The hike in interest rates by banks may adversely impact investment in the rapidly expanding horticulture sector and impede its growth. The production of fruit, vegetables and other horticultural products as well as exports of fresh and processed horticultural produce may suffer, it is feared.
“Horticulture is a highly capital-intensive activity and rising interest rates may adversely affect the needed investment in technology and infrastructure,” said HP Singh, deputy director-general (horticulture), of the Indian Council of Agricultural Research (ICAR). It can also adversely affect the use of costly yield-enhancing inputs, he added.
After the Reserve Bank of India (RBI) increased the cash-reserve ratio (CRR) in a phased manner, the lending rates of different banks have spurted by 2-4 per cent over the past few months. This is feared to act as a disincentive for investment in horticulture, where the returns, though higher than in most other agricultural ventures, come with a considerable time lag.
Besides, there is hardly any mechanism for risk management as most horticultural crops are ineligible for insurance coverage under the national agricultural insurance scheme.
Singh felt high interest rates could make it difficult for the entrepreneurs to build green houses, which were essential for high-tech horticulture, or install drip and sprinkler irrigation systems for economising on the use of scarce water and improving crop productivity. A large chunk of horticultural crops are grown in semi-arid land where water availability is limited, making it necessary to go in for capital-intensive micro-irrigation means like drip and sprinkler irrigation.
The official task force on micro-irrigation has recommended in its report that at least 17 million hectares be brought under such efficient means of watering horticultural plants by the end of the 11th Plan, with the ultimate objective of covering 69 million hectares. This target is bound to be missed as so far no more than 2.5 million hectares have actually been covered under drip and sprinkler irrigation.
Even investment in the much-needed supportive infrastructure, such as store houses, cold chains, transport and supply chains could come under strain, it is felt. The subsidies offered by the government on some of these activities might go abegging in view of increase in costs due to high interest rates.
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Horticulture is one of the fastest growing segments of high-value agriculture. While the output of cereals has spurted by over 4 times since 1950 (hailed as the green revolution), that of horticultural products has risen by over 7 times. From a base level production of less than 25 million tonnes in the 1950s, the horticultural output has crossed 185 million tonnes in 2007-08.
Horticulture contributes nearly 29.5 per cent to the agriculture sector’s gross domestic product (agricultural GDP) though these crops are grown only on around 10 per cent of the farm land, Singh pointed out. He maintained that the horticultural production could be doubled if proper environment was created and suitable incentives were offered to this sector.
At present, there is hardly any mechanism for providing price support to the horticultural crops. Barring coconut, no other horticultural product figures among the large number of crops for which the minimum support prices (MSPs) were announced by the government. Nor is there any provision for a price stabilisation fund of the kind available for tea, the official said.