The Hindu Business Line : Farm sector needs specific approach

While presenting the Budget, the Finance Minister recalled the quote of Jawaharlal Nehru that everything can wait but not agriculture. Thus, he decided to allocate 15 minutes of his speech to the sector.

There are many issues in agriculture that demand immediate attention. Against a target of 4 per cent growth rate envisaged in the Tenth Plan period (2002-07), the actual growth rate has beenjust around 2.7 per cent (overall growth rate being 9.2 per cent). There has been a decline in food production from 212 million tonnes in 2003-04 to 209 million tonnes in 2006-07. Even the 2.7 per cent growth rate is characterised by volatility. It raises doubts whether the Government has been a passive onlooker after announcing policies. For example, the Accelerated Irrigation Benefit Programme has not produced the desired result, showing up the ineffective monitoring mechanism of the Government. The target of 10 per cent GDP growth cannot be achieved without improvements in agriculture.

Yet, the Budget did not address the draft policy submitted by the National Commission on Farmers and proceeded to tackle the economic viability of farming in its own way. The Committee to look into farm indebtedness is still in the process of finalising its report. Hence, there is no specific allocation of funds to tackle this critical factor that has claimed the lives of many farmers. On stagnating pulses production, there is only an invitation in the Budget to various organisations to submit proposals; there is no specific approach.

Pulsating Pulses

Over the last 20 years, the average rate of growth of pulses has been around 0.33 per cent. Production has remained in the narrow band of 12-14 million tonnes per annum; indeed the production target for 2006-07 was pegged at 15.15 million tonnes. Though there was no expansion of the area under pulses, there is not enough technological support either. Supply of certified seeds is inadequate.

The minimum support prices fixed by the Government to induce farmers to shift to pulses have been ineffective in the absence of a procurement policy. An international comparison of yields indicates a very low productivity, India coming behind Argentina, Brazil, China and Canada. Hence, the first strategy should be to design a robust model that will increase productivity.

Temporary solution

Imports have been resorted to, more as a crisis management, than as a strategic commodity planning. The share of imports to domestic production has ranged from 2.2 per centto 14.95 per cent and has helped keep prices stable. But imports cannot be the solution.

Globally, too, pulses output has grown a mere 0.48 per cent. Hence, price would be demand-sensitive in the international market. Any signal of a large country looking for imports would only push the prices upward.

A two-pronged strategy is needed: Improve productivity and plan well the imports. The Government must put in place an early warning system for commodity shortages.

In his Budget speech, the Finance Minister talked of fine-tuning the T&V (Training and Visit Programme which was in practice during the Green Revolution). This system has the scope to gauge the demand-supply position. This feedback can reach policymakers fairly quickly, thanks to the country's IT strengths.

Capital Formation

The Finance Minister did not touch upon capital formation. It has fallen from 2.2 per cent in 1999-2000 to 1.9 per cent in 2005-06. The Planning Commission is advocating public-private partnership as a catalyst for growth. A new business model that will give a risk-adjusted rate of return compared to an urban commercial investment is required.

Again, the Government should try to encourage vertical entry of large industrial enterprises into farming by offering tax sops. With sufficient tax sops, textile units can be encouraged to enter into cotton farming as a backward integration. This should prevent suicides by cotton farmers.

When a farmer is so deep in debt that he cannot even farm, his land becomes a value of hoarding and remains a liability. If such land can be purchased at transparent commercial prices for backward integration, there can be a consolidation for large-scale farming by private enterprises that can also bring in the latest technology. Recently, a major industrial house entered farm produce retailing. Such industrial houses can be encouraged to integrate backwards.

Soil Conservation

Year after year, the Budget has been granting subsidies for fertilisers. Disproportionate subsidy has lead to irrational use of urea and affected the soil productivity. Unbalanced use of fertiliser is one of the structural weaknesses of Indian agriculture. The Pilot Programme advocated by the Finance Minister on delivery of subsidy directly to the farmers can be leveraged to ensure rational use of fertilisers.

Dividends of Demography

India's dependency ratio, which was 46.42 per cent in 1970, has reduced to 39 per cent now and will peak at 36.19 per cent in 2035. This means the country will have a burgeoning young working population in the coming years, which must become a skill/talent pool. A large section of this work force will be from the farm sector. This dividend of demography must be effectively leveraged. With proper focus on SEZ, the work force can be effectively employed. This has the potential to increase savings and lead to capital formation.

At present 115.5 million farm families are supported by a mere 2.7 per cent GDP growth in agriculture sector. If India has to mature into a developed economy, a large section of the farm-dependent force has to move to other sectors.

The emphasis on secondary and higher education is a laudable step, but to avoid shortage of technical talent, the emphasis must be on ITIs.

Last year's Budget allocated about Rs 107 crore to set up ITIs. We need a progress report on the 500 ITIs contemplated in the previous Budget.

American example

A leaf can be taken from the American Budget. It has proposed an American Competitive Initiative, which stresses the importance of workforce acquiring analytical skills that only rigorous math and science curriculum can provide.

The US budget proceeds to strengthen the capacity of schools to improve math and science by investing in research, training and teacher recruitment

Finally, we need to diagnose the problem instead of producing a plethora of figures and schemes. As Thirukural says "Noi Nadi Noi Mudal Nadi... " we need to get at the root of the problem.

(The author is a Chennai-based chartered accountant.)