ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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No 'New Deal' for Farm Revival

Finance minister P Chidambaram claims that Budget 2007 addresses the challenges confronting Indian agriculture. How true is this claim?

No ‘New Deal’ for Farm Revival


Economic and Political WeeklyApril 7, 20071278priority. Let us examine the proposals onwater and land.Inadequate Emphasis on WaterIn the case of water, both investment andefficiency are needed. It is known thatpublic investment in agriculture, which ismostly on irrigation, has been stagnant forseveral years. The outlay of Rs 11,000crore for AIBP is too meagre to make anysignificant impact on irrigation potential.Under Bharat Nirman, 2.4 million haincluding 9 lakh ha under AIBP was to becreated during 2006-07. At this rate, thetarget of 10 million hectares to be broughtunder irrigation under Bharat Nirman by2008-09 may not be achieved. The rate ofinvestment has to be doubled even if thepending major and medium irrigationprojects, particularly in the poorer states,are to be completed. Also there is a lot ofpotential for groundwater development inthe eastern region.One of the problems with irrigationexpenditure relates to slow progress in the“actual” area under irrigation. It was pointedout that the centre spent Rs 20,600 croreunder AIBP while states spent anotherRs15,000 crore, but the net farm areairrigated has been stagnant at 53-55millionhectares.2 However, the ministryof waterresources indicates that theseconclusionsare not correct and grossirrigatedarea increased from 71.35 m hain 1996-97 to 76.82 m ha in 2003-04. Theirrigation created during the Eighth Planwas very low at 2.2 m ha while it increasedto 4.22 m ha in the Ninth Plan and anestimated 5.74 m ha during the Tenth Plan.3It is true that irrigational potentialmusthavebeen created although someleakages are not ruled out. It is, however,not clear whether the entire createdirrigationpotential is translated into“actual”irrigated area.The other two proposals on water arerestoration of water bodies and rechargeof groundwater. The training of farmerson water harvesting is another proposal.These two are good proposals. Of course,there are no allocations from the budgetfor restoration of water bodies. The WorldBank has signed a loan agreement withTamil Nadu for Rs 2,182 crore to restore5,763 water bodies. The FM expects otherstates to sign such agreements with theWorld Bank. Little has been done on waterbodies since the promise in the last twobudgets and one hopes something will bedone with these agreements. Groundwaterrecharge is just a proposal and it has to befinalised. It is being increasingly recognisedthat regulation of groundwater is neededfor sustainability of water resources.Land ManagementOne of the reasons for low productivityis the deterioration in soil quality. Waterlogging, imbalances in fertiliser use andpesticides are responsible for land degra-dation. This is happening both in irrigatedareas as well as rain-fed areas. The soilquality improvement is an important matterand the FM should have highlighted anyexpenditure on this head in the outlays onagriculture. It was announced in the budgetthat “the National Rainfed Authority wasestablished a few months ago to coordinateall schemes relating to watershed deve-lopment and other aspects of land use”(p9). But, this is not enough. Measuresshould be undertaken to reverse landdegradation particularly in rain-fed areas.Unbalanced use of fertilisers is one of thereasons for soil degradation. Informationon soil testing facilities through extensionservices and pricing policies are requiredfor maintaining NPK proportions. The Na-tional Commission on Farmers (NCF)advocated that each farm family should begiven a soil health pass book containinginformation on soils of their farm.In the case of land and water manage-ment, both investment and efficient use areneeded. It is recognised that we needinstitutions for land and water use effi-ciency and conservation.4 Regulation bylocal communities would have moreimpacton resource conservation and wouldbe more economical and equitable. Activeinvolvement of local communities, PRIs,women, water user associations and otherstakeholders is important to improve theefficiency of land use and water.Agricultural CreditThe goal of doubling agricultural creditin three years was achieved in two years.Farm credit is expected to cross the targetof Rs 1,75,000 crore set for the currentyear. The government wants to increasethe level of credit to Rs 2,25,000 crore in2007-08 and also add another 50 lakhfarmers to the banking system. It is truethat there have been some improvementsin flow of farm credit in recent years becauseof the policy initiatives taken. In spite ofthe increase in the credit, the targets ofpriority sector lending have not been met.
Economic and Political WeeklyApril 7, 20071279But the main problem is that the focus ison meeting the quantitative targets and thegovernment is not taking initiatives or isinsensitive to the distributional aspects offarm credit. There are basically four prob-lems in rural credit in general and farm creditin particular.5 These are: (a)not muchimprovement in the share of small andmarginal farmers in credit; (b) decline incredit-deposit (CD) ratios of rural and semi-urban branches; (c) increase in the shareof indirect credit in total agricultural credit;and (d) significant regional inequalities inthe distribution of credit. The governmenthas been silent on these distributional issues.There is a suggestion that the governmentshould have sub-targeting to improve thecredit flow to small and marginal farmers.6On banking in rural areas, the budgetproposes certain measures for improvingregional rural banks (RRBs). Based on theinterim recommendations of the commit-tee on financial Inclusion, the governmentproposes to establish two funds: (a) Finan-cial Inclusion Fund with NABARD formeeting the cost of developmental andpromotional interventions; (b) FinancialInclusion Technology Fund to meet thecosts of technology adoption. These mea-sures are welcome and can improve finan-cial inclusion. Ultimately, institutionalcredit is successful only if the productivityof the small and marginal farmers is sus-tained with viable economic activities.Otherwise, more credit will increase theindebtedness of farmers.7 Banks shouldconduct credit plus services to the farmersand the agricultural officers must provide“farm advisory” services that will help inmaking agriculture an integrated activitywith appropriate backward and forwardlinkages [Rangarajan 2005].Research and ExtensionCentral government expenditure onagricultural research and education,increasedfrom Rs 2,276 crore in 2006-07(RE) to Rs 2,460 crore in 2007-08 (BE).There is hardly any increase in the expen-diture on research and education. It is knownthat India spends only 0.5 per cent of GDPon agricultural research. The need for anincrease in investment in research isobvious.However, as mentioned by theNCF, there is a large knowledge gapbetween the yields in research stations andactual yields in farmers’ fields. Hereextensionservices become crucial. Thebudget admits that the agriculture exten-sion system has collapsed. It is not clearwhether the provision of Rs 230 crore forthe Agricultural Technology ManagementAgency (ATMA) would address themassivechallenge spreading extensionservicesto farmers all over India.8Risk Management and InsuranceOne of the differences between the “greenrevolution” benefits in the 1960s and 1970sand the present “second green revolution”plan is that the risk is higher in the latterapproach as it has to concentrate more onthe dry land areas apart from the problemsin irrigated areas. Crop failures and distresssales are increasing. Crop insurance is sup-posed to take care of the risk. The NationalAgricultural Insurance Scheme (NAIS) willbe continued in its present form in 2007-08.9 But, the coverage of the scheme issmall. The budget also mentions thatthegovernment will ask the Agricultural Insur-ance Corporation (AIC) to start a weather-based crop insurance scheme onapilotbasis in two or three states as an alternativeto the NAIS. Some developmentshaveemerged in India in recent years to offerrainfall insurance contracts. ICICI LombardGeneral Insurance Company began a pilotinsurance programme that will pay farm-ers when rainfall is below average in onearea, and pay others in case of excess rain.But, it is yet to generate interest amongthe farmers. The basic infrastructure hasto be developed to implement a weather-based insurance scheme. Whatever themethod, there is a need for undertaking riskmitigating measures in agriculture.Inputs, Prices, MarketingandDiversificationWe have mentioned above that an im-provement in land and water managementis necessary for raising productivity. Someof these measures (e g, irrigation devel-opment) may give benefits only in themediumto long term. The immediate needof the farmers is to get a proper supply ofinputs and remunerative prices for theiroutput. Seeds and fertilisers are importantinputs. Many farmers are suffering be-cause of a spurious supply of seeds by bothgovernment and private agencies. In thisrespect, the budget’s recognition of theneed for quality certified seeds in suffi-cient quantities is in the right direction.This needs to be done not only for pulsesbut also for many other crops. Whilerecognising the need for fertiliser subsi-dies, the government wants to find analternative method of delivering the sub-sidy directly to the farmer. The pros andcons of direct delivery of fertilisers tofarmers are not known now. However, thegovernment can restructure the fertilisersubsidies in such a way that it would reducethe consumption of nitrogen (N) andencourage phosphatic (P) and potassicfertilisers. This would lead to balanced usein the NPK ratio and improve soil quality.The most important problem for the farm-ers is output price fluctuations. Apart fromnon-price factors farmers take decisionson the crops to sow based on prices at thetime of sowing. Prices come down dras-tically by the time they sell output in themarket. This happened with cotton andmany other crops. Similarly, there is a biggap between producer and consumer prices.On the one hand we have higher inflationfor food prices for the consumer with lowprices for farmers. For example, at timesfarmers get 25 paise for a kg of tomatoeswhile the consumers pay Rs 15 in urbanareas. The NCF suggested a market pricestabilisation fund and an agricultural riskfund to take care of, respectively, pricefluctuations and risks arising from droughtsand weather aberrations. The budget isTable: Share of Agriculture in Plan Expenditure and Central Plan Outlay: 2007-08 BEHeadsExpenditure/OutlayShare in Plan Expenditure and(Rs Crore)Central Plan Outlay (Per Cent)2006-072006-072007-082006-072006-072007-08BEREBEBEREBEAgriculture and allied activities738573918558 development18269182682034210.5810.589.92(7.19)(7.48)(6.36)Irrigation and flood control5874625070.340.270.25(0.23)(0.19)(0.16)Total plan expenditure172728172730205100100.0100.0100.0Total central plan outlay*254041244229319992(100.0)(100.0)(100.0)Notes:RE: Revised estimates; BE: Budget estimates.*This includes internal and extra budgetary resources of public enterprises, etc.Figures in brackets refer to the percentage shares in central Plan outlay.Source:Expenditure Budget 2007-08, Vol II.

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