Opinion Nowhere to go but down
I like the Budget; but,frankly,am not very impressed by the specific agricultural proposals.
I like the Budget; but,frankly,am not very impressed by the specific agricultural proposals. They are in themselves unexceptional but merely more of the same sort as havent worked in the Eleventh Plan. One experienced friend said we have not had sectoral reform here as elsewhere; another said that we dont work for outcomes. Since a lot of agricultures problems lie outside the sector,and this is an economists (and blissfully not a dream) Budget,it may be useful to look into this larger context.The Economic Survey makes the point that hype about kharif failure affects prices,and has nuanced discussion of inflation. I have been saying since August that the big rainfall failure is in areas with full irrigation,and so the impact will be low. Earlier finance ministry forecasts of a two to four per cent fall in agricultural supply are now behind us. January food stocks are the highest in six years.
Inflation is a more complex issue. The Survey laments the decline in private investment in agriculture,but the Budget does not get into the issue of the incentive mechanisms for revival of agriculture. With rabi prices clearly falling as we move into harvest time,this is a serious issue. The Survey very correctly shows that (if one uses the national income deflator) inflation in food prices at the level of producer prices is only six per cent. There are now reports of rabi oilseed-based oil and pulses falling in retail markets as also potatoes and vegetables.
The reports on wholesale and farm harvest prices are more distressing. Tur dal in western Maharashtra village markets which I visited in the week beginning February 16 were at Rs 27 to Rs 30 per kilogram,just above the government-mandated minimum support price. West Bengal has sent an SOS on potato prices. UP mills are rejecting cane at the going price for crushing.
I have argued for a medium-term stance on agricultural prices and,indeed,for an exercise of mild tariff possibilities for the kharif crops now that the damage for rabi is done. I make this point since the macro strategy of the Budget is promising,so it is possible that we will be able to fight inflation with macro policies. The Survey has a brilliant section on policies,the now-so-famous Chapter 2. If all goes well we should blunt the inflationary edge,bring down interest rates and then will be the time to think of capital account convertibility,from strength.
Can we use reform of retail trade in agriculture to reduce prices? You need reform of the links between villages and larger villages and towns through the market; agri-processing in a rural-urban continuum for accelerating the larger transformations taking place the diversification of agriculture from grain to non-grain crops,to horticulture and animal husbandry. But,again,expectations that prices will fall in the short run through this effect are a little overstated. In fact,recent market studies show that retail channels give higher prices to farmers in mandis,perhaps for improved quality of vegetables; so expecting prices to fall is unrealistic. In the long run,better competition will play a role. But let us,at present,be satisfied if the farmer gets a better price. He will produce more and import dependence,expensive and uncertain,will be lower.
The FM has promised more money for agriculture in the eastern region and for pulse and oilseed villages. The Rashtriya Krishi Vikas Yojana is for area-based agricultural development schemes which the FM says will be; the Food Security Mission,which includes pulses and oilseeds,was seen in the Eleventh Plan. These need to work in a framework of local initiatives and of improved incentive mechanisms for crops. There is absolutely no reason that the corporates who want to enter agriculture cant do so in this framework,given that strategic partnerships with farmers companies (and other mechanisms) are now mushrooming.
The FM has said that he will implement the Finance Commissions recommendations on local resource devolution later in the year. These were developed also in a seminar at IRMA,are outcome-oriented in design,and may well be the beginning of accelerating a more diversified and resource-conserving agriculture. It is unfortunate that the largest increase in water guzzling paddy is in Gujarat a natural oilseed,pulses and cotton area on account of the Sardar Sarovar project. To move over to a higher agricultural growth rate we have to solve the water and land issues at the local levels. It may sound far-fetched but plant pulses and oilseeds and the farmer will only prosper.
The writer,a former Union minister,is chairman,Institute of Rural Management,Anand
express@expressindia.com
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