“A Review of
Input and Output Policies for Cereals Production in India”
Citation: Shreedhar,
G., N. Gupta, H. Pullabhotla, A. Ganesh-Kumar and A.
Gulati. 2012. “A Review of Input and Output Policies for Cereals Production in
India”. Report prepared for the Cereals System Initiative for South Asia
(CSISA), Discussion Paper 01159, International Food Policy Research Institute, Washington D.C.
Abstract:
This paper
reviews the key policies with regard to agriculture inputs such as seed,
fertilizer, water, agricultural equipment, research, extension, and
agricultural credit. It also provides an overview of the policies and programs
related to agricultural output markets that are crucial for improving cereal
production in the country.
A review of
the past performance and policies of India’s foodgrain
sector reveals that the main drivers of growth have been modern inputs and
technology, institutions, and markets with the changing role of the public and
private sectors. The present challenge facing Indian policymakers is to
efficiently balance food security concerns and higher growth objectives. This
will require not only pushing the production frontier to sustainably augment
supply, but also ensuring strategic management of foodgrains
including procurement and distribution.
The review of
input policies highlights the pressure placed on foodgrain
systems, in a business-as-usual scenario that extensively subsidizes input and
promotes their intensive usage. Fallouts such as excessive groundwater
withdrawals and distorted application of nitrogenous fertilizers have
implications on the environmental sustainability of natural resources apart
from being a considerable fiscal burden. The current policy of subsidizing
agricultural power, irrigation, and fertilizers has outlived its relevance and
is actually constraining agricultural investments in areas where the returns
are higher. Although it is difficult to completely remove these subsidies, they
still need to be gradually phased out and converted into investments in rural
infrastructure (especially roads) and research and extension systems, which
desperately need to be (re)vitalized. It is time the government started to
actively partner with the private sector (in infrastructure creation and
research) and civil society organizations (in extension), as they have played
an increasingly important role in recent years.
The review of
the output management policies show that the current policy paradigm consisting
of public procurement of grains at a preannounced minimum support price, public
storage, and public distribution has resulted in distortions across crops,
especially rice and wheat, as well periodic buildup of large stockpiles and
stock rundown of these grains at a high cost to the government. Moreover,
public procurement and stocking, coupled with interventionist international
trade policies, is often at variance with the trends in international markets,
resulting in lost opportunities for Indian exporters of rice and wheat. The
regional concentration of the system of public procurement in the northern
states, aided by intra-country trade and movement restrictions, has also
resulted in large spatial disparity in agricultural productivity and farm
income as well as uneven development of output markets across states. As a
result, producer and consumer welfare is often compromised, even though the
government’s objective is to maintain a balance between them. Major reforms on
the output side would include linking of MSPs with market prices, allowing
futures markets in cereals, liberalizing international trade and bring forth
greater competition in domestic trade to ensure output markets are more
uniformly developed across states and that the country has a truly integrated
market for foodgrains.