Subsidy bill swelling out of control

ECONOMIC SURVEY 2003-04/ AGRICULTURE AND RURAL ECONOMY

The Economic Survey has expressed concern over the unabated decline in capital formation in agriculture, misplaced agricultural pricing policy and rise in food subsidy to an unsustainable Rs 27,746 crore in the current fiscal.

It has categorically stated that higher crop yields and diversification from cereals are critical for achieving sustained annual agricultural growth of over 4 per cent.

Besides, it has called for legislative reforms to unify the Indian common market in agricultural products and reviewing the current system of cost-based minimum support prices (MSPs), which has created a mismatch between domestic and international prices, necessitating excessive grain storage and export subsidies.

The survey lays stress on impetus to agricultural growth through diversification and development of agro-processing.

It suggests expeditious efforts to realise the full potential of the farm sector to give a fillip to overall economic growth through the backward and forward linkages of agriculture with the rest of the economy.

More emphasis is advised on developing areas like livestock and fisheries, horticulture, organic farming, commercial crops and agro-processing.

Regarding capital formation in agriculture, the survey points out that it has declined from 1.9 per cent of the GDP in the early 1990s to 1.3 per cent after 2000-01. This is mainly because of a fall in public investment in this sector since the mid-1990s.

"While there has been some reversal of this trend in recent years, public investment in agriculture needs to be augmented, especially in rural infrastructure, irrigation and agricultural research and development," it states.

The survey has held annual hikes in MSP responsible for the food subsidy bill swelling from Rs 2,450 crore in 1990-91 to whopping Rs 27,746 crore in 2004-05.

MSPs and the government's policy of open-ended procurement have resulted in excessive grain stock buildup, pushing up the carrying cost that accounts for nearly 25 per cent of the total food subsidy.

Referring to agri-exports, the survey points out that though these have increased from $5.9 billion in 2001-02 to $6.7 billion in 2002-03, their share in total merchandise exports has dropped from 13.5 per cent to 12.8 per cent during this period.

The survey maintains that the present system of agricultural marketing through regulated mandis has achieved only a limited success.

This is because it restricts the development of direct and free marketing, smooth raw material supplies to agro-processors and adoption of innovative marketing technologies.