Farming Reforms – Budgetary Efforts
Agriculture Today July 2009
V. Shunmugam[1]
Unlike his western brethren, no Indian farmer, however large his holding may be, has ever been keen on budgetary announcements to assess the future prospects for his farming business, nor have there been any obvious attempts to lobby for what he needs from this onerous effort made by our FM every year to utilise the country’s financial resources to put the economy on a sustainable higher growth path. The fact that in the past neither the agriculture sector had been taxed nor had there been attempts to infuse capital directly into farmers’ households substantiates their lack of attention. Few learned among them would know this budgetary process transfers enormous amounts of financial resources from other sectors to the agriculture sector in the form of subsidies, funding for research, technology development and dissemination, capital formation, price support through procurement, etc. Of course, the last announced mass loan waiver was also an effort to transfer revenues collected from other sectors to agriculture. Why do we need such large resource transfers? Are they efficient enough for achieving the goals? Despite all these resource transfers, why does the farming sector remain eternally indebted? What did this budget do to break the path trodden by its predecessors? Can this be sustainable? Here is an attempt to resolve all these riddles.

Agricultural commodities are much more essential to the mankind than other commodities, and farmers, unlike other participants in any other organized economic activity, are least equipped to bear the brunt of business cycles that operate in the economy. Also, we cannot afford to keep them away from farming with an output that barely meets the consumption need of our 1 billion-plus population and yet keep the livelihoods of about two-thirds of our population secure. Despite the agri-production shortage, growing population and their incomes, in general, prices of agri-commodities have never kept pace with the prices of other goods and services. That in general needs resource transfer from these sectors to agriculture not only for the sake of sectoral balance but also for its developmental needs. Given that the 28% of our population still lives in poverty, the prices had always been kept lower than their potential through various policy measures. Hence, to sustain farming activity it becomes necessary to subsidize its costs e.g. fertilizer subsidy. However, defeating its purpose, fertilizer subsidy over a time became a payment for inefficiency in both the fertilizer industry and agricultural production as it made farmers turn blind to nutritional requirements. In this regard, the FM announced a nutrition requirement-based subsidy to improve efficiency in its application. This is an innovative deployment of resources to correct inefficiency, but its success will depend on implementation.

Also, a rise in food prices has always evoked strong consumer reaction and a fall is not in the welfare of producers. Hence policymakers adopted a two-pronged approach to managing the same over a long period: price support for crops of economic importance and food subsidy to agricultural products of food importance — one is a direct transfer to farmers and the other indirect — continuing to support availability and affordability of food. This continued support since independence helped us attain self-sufficiency and reduce the incidence of hunger, but inefficiency in its delivery model continues to keep it hurting for the exchequer. With inadequate risk management and stiffness of price expectations, this cost continued to increase. The need of the hour is an innovative, cost-effective mechanism that adds value to both producers and consumers till such time they are equipped to face the market.

Despite large investments irrigational capacities continue to dwindle due to lack of maintenance needing focused attention. In this scenario, plans to effectively tap rainwater to augment groundwater will save our farmers from the declining groundwater tables. Effective plans to recycle wastewater from industrial and household usages will also increase water availability for sustainable agriculture growth. Focused research and targeted delivery of technology of the public sector will help maintain equity among farmers and make farming a sustainable activity. Strengthening of policies and providing incentives to promote private investment in technology development, market infrastructure, alternative marketing platforms and information dissemination for effective decision-making will go a long way in helping our farmers face the markets rather than look to the government or public sector spending for support.

While the resource transfer remains unduly high compared with the lost value (of total agri-commodities transacted in the markets) due to government policy restrictions, canalisation of these resources remains the key issue due to which farmers continue to remain indebted despite being free of any tax burden and a colossal Rs. 16,500 crore (2009-10 Budget estimates) proposed to be invested in the agriculture sector. Fertilizer subsidy canalisation as per nutrient requirement is innovative in terms of bringing in use efficiency, and only more such innovation in delivering the rest of the resources targeting the problem areas to provide the best possible solutions can make our farming sector more vibrant.
[1] Author is Chief Economist with Multi Commodity Exchange of India Ltd., Mumbai. Views are personal.