Boosting farm economy! | Business Economics

Posted by admin on Apr 19, 2012 in Agriculture | Comments Off

Bappaditya Chatterjee

Consistent with its rural focus, UPA II increased farm credit by INR 1 lakh crore in each of its last three budgets including budget 2012-13. ?Plan outlay for agriculture and allied activities was hiked by 18% and for Rashtriya Krishi Vikas Yojana by 17% in 2012-13.

This year, Pranab Mukherjee raised INR 600 crore more for green revolution in the eastern region. Efforts are made to increase agricultural growth from the dismal 2.5% this fiscal. But will these measures optimise agricultural production and reduce farmer distress?

Farm credit missing the target

The credit target for the fiscal ending March was set at INR 4,75,000 crore. During April-November period, credit worth INR 2,94,023 crore was disbursed by banks to farmers according to data provided by Economic Survey 2011-12. It may cross the target. But who gets it? There was no corresponding improvement in the farm economy.

Most of the increase in farm credit in recent years was due to indirect finance-credit that went to institutions supporting growth of agriculture as against loans that went directly to farmers.
Liberalised definition of indirect finance includes even buying of land for the?construction of godowns. Linking with indirect finance loan disbursal was in the big-ticket category between INR 10 crore and INR 25 crore, INR 25 crore and above. Small and marginal farmers thus are not the biggest beneficiaries. According to some research, disbursals were made from urban and metropolitan branches in India. In Maharashtra, one in two agricultural loans made out in 2008 went from metropolitan bank branches. Mumbai?s share alone was 42.6%. It is a difficult to imagine, despite the huge improvement in connectivity, a small and marginal farmer making the trip to an urban area to get the loan.

Farmers? profitability might rise, but doubts over productivity persist

Ajitava Raychaudhuri

Professor and Coordinator Centre for Advanced Studies Department of Economics Jadavpur University

Through the budget proposals, the government tries to ensure that farmers get agricultural inputs at cheaper rates from the market. This improves their profitability and brings in more investments. But this is a stop-gap approach that the government is following. Better profitability cannot guarantee higher productivity. Exempting customs duties on inputs and cold storage or allowing external commercial borrowing for irrigation projects might increase agricultural supply in the markets, thereby assuring better availability of agricultural products to consumers and higher profitability to farmers. However this cannot ensure long term rise in productivity for sustainable agriculture in future.

Lab to land model along with a synergy between farmers and scientific community led to higher production in the 1970s. But it is missing to a large extent now. Unless lab to land model is revived, productivity cannot be increased on a sustained basis.

Gap in RKVY

Under RKVY, allocation has been increased but what is important is the amount released. While fund release was an ongoing process, in 2011-12, the centre released only 53% of what was proposed in the previous budget. RKVY was initiated in 2007-08 with an outlay of INR 25,000 crore in the Eleventh Plan for motivating states to enhance public investment to achieve 4% growth rate in agriculture and allied sectors during the plan period. But considering gross irrigated area as a percent of gross cropped area ( 45.3% in 2008-09), a 13% hike in Accelerated Integrated Benefit Programme along with the introduction of Irrigation and Water Resource Finance Company is a right move.

Efforts to encourage private sector to invest in agro infrastruture

Dr. Surendra L. Rao

Former Director General of National Council of Applied Economic Research

Q) The budget proposed that irrigation including dams, channels and embankments, terminal markets, common infrastructure in agriculture would be eligible for viability gap funding. Does it encourage private investment in agriculture?

A) This is the first attempt to introduce private organised sector into agricultural infrastructure and is to be welcomed. But many issues must be resolved before it can be made effective. Who will be eligible to invest? Viability gap funding requires that government has an agency to identify the projects, do the spadework for clearances of various kinds, design, etc., and then call for quotations. Having picked the qualified bidder who asks for the lowest viability support, government must as part of the bid lay down how the investor will recover his investment. This could be through toll charges (for example for water usage), land development in the neighborhood, etc. These possible sources of return on investment must be specified and regulated so that charges do not become too high. It is all right for large projects but may be too much for the administration when there are many minor projects. The idea is good but will have limited usage and will take some years before it takes off since all the details have to be laid down.

Q) How important is the FM?s proposal to form Irrigation and Water Resource Finance Company?

A) The idea of a separate Irrigation and Water Resource Finance Company is a good one and can be operationalised soon. Here again there must be checks and balances to ensure that projects are viable and that the user pays the fees that must cover operations and maintenance charges apart from letting the company make a profit that can be used for more projects. Rural storage (normal and cold) must be included in these projects. However, the problem of declining agricultural productivity is also the result of poor seed, inadequate fertiliser and pesticides and adulteration. Field advice on what and how much of these are to be used, introduction to better agricultural practices, better seeds, are essential. The problem of overuse of ground water needs to be dealt with by metering of ground water use, relating crops to water availability, etc. This calls for a local and independent water regulator. With all these in place, we still need large-scale rain water harvesting, building watersheds to store and use such rain water as is available.

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