Public sector capital formation in agriculture for the country as a whole either declined or showed stagnation for a long period of more than a quarter century after 1980, rues Ramesh Chand in one of the essays included in ‘Agrarian Crisis in India,’ edited by D. Narasimha Reddy and Srijit Mishra ( >www.oup.com ).
What ails agriculture, among other things, is the fall in investment, P. Chidambaram, had conceded when presenting the Budget 2008-2009. He had added that a turnaround was apparent. “Gross Capital Formation (GCF) in agriculture as a proportion of GDP in the agriculture sector has improved from a low of 10.2 per cent in 2003-04 to 12.5 per cent in 2006-07. This, however, needs to be raised to 16 per cent during the Eleventh Plan to achieve the target growth rate of 4 per cent.”
It may help to know that the Economic Survey of 2005-06 ( >http:/indiabudget.nic.in ) spoke of ‘major measures taken for agricultural development through enhanced capital formation’ including: A roadmap for agricultural diversification with focus on horticulture, floriculture, animal husbandry and fisheries; strengthening of agriculture marketing infrastructure; national scheme for the repair, renovation and restoration of water bodies; focus on micro-irrigation, micro-finance, micro-insurance and rural credits; Knowledge Centre in every village; national fund for strategic agricultural research; and provision of urban amenities in rural areas through creation of new growth poles.
From capital to current account
A worrying observation in Chand’s essay is that the decline in public investment has been accompanied by a rise in input subsidies, suggesting a possible diversion of resources from the capital account to the current account, and adverse implications for the future of Indian agriculture.
Resources spent as public investment are several times more productive as compared to the resources used as input subsidies, he reminds. For instance, cited studies estimate that one rupee going into public investment is ten times more productive over its lifetime as compared to the contribution of subsidies to output growth.
Another objection to subsidies is that they have reached a level where they are causing more harm in the form of unsustainable use of water, imbalance in the use of plant nutrients, and degradation of soils. “Subsidies provided by the Central Government such as fertiliser subsidies, are highly skewed as the use of such inputs is very low in low-productivity states and quite high in the high-productivity states.”
Adding to the problem has been the increased reliance of public policy on prices for achieving output growth, the author states. “The price incentives, which were not spread to all crops, did not lead to the expected amount of private investment in agriculture.”
Farmers’ interest groups
Chand quotes from published papers that towards the closing years of the 1970s, the state virtually lost its autonomy and agricultural policies increasingly came to be decided by farmers’ interest groups. “During the 1980s, farming group interest did prevail upon the determination of allocation of public funds committed for agriculture, as between expenditure on current and capital account. These interest groups pushed up the share of current account expenditure, which yielded input subsidies and higher support prices.”
Rapid increase in the share of current account expenditure to meet their demand for production subsidies and priority to finance private sector capital formation did not leave much room for the state to increase public sector capital formation, he elaborates.
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