Investment, not sops key to farm growth: Montek

Only increased investments in agriculture and not more subsidies can stop the sectoral deceleration that has been witnessed since the mid 90s, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said here today.

Speaking at a seminar on India's Economic and Social Development: National and International Perspective, Ahluwalia said, investments should be directed at boosting irrigation, technology, distribution mechanism, roads and the like, which will directly benefit the small and marginal farmer.

If the economy has to touch the targeted GDP growth of 7-8 per cent, it is imperative that the agricultural sector's growth doesn't fall below 2 per cent, he pointed out.

"The agricultural growth till 1995-96 was at 3.28 per cent but after that growth was only 1.8 per cent which is an impediment from the point of view of growth of the economy," he said.

According to Ahluwalia, for the targeted GDP to be achieved, agricultural growth rate should touch the 4 per cent mark.

"Monsoon indices and distribution failures are not the only criteria for deceleration but there has on the overall been a sectoral failure," he said. Ahluwalia also said that for doubling the growth rate in the sector there has to be policy changes which need to be made soon.

Highlighting few aspects that need to be addressed he said, "With respect to irrigation facilities there needs to be a major step up in investments. Reports suggest that if we continue to invest in irrigation facilities as we are doing now then, for the existing projects to be completed it would take a really long time which would in turn hamper growth," Ahluwalia said.

He also said that more resources going into the sector must be made as investments which include irrigation and rural roads rather than subsidies directed at agriculture as this would help small farmers in particular.

According to Ahluwalia there is a case for subsidising power to a limited extent for targeted groups but generalised very cheap power only distorts incentives and leads to the depletion of ground water.

"Electricity is a state policy and that is why we cannot have a national policy, but then the Planning Commission can give policy recommendations. At the moment we have a group committee on energy policy which will submit its report by January 2005. The committee will lay down the guidelines on what should be reflected in the power policy as well as other aspects of energy," he said.

He also hoped that the committee which is being headed by Kirit Parekh would lay down some guidelines for states.

Speaking about the Minimum Support Price (MSP), he said, MSP is an essential part of any agricultural policy but the issues that need to be addressed are at what level should it be fixed and how should it benefits having the MSP spread beyond one or two states.

Ahluwalia was also of the opinion that forex reserves being high can be diverted towards the development of infrastructure.

"The reserves being high can go down but we would require policies that will ensure that when reserves go down additional imports can come in. The additional imports are important as it will neutralise the additional demand," he said.

In his address, the Governor of the Reserve Bank of India (RBI), Y V Reddy said that fiscal support will be needed to revive rural cooperative banks, which would help sustain a current pick-up in demand for bank loans.

"The current acceleration in credit delivery can be sustained in the medium term if fiscal support from states and the Centre is put in place soon to revive or reorganise the rural cooperative structure and rural development banks," Reddy said.

He also said that one-time fiscal support was justifiable and urgent and a delayed response could be more expensive.

"It may not be appropriate to continue to allow insolvent institutions to accept public deposits and the RBI favoured early restructuring and recapitalisation of such institutions," he said.

Reddy also said that the Reserve Bank of India was monitoring global prices of oil, the country's largest import item.