

Banning future trade is an example of knee jerk reaction. The paucity of food items and inflation has arisen due to mismanagement on the part of the government. They have deprived the farmers of opportunity to make profits. Government should take steps to ensure that farmers participate in future trading rather than banning agricultural commodity from trading platform. It is fact that traders from future exchange have got the maximum benefits from future exchange in the beginning. There is a need to strengthen the commodity market regulator Forward Market Commission. There would have to be a continuous link between the farmers and the future market, otherwise future markets will be dominated by the speculators. Though it is imperative to reduce the risks in agriculture, at the same time ability of the farming families to absorb the risk have to be strengthened. Abhijit Sen Committee set up to look into this will hopefully find a way to strengthen these measures instead of banning them.

Government should open one mega agricultural market in each district. Government should focus on linking farmers to their markets through private investment in production, post harvest infrastructure and refrigerated distribution. Much more aggressive and remedial measures are needed to provide a big push to the farm sector through private investments and PPPs in agriculture production and marketing. Linking of Indian agriculture to markets can alone unleash the sectors’ potential. We have to do this on a war footing instead of moving files from desks to desks. Under the constitution, agriculture is a state subject and hence much of the control in seeing through changes in the farm sector lies with the state governments, which have been slow to implement schemes. States have to play a more proactive role in promoting farming and allied activities. To make growth truly inclusive, therefore, cooperation of the states is vital. The disconnect between the centre and the states in the matter of agricultural development needs to be bridged. However, some of the agriculturally advanced states continue to squander their limited resources on populist measures for a short term political gains at the cost of long term development. A national consensus alone can help advance the interests of agriculturists. The crisis in agriculture demands a vision that extends not just to the entire sector but also to its potential links with the rest of the economy.

Published: 2008-01-01
Author: Dr Gursharan Singh Kainth

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