“Agriculture - Prospects, Problems and Policies”

Citation: Dev., S. M. and A. Ganesh-Kumar. 1994. “Agriculture – Prospects, Problems and Policies”. In K. S. Parikh (Ed.) Mid Year Review of The Economy: 1994-95, Konark Publishing, New Delhi.

Abstract:

The South-West monsoon this year has been bountiful in most parts of the country, with over 80% of the 35 meteorological sub-divisions reporting excess/normal rainfall. Further, the spatial and temporal distribution of rainfall has been more even this monsoon than in the previous season. As a result of the bountiful and equitous monsoon, the prospects for Indian agriculture looks bright for the year 1994/95. A growth of 3 to 3.5% over last year is expected, with all the crops likely to show positive growth and possibly achieve all time peak in production.

Four major policy issues concerning 1) Problems in food management; 2) Input subsidies; 3) Agricultural investment; and 4) Trade policy, which in our view are likely to be most pressing in the short and in the long-run were analysed.

The government continued with the trend of increasing the procurement price this year for many crops. The increase in procurement price and the expected bumper harvest are likely to result in larger buffer stocks by the end of the year 1994/95 than the current level of 31 million tons. The ensuing burden of carrying costs and food subsidies will, therefore, go up.

The policy options available to dispose of excess stocks include: 1) trade; 2) open market sales; 3) increase PDS coverage; and 4) put stocks to productive use. Amongst these, a policy of using the stocks for enhancing the various public works programmes like the EGS, JRY, etc., emerges as the best alternative for putting the stocks to productive use. It is well known that these public works programmes promote equity by better targetting of subsidies to the poor.

The question of finance for enhancing the public works programmes was also considered. In this context, it was observed that subsidies on farm inputs like fertilizer, irrigation, power and credit have grown enormously in recent times (Rs.15 billion in 1981/82 to Rs.70 billion in 1988/89). These large subsidies have a) caused severe strain on the government's resource position leading to fiscal imbalance and b) brought in distortions in input prices leading to inefficiencies in input use. Part of the ongoing reforms involve removal of these subsidies to correct these imbalances and distortions. The amount saved on account of subsidy removal can be used to promote investments, public works programmes that create infrastructure besides generating employment and incomes. Such a transfer of resources from subsidies to public works programmes and investments would not pose any extra financial burden on the Government.

An alarming situation that is fast arising in the agricultural sector is the falling investments since 1980s. While private investments are stagnant, public investments which are crucial for infrastructure, especially irrigation, development are declining. The present situation of very large input subsidies and falling public investments calls for an urgent correction. The priorities need to be reversed.

Progress has been made to some extent in liberalising agricultural trade in the recent years. This is welcome. The emerging global trade scenario suggest that scope for foodgrains exports seems to be limited in the medium- to long-run. Large scope for trade in non-foodgrain items, in many of which the country has comparative advantage, seems to be emerging. However, the present domestic production strategy (including research & extension) and the agricultural policy environment in general favours foodgrain crops over non-foodgrain crops and other allied agricultural activities like dairy, fisheries, etc. Unless the production structure is re-oriented towards the high value non-foodgrain crops and allied agricultural activites, much of the trade opportunities may be lost to the country. It may also be noted that the proposed diversification of agriculture would also generate substantial employment in rural areas.

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