Annual Plan outlays for agriculture have remained limited to less than Rs 15,000 crore. Political compulsions and populist strategies have, however, led successive Finance Ministers to increase fertiliser and food subsidies which crossed Rs 100,000 crore this year. Investment in agriculture has remained at less than 1 per cent of GDP. There is little wonder that agricultural growth has stagnated at less than 3 per cent per annum.
Rising subsidies
Food subsidy is expected to rise to almost Rs 70,000 crore next year even if the new Food Security legislation is not implemented. The increase is largely due to higher procurement and storage costs and the costs of managing the burgeoning and rising food stocks with the Government.
Fertiliser subsidies are also likely to go up by at least 10 per cent. These expenditures limit the space available to the Finance Minister to increase outlays on productive programmes in agriculture.
April 2012 will mark the commencement of the Twelfth Plan. If India is to succeed in the realisation of the targeted 4 per cent rate of growth in the agriculture sector, then the first requirement is to significantly enhance investments into the sector.
As Plan outlays for agriculture are unlikely to be raised adequately due to the continued pressure on the Finance Minister to raise subsidies, the only way to meet the gap would be to encourage and facilitate private sector investments. The recent U-turn in respect of FDI investment in modern and organised retail has sent a negative message to investors. This negativity has to be countered by the Finance Minister.
Ten-point plan
Private sector investments will flow into agriculture if the following 10-point plan is announced by the Finance Minister in the forthcoming Budget:
Encourage modernisation of marketing of agriculture produce through liberalised rules for setting up private mandis .
Removal of stock limits and movement restrictions in respect of agriculture produce.
Encouragement to contract farming and direct corporate purchases of agricultural produce.
Incentivise building of agriculture infrastructure through viability-gap funding for various infrastructure investments into warehousing, cold chains, and so on.
Improved and enhanced access to agricultural credit through liberalised interest rate subvention schemes. At present, interest rate subvention extends only up to Rs 3 lakh.
Encourage aggregation and procurement of farm produce by processors and agri-corporates.
Liberalise exports of agriculture produce and put in place a stable import-export regime in respect of agricultural produce and products.
Recognise the private sector as a partner for supply of seeds, inputs, technology and for bringing in efficiencies across the entire value chain.
Introduction of a single point GST for all agriculture produce.
Encourage electronic spot and futures exchanges to ensure improved price discovery and price realisation to farmers.
(The author is MD & CEO, National Collateral Management Services Ltd.)