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Budget and Agricultural Sector: New Era of Renaissance

agri, budget

Decelerated growth of agriculture sector is translated into a lower overall growth of GDP during 2007-08 which grow at 2.6 per cent against previous year growth of 3.8 per cent. Besides the weather induced fluctuations, what ails the growth of agriculture sector has been reduced capital investment and plateauing of productivity of major crops. However, there seems to be turnaround. Gross Capital Formation (GCF) as a proportion of GDP has improved from a low of 10.2 per cent in 2003-04 to 12.5 per cent in 2006-07.This however needs to be raised to 16 per cent during the Eleventh Plan to achieve the target of 4 per cent. Acceleration of growth of this sector will not only push the overall GDP growth upwards, but make the growth more inclusive. To provide impetus to this sector, Finance Minister introduces a plethora of schemes for the staggering farm community hoping for largesse in his agro-political economy based budget.

Indebtedness is one of the major factors for farmer’s suicides and agrarian crisis. To give boost to the agricultural sector, the scheme of Debt Waiver and Debt Relief for farmers has been announced. All agricultural loans disbursed by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007 and overdue as on December 31, 2007 will be covered under the scheme. The total vale of overdue loans being waived is estimated at Rs. 50,000 crores. For marginal and small farmers (holding up to 2 hectare), there will be a complete waiver of all loans that were over due on December 31, 2007 and remained unpaid up to February 29, 2008. In respect of other farmers, there will be a One Time Settlement (OTS) scheme estimated at Rs.10, 000 crores for all loans that were over due on December 31, 2007 and remained unpaid up to February 29, 2008. Under OTS, a rebate of 25 per cent will be given against payment of balance of 75 per cent .Agricultural loans which were rescheduled by banks in 2004 and 2006 through special package will also be eligible under this debt wavier and debt relief package. The implementation of this scheme will be completed by June 30, 2008 and farmers will be eligible for fresh loan upon being granted debt wavier or signing of an agreement for debt relief under the OTS.

The relief package has taken into account recommendations of the Expert Group on Agriculture Indebtedness chaired by Prof. R Radhakrishna set up by the Ministry of Finance in August 2006 and submitted its report last year. The group’s recommendations include rescheduling farm loans to all affected families, disbursement of fresh loans and waiver of interest liability by up to two years for both short and long term loans with the burden be shared by the central and states governments. But the strong advocate of abolishing freebies has moved on the same path.

None of the committees’ setup by the government on agricultural reforms and farmers welfare has ever recommended a complete waiver of loans. Rather they have always recommended relief on interest rates. Such a scheme will spoil the credit culture as those who have already paid their loans will take more loans and not repay them leading to high (NPA) non performing assets of lending institutions. A loan waiver is a total disaster. Such waiver has never worked in the past, nor will this. It sets a wrong precedent and nation is going to pay a very heavy price for this misdeed. In fact had the government spent this waiver amount on constructing warehouses, irrigation canales, rural roads, power and other rural infrastructure farmers would have benefitted much more? Providing remission of 25 per cent of the total loan even to big farmers seems to be taken in self interest of most of the brother MP’s earning huge agriculture income. Providing huge benefit is a crime in the eyes of general public. One will never know how many of our affluent sections, including politicians own sizeable parcels of land. There area many business people or otherwise rich guys who have bought cheap waste-land across the country and registered themselves as Kissan (farmers). They not only take loan but cheat the government to pay their income tax with an excuse that they have lost whole of the harvest while they did not cultivate an inch or to say they don’t even know where there land (so called farms) is. What about those farmers who have already paid or paying regularly? Will these small farmers will get some kind of refund for their sincerity and hard work? Moreover, what about the farmers who have committed suicide? Budget should have some sops to such households.

There is still another problem. What about one-half of the farmers who are in debt to informal sources? Nearly 25 per cent farmers borrow from moneylenders (arhtiyas) who charges anywhere between 25 to 40 per cent interest per annum and even more. Most of the private money lenders are local politicians and their relatives. They might have even lost their lands through foreclosure. Another 15 per cent borrow from traders and are forced to sell their produce to them at lower rates while paying the same rate of interest. Another 10 per cent borrow from relatives. C. Rangarajan Committee on Farm Loans reported that only one-fourth of total farm households are indebted to formal sources – of which one third also borrows from informal sources. The question arises: Why does the small farmer go to the private moneylenders rather than the public sector bank? It is because Indian banks had failed to serve the rural poor since nationalization of banks. Moreover, the local moneylenders know how to attract the farmers with individual attention. They will adapt the interest rate and terms of lending to make their loans attractive. Public sector, in contrast follows the philosophy of what may be called Kick Your Customers. There is urgent need to address the endemic corruption and inability of the public sector banks to serve the rural poor.

Government should have reduced interest rates on farm loans to 4 per cent and form a National Debt Relief Commission. Such a package will favour closure of rural banks. It is also not clear that waiver is available to all tiller or just the owner of agricultural land. Majority of farmers does not own land yet till land taken on contract. There is a strong need to increase the paying capacity of the farmers, otherwise waiver and relief package will further strengthen the poverty trap of the farmers. The real problem is that the per unit cost of production has increased even at constant prices. Efforts are required in this direction.

Farm Credit Package announced in June 2004 stipulated among other things doubling of flow of institutional credit for agriculture in the ensuing three years. The credit flow however got doubled during the first two years as against stipulated time period of three years. Short term loans will continue to be disbursed at 7 per cent per annum with an initial provision of Rs. 1,600 crores for interest subvention in 2008-09.

Government has also been creating irrigation potential through public funding and assisting farmers to create potential on their own farms. The total irrigation potential has increased from 81.1 million ha in 1991-92 to 102.8 million ha in 2006-07, that is 73.5 per cent of the ultimate irrigation potential. However, only 87. million ha (84.9 per cent) is actually utilized. The pace of creation of additional irrigation potential came down sharply from an average of about 3 per cent per annum during 1950-51 through1989-90 to 1.2 per cent, 1.7 per cent and 1.8 per cent per annum respectively during Eighth, Ninth and Tenth Five Year Plan periods. The rate of growth of utilization of the potential created declined to 1 per cent per annum during Ninth Five Year Plan period but improved to 1.5 per cent per annum during Tenth Five Year Plan period. The average annual rate of utilization remained lower than the average annual addition to the irrigation potential resulting in the cumulative utilization witnessing continuous erosion. This not only amounts to an inefficient use of funds but also a forgone income from irrigated lands.

Central Government initiated Accelerated Irrigation Benefit Programme (AIBP) from 1996-97 for extending assistance in completion of irrigation schemes which had remained incomplete. The projects approved by the Planning Commission were eligible for assistance. AIBP guidelines were modified with the inclusion grant component from 2004-05 and further modified in December 2006 to provide for 90 per cent of the project cost as grant to special category states, DPAP/tribal areas and KBK(Koraput, Bolangir and Kalahandi ) districts of Orissa. Under AIBP, the state governments were provided Rs. 24,867.4 crore as CLA/grant for 220 major/medium irrigation projects as 6205 surface Minor Irrigation (MI) schemes up to January 29, 2008. But only 91 major/medium and 4605 surface MI schemes have been completed. Budget proposes allocation of Rs. 20,000 crore under AIBP with a grant component of Rs.5, 550 crores. It will allow additional land to come under water potential area thereby creating demand for irrigation system.24 major and medium irrigation projects and 753 minor irrigation schemes will be completed in this financial year creating additional irrigation potential of 500,00 hectares.

To cover large area under irrigation, government sanctioned a National Project for Repair, Renovation and Restoration of water bodies directly linked to agriculture with effect from January 2005 with an estimated costs of Rs. 300 crore to be shared by the centre and states in 3:1 ratio. The water bodies having cultivated command area of more than one ha and up to 2,000 ha were included under this pilot scheme in one o two districts in each state. The scheme was approved for 26 districts in 15 states. Central share of Rs. 179.3 crore has been released to the states till November 30, 2007 covering 1098 water bodies. The physical work for restoration has been completed for733 water bodies and the work is in progress in the remaining 365 water bodies. Following the pilot scene, restoration of water bodies has also been taken up in states having considerable number of water bodies with the World Bank assistance. The World Bank loan agreement has been signed with Tamil Nadu, Andhra Pradesh, and Karnataka with a total sum of Rs $738 million to benefit a command area of 900 thousand hectare. The proposal from Orissa and West Bengal has also been submitted to the World Bank.

A Centrally sponsored scheme on Micro Irrigation (MI) has been allocated Rs. 500 crore to cover 400 thousand hectare. The scheme was launched in January 2006. It will create demand for irrigation system, But farmers will spent only on irrigation system once the water is made avaialable. Drip and sprinkler irrigation system were imperative for attaining higher productivity so essential for reaching self sufficiency. Budget give thrust to water resources and irrigation projects. It provides Rs. 100 crore as initial corpus for establishing the Irrigation and Water Resource Finance Corporation (IWRFC). States governments and others financial institutions will be invited to contribute to the equity to mobilize resources to fund major and medium irrigation projects. It would not only help to enlarge the area under assured irrigation but would also help to spread water use efficiency leading to more crop and income per drop of both water and diesel. Rainfed Area Development Programme (RADP) has been finalized with an allocation of Rs. 348 crore. Priority will be given to those areas hat have not been the beneficiaries of watershed development schemes. Irrigation is also one of the six components for the development of rural infrastructure under Bharat Nirman and aims at creating the irrigation potential of 10 million ha by 2008-09. But only 3.62 million ha has been created up to 2006-07. Bharat Nirman has made impressive progress in 2007-8.

Another very important budgetary provision is pricing of fertilizer on nutrient basis, not just on NPK because the plants need 14 nutrients. With a view to support domestic fertilizer production, customs duty on crude and unrefined sulphur has been educed from 5 per cent to 2 per cent. Fertilizer units are allowed to import naphtha against zero duty.

Recognizing the need for soil testing, government assistance of Rs. 30 lakh per laboratory for 500 soil testing laboratories to be set up during Eleventh Plan has been given. Also an allocation of Rs. 75 crores has been made to the Ministry of Agriculture for one fully equipped mobile soil testing laboratory each to 250 districts. The government has also proposed to provide Rs 644 crores in 2008-09 to the ongoing National Agriculture Insurance Scheme (NAIS). It has proposed to restructure the NAIS to cater to the needs of farmers and insurer. The government has also proposed to provide Rs. 50 crores for the Weather based Crop Insurance Scheme, which is being implemented as a pilot scheme in five select states.

The Rural Infrastructure Development Fund (RIDF) is the main instrument to channelize bank funds for financing rural infrastructure and quite popular with states governments. Budget proposes to increase the corpus of RIDF-XIV in 2008-09 to Rs. 14,000crores with a separate window for rural roads with a corpus of Rs. 4,000crores.
National Rural Employment Grantee Programme (NREGP) – flagship programme to provide job on demand to rural population, has been extended to all the 96 districts in the country with effect from April 1, 2008 with budgetary allocation of Rs. 16,000 crores. It will have a positive impact and create livelihood options for rural youth in horticulture and biofuels etc. However till December 2007 the NREGA was able to spend only 60 percent of the funds available. It should help improve the ecological foundations for sustainable agriculture as most of the works relate to water conservation.

More budget allocations for farm sector alone is not enough, budget should have specify the direction of use of these additional resources. Government should shift the emphasis from Punjab and Haryana and western Uttar Pradesh to the Gangetic Plains. Minimum Support Price should be linked to the wholesale price index and subsidies on tools agricultural implements and planting material should continue. Shift should be in research and development, agricultural procurement and developing infrastructure and land for tilling. The long term policy framework at broad sectoral level needs to strengthened and focused on improving inter and intra sectoral linkages. There is need to build an outcome oriented perspective in the implementation of public programme in the area of irrigation, fertilizers, HYVs of seeds, extension support for facilitating adoption of improved practices and market access. While public investment in agriculture may not have kept pace with the requirements of the sector, food and agriculture subsidies have supported the agriculture sector. There is a need for better targeting these subsidies with a view to optimize the resource allocation and returns there from.

Area remaining constant, improving the productivity of crops is necessary to strengthen the farm sector. Introduction of new initiative to rejuvenate this sector such as National Food Security Mission (NFSM), Rashtriya Krishi Vikas Yojana (RKVY) and National Policy for Farmers (NPF)-2007 introduced in 2007-08 will benefit immensely to improve food yields and help reach agriculture growth level of 4 percent through modern technology and improved agro economic practices. While NFSM is an answer to raising productivity of rice, wheat and pulses, the RKVY localizes agricultural plan based on agro climatic conditions at the district level. All this is a beginning in addressing the issues confronting struggling farming community because in the past outlay-outcome relationship has deteriorated. Agricultural progress has to be measured by the progress in the growth of the real income of farmers by converting words into action. Human resource development is necessary not only to have greater penetration of better technology but also because new skill sets would be necessary to enable underemployed labour to get absorbed in other fast growing sector of the economy.

Dr Gursharan Singh Kainth,
GAD Institute of Development Studies
14-Preet Avenue, Majitha Road,
PO Naushera, Amritsar 143 008
Published: 2008-03-05
Author: Dr Gursharan Singh Kainth

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