Monday, March 15, 2010

Budget: Aiming towards inclusive growth in agriculture sector

The performance of the agricultural sector has significant impact on the sustainable growth of the economy. Despite the declining share of agriculture in GDP, it remains critical as it provides employment to over 60 per cent of the population in the country. The Finance Minister, Mr Pranab Mukherjee, has taken cognizance of this fact in the Union Budget 2010-11, wherein he has reiterated focus on agriculture and allied sectors with wide-ranging sustainable and innovative initiatives.

Sustainable measures augmenting agricultural production

The north eastern region is known for the immense potential that exists particularly for horticulture, floriculture, agro and food processing, organic farming, plantation and animal husbandry. This potential, however, remains to be harnessed given the many inherent constraints such as inadequate infrastructural facilities, use of traditional and outdated methods of production, lack of market access and insufficient credit availability. Mr Mukherjee has given the highest priority to the agricultural development of eastern region by allocating Rs 400 crore, a significant step that can attract investments in the region. Planning for agri-business sector should be based on the infrastructure facilities and linkages in this region. . Innovative measures such as development of “pulses and oilseeds villages' in rain-fed areas along with integrated intervention for water harvesting, watershed management and soil health would ensure the improved production of pulses and oilseeds, enhanced productivity of dryland farming areas and reduced import dependence. Such measures will facilitate achievement of the food security mission. The Government has taken a further step in the right direction by introducing “Climate resilient agriculture initiatives” to address the issues on preservation of biodiversity, soil heath and water conservation.

Agro and Food Processing Sector to get impetus

The proposal to establish five new mega food parks in addition to the existing 10 parks will further bridge the infrastructure gap that exists in the food processing sector. Mega food parks can lead to consolidation of the fragmented supply chain boosting the much needed processing capacity and improving market linkages. However, the agro processing industries need to be accorded the status of 'other processing industries' to ensure active private participation. We are aware that nearly 30 per cent of the country's fruits and vegetables are wasted during the transition from farms to retail outlets. Improved post-harvest technologies, especially storage and transportation facilities, are imperative for our country that ranks as the world's second largest producer of fruits and vegetables and where the horticulture sector contributes to seven per cent of the GDP. Though the concessional incentives and exemption of service tax on cold chain infrastructure and mechanised handling systems would go a long way in reducing the service delivery costs and reduce wastage, certain crucial concessions and support such as power for cold storage, effective agri logistics arrangements need to be put in place. This would also boost the private sector participation to implement the large scale cold chain infrastructure, also with an added advantage of their proposed purview under external commercial borrowings. Similarly, the Delhi-Mumbai Industrial Corridor (DMIC) project would ensure complementary development of high-value agri infrastructure projects in these regions with enhanced rail, road and port connectivity and modern logistics solutions.

Credit Support to farmers

Higher credit target, interest subventions on farm loans and extension of repayment period will ease the credit availability and affordability eventually leading to better agricultural performance by incentivising the farmers. The Government's decision for introduction of nutrient based subsidy policy for imparting greater efficiency in the fertiliser subsidy regime should be applauded. Such measures would strive to incentivise the farmers to go for a balanced fertiliser application while addressing the issues of productivity levels which have been gradually stagnating or declining on account of progressive deterioration in soil quality due to unbalanced and indiscriminative use of nitrogenous fertilisers. However, the implementation of such a measure would require comprehensive analysis of varied geographies with their distinct soil profiling and their physical and chemical properties to evolve tailor made nutrient management systems. The direct transfer of fertiliser subsidy to the farmers under the budget paves the way for banks to play a central role by evolving innovative financial inclusion models to widen the reach to the farmers. Seeds are considered to be the most critical input for sustained growth of agriculture. While it is crucial to ascertain that affordability and timely availability of seeds to the farmers is ensured, it is equally important to ensure that high quality and disease resistant seeds are supplied for augmenting productivity. The exemption of service tax in certification and testing of seeds is a worthwhile initiative. However, necessary funds should be allocated for promoting R&D in this sector for developing high yielding, pest and disease resistant seeds for the farmers.

Retail in Agriculture

The indication of the Finance Minister to open the private retail space in agriculture is a promising one which would improve access of producers to the retail sector and increase the marketing efficiency through supply chain rationalisation. At the same time, the development of modern agro logistics solutions and storage infrastructure would also boost the retail sector.

Research and Development

Agricultural research in India has generated significant successes in the past. Research driven events such as the Green Revolution and White Revolution have heralded the nation not just into a state of self-sufficiency, but also as a global leader in production of agricultural commodities such as food grains and milk. Driven primarily by the need to increase food production, the focus of research has been on improving productivity. Though the Finance Minister's initiative to enhance the weighted reduction on expenditure incurred on in-house R&D activities in the sector is appreciable, and serves to encourage companies to invest in technology development, the same needs to be synergised further by putting in place an appropriate public-private-partnership framework so as to enhance the productivity and efficiency of both Government as well as the private sector which are presently working in isolation. Promoting entrepreneurship and encouraging private sector participation through incentives such as providing tax credits and creating a framework to fund pre-seed, competitive and generic R&D in agriculture will go a long way in promoting R&D in Agriculture.

Women Empowerment in Agriculture

The sustainable development of agriculture calls for women's active involvement under which the Finance Minister has allocated a modest fund allocation of Rs 100 crore to meet specific needs of women farmers. However, their participation would be governed by strategic interventions such as fulfilling basic needs through welfare programmes, facilitating involvement in economic activities and strengthening their economic base. This would call for a comprehensive package of incentives and support so that women actively undertake the envisaged agriculture development initiatives.

Concluding Comments

A holistic and integrated approach is the need of the hour to achieve sustainable and inclusive development across the agri value chain to maximise stakeholder benefit and transform India into a leading agro economy of the world. India's vision of inclusive growth to a large extent is predicated on the reforms in the agriculture sector.

Rana Kapoor, Founder-cum-Managing Director & CEO of YES BANK

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