Farming problems

Central Budgets are not the obvious place to look for corrective action when it comes to agriculture. For one thing, agriculture is a state subject. For another, most of the issues are non-financial, and have to do with technology, market access, crop variation and the like. And yet, with Indian agriculture clearly in crisis (no growth in foodgrain output for six years, and farmer suicides pointing to distress in the countryside), even finance ministers are forced to respond. P Chidambaram, while explicitly affirming in his Budget speech that the government's focus is on agriculture, has listed four thrust areas for action""assured irrigation, credit, diversification and creating a market for agricultural products. Much of the action that he has proposed is perhaps inevitably confined to credit and irrigation. On diversification, the Budget naturally has little to say. For market development, Rs 150 crore has been set apart for the creation of model terminal markets in different parts of the country but this is not going to make a noticeable difference.

Where agricultural credit is concerned, the finance minister had even earlier announced his intention to double farm credit in three years. Given the growth achieved in the past two years, this now sounds more feasible than before. But the finance minister has now gone further and announced the lowering of interest rates on short-term loans to 7 per cent from the ensuing kharif season. For farmers who have taken bank loans in the last rabi and kharif seasons, the finance minister plans to dole out a subsidy equal to 2 percentage points of the payable interest on the loans. This will cost the exchequer Rs 1,700 crore. All this smacks of populism rather than sound economics. It also introduces direct government intervention in rural financing in a way that sets the wrong example for the future. Besides which, these steps will benefit only a small section of farmers who take bank loans. The other farm households, who either borrow from informal sources or completely lack access to credit, are not going to get any benefit. And this section, according to Mr Chidambaram's own reckoning, accounts for 73 per cent of the total farm community.

What the agriculture sector needs most of all is higher investment in vital areas, such as generation and speedier transfer of situation-specific technology for market-oriented production and creation of infrastructure for post-harvest handling, marketing and value-addition to the produce. As pointed out in the pre-Budget Economic Survey, the deceleration in capital formation in agriculture needs to be reversed, with increased investment. The Budget has set apart for agriculture and allied sectors less than 3 per cent of the total planned resources. This apart, the finance minister does not seem to have taken note of the recommendations by the National Commission on Farmers, headed by Professor M S Swaminathan, in its interim reports. Implementing even a few of them could make a difference to the farm sector.