The past year was terrible for the global economy and indeed the Indian economy. But now, for agriculture the good news is that investment by the Union Government has been kept up. Public capital formation in agriculture as a percentage of total capital formation rose from 6.7% in 2001-02 to 8.2% in 06/07, and if the figures given in the budget speech are an indicator?a thirty percent hike in the Rashtriya Krishi Vikas Yojana and a thousand crores more for the AIBP?the trend will continue.
The idea of a nutrient based fertiliser subsidy suggested by the Alagh Commitee and with details worked out by the Abhijit Sen Committee has now been endorsed in the budget. That is good, but it will mean lowering potash and phosphatic prices, given the trends in global prices as the relative subsidy for domestically produced nitrogen is not there now. Alternately the market price of nitrogen will have to be raised. We still stick by our recommendation in the Fertiliser Pricing report that direct subsidy should be tried first in those districts where we have strong agricultural and fertiliser cooperatives and then expanded. Otherwise one scam will kill a great idea on the floors of another Parliamentary Committee.
On the flip side the hand that feeds also takes away. Private capital formation in agriculture, which had reached a respectable figure of 11.5% of gross capital formation has fallen to 6.6%. The farmer will not invest when he does not get returns. The logic of a market economy is merciless. The budget doesn?t recognise these statistics tucked away in the Survey. The sooner it makes amends, the better off we will all be. The Survey gives overwhelming evidence of the crisis in Indian agriculture deepening in spite of the valiant efforts made by the UPA government in pumping government money into it. If profitability in Indian agriculture does not improve, matters will get worse.
Take for example, the fall of 5.5% in oilseeds from 07/08, which was a year of average agricultural performance, of 10% in cotton production. That should have led to some alarm bells, but the blas? description of all this in the Survey and no discussion in the Budget is a cause of alarm.
We are getting a little tired of raising the red lights in this column. These are dry land crops and a moment?s reflection will show that these two figures by themselves will mean an agricultural employment growth in 08/09 much below the 2% growth clocked in the last NSS quinquennium. Also the misery behind it is overwhelming, the only saving grace being NREGA.
What has been the government?s policy reaction? The import of edible oil and oilseeds has been allowed at zero percent duty and by now more than two thirds of our demand are met by imports. These are highly subsidised. The major oilseed growing OECD countries, not as trade friendly as our policy makers, have fought a long battle arguing their subsidies for soya and other oilseeds should be in the green box since oilseeds are nitrogen fixing and as such good for the wheat monoculture prairie soils from the environmental angle. We are also very sensitive to the needs of our new rich, so olive oil imports are also now duty free. The story on cotton is so well known that we are not wasting any more newsprint on it. Economic advising roles push this business of fighting inflation on the backs of the farmer. This is very illiberal economics since you control those who cannot make noise because they don?t understand what you are doing.
With this policy, the slight improvement in profitability of farming seen earlier has been reversed. Lower profitability means that the farmer does not invest in farm equipment, land improvement, irrigation and machines. NREGA is creating pressures for mechanisation and in report after report from the villages we have seen that threshers and machines to clear the soil for the next crop are being demanded.
One of the great lessons of economic history is that rising wages in agriculture, which is what NREGA is all about, leads to beneficial mechanisation and technical change. In India, this pressure is being negated by insensitive macro policies.
The idea that we should have retail trading with food first is a beginning but the point about only allowing smaller groups access to supply chains in the Survey is much too timid. The Chinese and Brazilians have highly structured policies to get retail chains integrated with small farmers, cooperatives, producer associations rural artisans and so on. The global experience shows a lot of investment is required in supply chain, processing, grading, communication and aggregator infrastructure, and with investment falling where will the PPPs come from? There is no strategic plan for all this and mere words create more confusion. Hopefully, the government will address these issues outside the Budget.
?The author is a former Union minister and former vice-chancellor, JNU