The Hindu Business Line : For a farm-friendly Budget

THE Finance Minister, Mr P. Chidambaram, has said that agriculture will be focus of the coming Budget. But agriculture is not synonymous with the common man. On the one hand, there are large farmers who have tube wells, who travel in cars and grow high-price crops such as sugarcane, red chillies and grapes. On the other, there are small farmers and agricultural labour who buy foodgrains for consumption.

It is inadequate to focus on agriculture because the benefit may not reach the poor farmer. Imposing income-tax on agriculture may not help much. The farmer who sells grapes and sugarcane worth Rs 10 lakh every year should indeed be taxed like the urban businessmen. But agriculture is in the State List of the Constitution and, hence, the imposition of income-tax on agriculture may be unconstitutional. Also, this promotes corruption. It is difficult to determine the quantity and price of farm production and to assess the net profit from agriculture. The farmers will be subject to harassment in the process and a new window of corruption will be opened.

The Government is giving huge subsidies on farm inputs such as electricity, diesel and chemical fertilisers, which mostly benefit the rich farmers. On the other hand, it proposes to collect income-tax from the same persons. The bureaucracy benefits both in giving subsidies and collecting income-tax. This unnecessary give-and-take should end. Why give Rs 100 as subsidy only to collect Rs 100 as income-tax? A better way would be to scrap subsidies on farm inputs. That will have the effect of imposing income-tax on agriculture and will be in tune with the basic philosophy of liberalisation. The scrapping of subsidies, however, will also affect the small farmers. They will be deprived of the small amount of subsidy they are now getting. The solution is to reorient the present `pro-rich farmer' subsidies in the direction of labour-intensive and value-added agriculture.

There is much demand for labour in the cultivation of silk, flowers, seeds, and banana. Small farmers in Karnataka make a good living in sericulture. Such value-added activity happens in every part of the country. Organic farming needs specially mention. The global demand for organic coffee, cotton, honey and wheat is increasing. There is a need to establish testing laboratories and certifying mechanism to promote the cultivation of these products. Roads are needed for the foreign buyer to visit the fields. Farmers need help to create Web sites to showcase their produce.

There is a need to establish a new public sector undertaking — Indian Organic Exports Promotion Corporation — to promote these exports and subsidies should be provided on such exports. This will spontaneously benefit the small farmer as he will grow these items, which require intensive labour management. The subsidy given for electricity, diesel and chemical fertilisers should be reoriented in this direction. This will lead to increased price of these inputs for the small farmer but he will be compensated by the subsidies on organic produce. He will benefit by getting access to a growing market. The net impact on the small farmer will be zero-plus, while on the large farmer it would be negative.

There is a need to give more attention to the cultivation of crops with long-term potential. The global population is gradually stabilising and, hence, the demand for foodgrains is rather rigid. New countries are entering the commodities market; Vietnam for coffee, for instance. There is an increase in supply while demand is stagnant. This is resulting in continuous decline in the prices of these commodities. Increase in production of crops such as coffee in this condition will not help.

Two years ago, farmers suffered huge losses in the cultivation of bajra in Rajasthan because there was a steep decline in price due to a bumper crop. The Finance Minister should provide subsidies on crops that are likely to have much demand in future. An NGO in Udaipur encouraged farmers to plant their entire field with jatropa.

The fruit of this plant is used to produce bio-diesel. The demand for jatropa seeds is almost certainly going to rise as the known reserves of oil are exhausted. Similarly, the use of bamboo in house construction can be encouraged. The Government should identify such crops and provide subsidies on them instead of on electricity and diesel. This will help take land away from the cultivation of food crops whose prices are declining.

The Minimum Support Price policy being run with the support of Food Corporation is now focussed on food security. It has been a job well done. But time has come to move ahead. Since the prices of jatropa, organic coffee, flowers and bamboo are uncertain, farmers are reluctant to grow them. The Government should provide MSP support to these crops.

Another area is water management. The Government is now giving subsidy on the extraction of groundwater. In some areas of Gujarat, as power is subsidised water is being extracted from depths of more than 1,000 feet, leading to the ingress of sea water. Large areas have been rendered unfit for cultivation.

The Government should provide subsidies on water harvesting instead. Why not give subsidy for water harvesting structures such as anicuts, check dams and gulley plugs? The level of groundwater will rise and it will not be necessary to deepen the wells.

Many new technologies such as harvesters have become a bane for agricultural labourer. These technologies displace labour directly and do not have any positive impact on production.

Tube wells displace labour directly but generate employment indirectly by increasing the area and intensity of cultivation. Technologies that are having a negative impact on employment should be identified and taxed heavily. For example, a tax of Rs 1,000 a day can be imposed on the harvester.

(The author is a New Delhi-based freelance writer. He can be contacted at bharatj@nda.vsnl.net.in)

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