India’s budget farm friendly, but problems remain

NEW DELHI - India’s federal budget this week doled out gifts aimed at giving a major boost to the ailing farm sector but failed to lay the ground for rural renewal capable of tackling supply shortages and crippling debt.

By (Reuters)

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Published: Fri 2 Mar 2007, 6:35 PM

Last updated: Sat 4 Apr 2015, 10:39 PM

Large sums were earmarked for credit and to develop better seeds, but analysts said the budget on Wednesday would fail to release millions of farmers from poverty by raising farm productivity and better connecting producers to consumers.

The budget expanded loans to an extra 5 million farmers and raised the credit on offer by 18 percent to 2.25 trillion rupees ($50.8 billion). It aimed to irrigate an additional 2.4 million hectares of land and increased fertiliser subsidies.

Analysts said while the government recognised the sector -- which puts food on the tables of 115 million farming families -- is in distress, and acknowledged problems in the supply of foods like wheat and oilseeds, the measures just rehashed old ideas.

“More aggressive and radical measures were expected to provide the big push to the farm sector,” Dhruv Sawhney, chairman of the Confederation of Indian Industry’s Agriculture Council, said.

The government should focus on linking farmers to their markets through private investment in production, post-harvest infrastructure and refrigerated distribution, Sawhney said.

Average annual farm growth this decade has fallen to 2.3 percent from 3.1 percent in the 1990s and farming makes up just 17 percent of economic activity, down from 30 percent a decade ago.

Only 40 percent of farm land is irrigated and the pace at which irrigation is being developed has slowed in the past 10 years.

Land holdings are fragmented and average just 1.5-2 acres (0.6-0.8 hectares) in size. No radical upgrade in crop technology or mechanisation has taken place over the last decade, analysts say.

The government expects the economy to grow 9.2 percent this fiscal year, which would be the fastest pace in 18 years.

But farming is likely to lag, growing just 2.7 percent, and a shortage in food supplies has sparked sharp price rises.

Farmers have limited access to regular cheap credit and many borrow from local money lenders at exorbitant rates, plunging them deep into debt. Hundreds have taken their own lives in recent years.

“Such figures alone are not going to prevent farmers affected by economic penury from committing suicide,” said M.S. Swaminathan, architect of India’s green revolution of the 1960s when India embraced the use of high-yielding seeds and pesticides to enable it to become self-sufficient in food grains.

S. Narayan, a former finance secretary, agreed. “If rural credit is doubled while output remains the same, then rural indebtedness per head will rise,” he said in a newspaper commentary.

War footing

Analysts say much of the control in seeing through changes in the farm sector lies with state governments, which have been slow to implement schemes like irrigation.

“You have to do things in a war footing, instead of moving files from desk to desk,” said D.H. Pai Panandikar, an economist with the RPG Foundation, a private think-tank.

He said encouraging contract farming by private firms could be a solution but laws were loaded in favour of farmers. Changing them would lack political backing given the large number of voters that relies on the land.

“Laws have to be changed to make legally enforceable contracts, but it is again a state subject,” he said.

Some progress has been made in cutting out middle men, who control the price the farmer gets and the price the wholesaler pays, with firms like tobacco maker ITC Ltd., which has expanded into retail, buying direct from the source.

Still, analysts say, a joint effort between the government and private companies is needed to bring farm products to market. Currently, 40 percent of produce goes to waste because of a lack of refrigerated distribution.

Worried by high food prices, the government this week banned new wheat and rice futures contracts, a move analysts say will hinder farmers who use the markets to assess price risks. It set up a panel to look at forward trading in commodities.

“The ban reflects the panic caused by a lack of understanding of this market and the urge to control,” Narayan said. “We need mature regulatory practices, not knee-jerk reactions.”

And farmers need more water. Swaminathan said more funds for irrigation would help but must be backed by improved water use.

RPG’s Panandikar said farmers were used to a subsidy system that meant water was almost free, so they might not be willing to pay for irrigation.

“Irrigation definitely can be privatised, but the farmers will have to pay. If the farmer is getting free water, why should he pay?” Panandikar said.

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