Spooked by defeat, Govt may ban futures in wheat, pulses

Last month, however, the government banned futures trade in tur and urad to curb what it called speculative tendencies in essential commodities and its impact on rising retail prices. And with today’s election results prompting the Left to call for a ban, the Government wants to play safe.

But it is Finance Minister P. Chidambaram’s Budget tomorrow that is expected to address the concerns raised by his ministry’s annual report card, the Economic Survey, which is replete with warnings on the state of agriculture and its supply-side impact on inflation.

To address stagnating production and low yields — specially in pulses and oilseeds — and the low capital formation in agriculture, Chidambaram is expected to announce incentives to increase the cropped area of pulses and oilseeds.

Better targeting of subsidy for farmers will also find mention with the Finance Minister likely to announce a trial of smart cards on a pilot basis for distributing fertiliser subsidy.

Viability gap funding — which exists for the now-successful road sector to attract private investment — is likely to be announced for agriculture and its associated food-processing sector for setting up cold storages, warehouses and processing units.

Food processing will also be a beneficiary of tax sops to increase the setting up of post-harvest facilities by the private sector. Chidambaram will also provide additional credit support to farmers, especially those in dryland areas, raising the interest subsidy subvention from 2 percent to 3 percent. This subsidy is paid by the Central government to cooperatives banks to help them lend to farmers at a lower interest rate.

There are indications that the Budget will announce a change in the way extension activities are carried out by the Krishi Vigyan Kendras. Extension, which enables transfer of latest technologies from the labs to the farmers, is being seen as a huge gap in modernizing agriculture.

In addition to the existing schemes on micro-irrigation, there will be a special focus on irrigation in dryland areas. States which have less irrigation potential will be brought at par with the national average through special budgetary allocations.

The budgetary steps are being taken in line with the ministry’s own assessment in the Survey which warns that poor agricultural performance will be a challenge to stable prices. It says inadequate investments, incentives and post-harvest value addition had contributed to “lacklusture” farm sector growth.

The Survey estimates that the country’s foodgrain production could fall 11 million tonnes short of the targeted 220 million, putting further pressure on food prices. A special area of concern is the production of wheat and pulses.

Wheat output is estimated at 72.5 million tonnes, against a target of 75.5 million. Pulses too may fall short with estimated output fixed at 14.5 million tonnes, against the target of 15.1 million.

More than the immediate need for the coming year, it is the stagnant production that is worrying the government. Wheat output peaked at 76.4 million tonnes in 1999-2000 while pulses touched a high of 14.9 million tonnes in 2003-04.

The Survey admits the failure to achieve a varietal breakthrough in pulses even though it was brought under the Integrated Scheme of Oilseeds, Pulses, Oilpalm and Maize. “With overseas availability being limited, reduction in price volatility of pulses will depend on steady growth of domestic production,” it said.

HIGH-GROWTH PHASE

• GDP: 9.2% (Rs 28,44,000 cr)

• 10th plan average GDP growth: 7.6% (Target 8%)

• Gross domestic savings rate up at 32.4% in 2005-06

• Gross domestic investment rate at 33.8% in 2005-06

•n Industry: 10% (GDP share up to 26.4%)

•n Services: 11.2% (GDP share rises to 55.1%)

•n Infrastructure: 8.3% (5.5% in Apr-Dec 2006-07)

• Agriculture: 2.7% (GDP share dips to 18.5%)

• Inflation: 5% (52 weeks to Feb 3)
6.7% (as on Feb 3)