The Hindu Business Line : World Bank for radical farm policy changes

The existing policy regime founded on achieving foodgrain self-sufficiency through high price support and large input subsidies is no longer compatible in the changed environment, nor is it sustainable.

New Delhi , Dec. 19

THE World Bank, while acknowledging the significant advances that India has made towards achieving its goals of rapid agricultural growth, better food security and reduced rural poverty during the last four decades, has advocated radical changes in farm policies and prescriptions to sustain agriculture growth in the changed environment in the 21st century.

A recent World Bank report entitled `India: Re-energising the agricultural sector to sustain growth and reduce poverty', says that sustained growth in foodgrain production enabled India to achieve self-sufficiency and eliminate the threat of famines and acute starvation.

The increased demand for rural labour generated by farm intensification in the 70s and 80s raised rural wages and, combined with declining food prices, reduced poverty in rural areas. Aided by much slower but sustained agricultural growth in the 90s, the rural poverty rate declined to 26.3 per cent in 1999-2000.

Indeed, India recently had to contend with problems of plenty as far as foodgrains are concerned. However, the slowdown in agricultural growth in the 90s is still a major concern. Fostering rapid and sustained farm growth and rural development remain the key priorities of the Government, having set the goal of achieving a four per cent growth in agricultural production annually during the Tenth Plan period.

According to Ms Dina Umali-Deininger, lead agriculture economist at the World Bank and author of the report, re-energising the farm sector to meet this goal will require reviewing and re-orienting the current policy, expenditure and the regulatory environment to build a solid foundation for a highly productive and internationally competitive sector.

Mr Michael Carter, Country Director - India, World Bank, is of the view that the agricultural sector in India will have an important role in achieving several of the millennium development goals. "Improving agricultural productivity and the returns from farming will have immediate effects in reducing poverty and hunger," he said.

The report notes that bold action from policy-makers will be required to move away from the existing subsidy-based regime and instead, invest in building a solid foundation for a highly productive, globally competitive and diversified farm sector.

Experience in India has shown that a more rapid productivity growth in agriculture can have major impacts on poverty reduction through direct effects on producer incomes, indirect effects on consumer welfare through changes in food prices, employment and wage effects and growth-induced effects throughout the economy.

However, the existing policy regime founded on achieving foodgrain self-sufficiency through high price support and large input subsidies (fertiliser, irrigation, and power), is no longer compatible in the changed environment, nor is it sustainable.

There is a need to develop a new strategy as the current policy regime will neither be sufficient to achieve the farm growth target of four per cent annually over the longer term nor to achieve the Government's poverty reduction goals.

For, heavy dependence on the foodgrain sector to do so will require even higher and fiscally unaffordable hikes in the Government's minimum support price (MSP) and input subsidies, which will lead to the accumulation of even larger buffer stocks and exacerbate land degradation problems in many areas.

At the same time, these policies will discourage farmers from diversifying to other higher value crops, which could be a potentially important means for raising farm incomes and source of growth.

The report says that in the future, improvement in the country's agricultural performance will require progress in two key policy areas.

The first is to reorient spending by the Government. Recognising the difficult plight of poor farmers, there is a need to strive for improved targeting and efficient delivery of the farm subsidies.

These steps will be critical to free resources for urgently needed productivity-enhancing investments, including rural infrastructure (irrigation, rural markets, roads, electrification, drinking water) and services (agricultural research and extension, environmental conservation, land administration, education and health in rural areas).

The second policy change required is to permanently eliminate curbs on domestic trade (storage, transport, credit controls), subject to their imposition only in true emergencies, and to remove the levies on rice and sugar, the small-scale reservation of agro-enterprises and state controls on wholesale marketing.