Economic Survey calls for farm sector reform

Mar 15 2012, 10:42 IST
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SummaryThe Economic Survey 2007-08, expressing concerns over the deceleration in the growth rate in agriculture and allied sector, has called for appropriate reforms, including targeting of food and fertilizer subsidies.

The Economic Survey 2007-08, expressing concerns over the deceleration in the growth rate in agriculture and allied sector, has called for appropriate reforms, including targeting of food and fertilizer subsidies.

Agruculture, forestry and fishery together is expected to grow at 2.6% in 2007-08 as against the previous year's growth of 3.8%. due to the lower production of winter crops. In the period 1950-2007 foodgrains output increased at an average annual rate of 2.5% compared to the population growth which averaged 2.1% during the period. But in 1990-2007 foodgrains output growth rate decelerated to 1.2%, lower than the annual population growth rate averaging 1.9%.

"Any deceleration in the growth rate of this sector is translated into a lower overall GDP growth rate. Acceleration of growth of this sector will not only push the overall GDP growth upwards, it would also make the growth more inclusive and biased in favour of women. Increasing farm incomes is also necessary for an equitable growth," the survey said.

The overall GDP growth in 2007-08 is expected at 8.7%. The share of agriculture in the GDP has registered a steady decline from 36.4% in 1982-83 to 18.5% in 2006-07. Yet this sector continues to support more than half a billion people, providing employment to 52% of the workforce, according to the survey. "Raising overall economic growth to double digit will therefore require additional reforms," it said.

It expressed concerns over the global warming and climate change and also noted that climate variability caused by erratic rainfall pattern and increase in the severity of droughts, floods and cyclones and rising temperatures have been the causes of uncertainty and risks resulting in huge losses in agricultural production and livestock population. "A gradual degradation of natural resources through overuse and inappropriate use chemical fertilizers have affected the soil quality resulting in stagnation in the yield levels," it said.

At part of the suggestion for reforms, the survey called for better targeting food and fertilizer subsidies with a view to optimizing the resource allocation and better returns. It said that the economic cost of government procurement agencies have gone up due to rise in the minimum support prices for grains and the issue prices of grains for public distribution remaining unchanged at 2002 level, It noted that a large portion of fertilizer subsidy goes to fertilizer companies and has allowed the inefficient units to persist. The current fertilizer pricing mechanism has encouraged nutrient imbalance – excessive use of urea and a bias against micronutrients.

The survey also called for long-term policy framework focused on improving inter and intra sectoral linkages and outcome-oriented perspective in public sector programmes in irrigation, development and use of high yielding seeds, extension services and for facilitating market access. It categorized rural electrification, construction of dams and canals, rural telephony as ‘quasi-public good’ requiring right policy framework and regulators that encourage competition in expanding supply at low cost. It also called for the rule of law, all weather road connectivity, knowledge and information on appropriate technologies, farming practices and marketing, inter-basin water transfers, recharging of ground water table and active participation of beneficiaries through water users associations and appropriate water pricing.

"The synergies between between telecom connectivity, internet access, e-governance, e-learning and e-marketing must be explored," it said

"Agricultural tariffs remain relatively high and stable, isolating this segment of the economy from both the benefits and costs of globalization," the survey said.

It said that the interaction between high tariffs on agricultural products coupled with the large share of food in the consumption basket and the slow modernization of Indian agriculture and agro-processing, coupled with high dependence of the population on agriculture may play a role in future inflation in prices.

The survey, however, said : "Global prices are having a more pronounced impact on domestic prices as the ability to meet shortfalls at affordable prices is being eroded by global shortages and rising prices. Thus we will continue to depend on enhancement of supplies through higher productivity and efficient supply management to eliminate wastage."

Noting that the commodity futures market in the country recorded higher volumes in trade notwithstanding the suspension of trading in wheat, rice black gram and tur, the survey said the major share of the turnover was accounted for by spices, crude oil and natural gas.

"Direct participation of the farmers in the commodity futures markets is somewhat difficult at this stage as the large lot size, daily margining, high membership fees work as deterrent for farmers' participation in these markets. Farmers can directly benefit if institutions are allowed to act as aggregators on behalf of farmers."

The survey informed that the government was considering various options for addressing the indebtedness of farmers. It did not approve the concept of government-funded price stabilization fund to deal with the situation saying that global practice showed disappointing results. "Prolonged slumps in prices may make the fund bankrupt and sustained high prices may erode the incentives for being associated with the fund, as transaction costs of operation are considered avoidable," it said.

The survey informed that the government would soon come out with a revival package for the long-term cooperative credit structure on basis of the expert panel report in consultations with the state governments, National Agricultural Insurance Scheme would be modified, an inter-ministerial committee would be set up to operationalise the National Policy for Farmers, the Price Stabilisation Fund Scheme for tea, coffee, rubber and tobacco growers would be restructured.

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