The Hindu Business Line : Farm sector on the dole

THE state's diminishing interest in the agriculture sector can be seen in the decline of its share in the outlays since the Fourth Plan. The share of agriculture and irrigation in that Plan's outlay, which was almost 31.04 per cent, fell to just 10.63 per cent in the Tenth Plan.

On the other hand, there has been a constant increase in the indirect support to agriculture, seen in the steep rise in the budgeted subsidies. These subsidies together now amount to about Rs 70,000 crore annually.

Quite clearly, this has been at the expense of expanding the irrigation system, and improving rural infrastructure with more all-weather village roads, transportation and storage facilities.

These misdirected and even misguided agricultural subsidies towards electricity, fertiliser and procurement have also played a role in distorting popular perceptions about the quantum of the State's spending on agriculture. Furthermore, these subsidies have mostly benefited the relatively well-off farmers and have left the vast majority with little or nothing.

It must, however, be stressed that agriculture is a subsidised item throughout the world, more so in the developed than in the developing countries such as India. According to the Organisation for Economic Cooperation and Development (OECD), in 2001 member-countries doled out $330 billion as agricultural subsidies.

The opposition to India's subsidy regime is, thus, not as much against subsidising the farm sector but its selective nature and the near shutdown of direct investments in creating a modern agricultural infrastructure.

Take the case of procurement. While the Food Corporation of India (FCI) was supposed to be the buyer of the last resort for farmers unable to sell their produce in the open market, the higher minimum support prices announced by the government over the years has meant that the FCI has become the preferred buyer for the farmers. This is clear from the mounting stocks of rice and wheat since 2000 in relation to the required buffer-stocks of 16.8 million tonnes (rice and wheat).

While the rice stocks have doubled from 11.7 million tonnes in 1999 to 25.6 million tonnes in 2002, wheat stocks grew four-fold from 6.8 million tonnes to 32.4 million tonnes in 2002. The steep rise in rice and wheat stocks has also meant a steep rise in the government's food subsidy Bill. The subsidy on food rose from Rs 2,450 crore in 1990-91 to Rs 17,499 crore in 2001-02.

Just as some sections of society have benefited more, some regions have also benefited more. The current food procurement policy has meant that some States have gained at the expense of others. There is a pronounced bias in the government procurement of rice and wheat, with four States — Punjab, Haryana, Andhra Pradesh and Uttar Pradesh — accounting for the bulk (83.51 per cent) of the procurement.

In 2000-01, as much as 94.56 per cent of wheat procured was from Punjab, Haryana and Uttar Pradesh, and 74.83 per cent of the rice procured was from Punjab, Haryana and Andhra Pradesh.

Our farmers enjoy free or highly subsidised electricity rates. While it was thought that this would stimulate agricultural production, it has, in fact, become an impediment to agricultural growth and has saddled State electricity boards (SEBs) with mounting losses, affecting their ability to add to generation capacity and improving distribution.

The intermittent and inadequate power supply has actually resulted in escalating the farmer's cost, as they have to either make alternative arrangements for the steady electricity supply or limit production. The subsidy provided to agricultural consumers has quadrupled from Rs 7,335 crore in 1992-93 to Rs 30,462 crore in 2001-02.

Though these subsidies were launched to reach the smaller farmers, they have largely benefited the rather well-to-do farmers who have their own water sources — mostly wells and tube-wells — and hence consume the lion's share of electricity. In 1990-91, tube-wells comprised only 32.1 per cent of total irrigation. Between them, medium and large farmers owned a third (32.7 per cent) of these tube-wells. Put this against the fact that medium and large farmers accounted for only 8.7 per cent of the total number of landholdings, and you will get a fair idea of who has been cornering the power subsidies.

In addition to the subsidies on power, fertilisers and FCI procurement, the farm sector receives huge subsidies on account of irrigation loses. According to a study on irrigation subsidies by Mr A. Vaidyanathan, Professor Emeritus, Madras Institute of Development Studies: "Revenues have not kept pace with costs: Collections, which were just under Rs 100 crore in 1977-78, rose to Rs 140 crore in 1987-88 and an estimated Rs 490 crore in 1994-95. In 1977-78, revenues covered three-fourths of the `working expenses' but only one-sixth of the total cost (including interest and depreciation). By 1987-88, revenue covered barely a quarter of working expenses, and 6 per cent of total cost. The position has vastly worsened since: The recovery rates in 1993-94 fell to less than 15 per cent of working expenses and 5 per cent of the total cost. As a result, overall losses jumped from Rs 430 crore in 1977-78 to around Rs 7,000 crore in 1994-95. Since then, the situation almost certainly has deteriorated further."

The irrigation subsidy is incurred on non-realisation of actual costs of canals and tanks built by the government. In 1990-91, canals comprised only 34.3 per cent of total irrigation. Only 35.8 per cent of the area irrigated by state sources belonged to the medium and large farmers suggesting that the benefit of this maybe more equitably distributed than in the case of power. However, in 1998-99, of the total cropped area of 192.6 million hectares, less than one-third was covered by man-made irrigation.

Thus, 135.6 million hectares of cropped land, where the overwhelming majority of farmers work, is entirely rain-fed. In other words, they are solely dependent on the vagaries of the monsoon and without any benefit from the state.

This vast un-irrigated cropped area of 135.6 million hectares is also where the majority of the 193.2 million rural poor lives. Even most of the 67.1 million who live below the official decreed poverty line in urban India are economic refugees from rural Bharat.

The consumption of fertilisers has shown a healthy rise in the past two decades, tripling from 6.06 million tonnes in 1981-82 to 18.07 million tonnes in 1999-00. However, the growth rate registered in the 1990s (5.83 per cent) was significantly below that in the 1980s (8.4 per cent). While the increase in fertiliser consumption might be a healthy trend, the increased subsidy Bill on the same is not good news, either for the cash-strapped government or for the rural sector, deprived as it is of infrastructural investment.

The fertiliser subsidy Bill has ballooned from a mere Rs 505 crore in 1980-81 to Rs 13,250 crore in 1999-2000. The retention-pricing scheme is the main culprit of this burgeoning fertiliser subsidy bill as it has left the fertiliser producers without any incentive to raise efficiency. The scheme has also encouraged the practice of understating plant capacities, allowing plants to claim excess subsidy by inflating utilisation levels. It would be wrong to call the fertiliser subsidy a farmer's subsidy, as it is essentially a subsidy to benefit the inefficient fertiliser industry.

We know that direct capital investments in agriculture have slowed to a trickle. Yet it seems like huge amounts are being expended on it, due to liberal doling out of subsidies. The subsidies are mostly cornered by a small percentage and, quite clearly, elude the vast majority. The agriculture sector clearly merits a new deal by a massive capital investment for the creation of new irrigation, storage and transportation infrastructure, particularly in the rain-fed areas. Since the money available is limited, a good part of this must come from trimming the misdirected and inequitable subsidies to make available funds for direct investment on expanding agricultural infrastructure.

The problems with India's economy will persist as long as this sector, particularly the vast majority who live in the rain-fed agricultural areas, continue to be ignored by our national planners and leaders. India will be a poor country, whatever be the growth rate of its GNP and however wealthy its industrialist and professional classes become, unless a way is found to make the lot of this section somewhat better. Till then India cannot be thought of as shining.

(To be concluded)

(The authors are with the Centre for Policy Alternatives, New Delhi, an independent think-tank. Response may be sent to cpasind@yahoo.co.in)