Free trade, common national market to be created; Massive jump in the food subsidy bill, survey notes

Setting an agenda for marketing reforms and privatization in agriculture and food sector, the 2013-14 Economic Survey — the first indicator of which way the new Narendra Modi government is moving — calls for creation of a national common agriculture market by removing restrictions and bottlenecks for free trade.

“Removing market distortions will create greater competition in markets, promote efficiency and growth and facilitate the creation of a national agriculture market. Parliament has the power to legislate a national market across states under the Constitution,” it says.

Noting that as per the third Advance Estimates this year will see record output of foodgrains at 264.4 million tonnes and oilseeds at 32.4 million tonnes, the Survey said that the country was in an anomalous situation of being largely self-sufficient in foodgrains, yet registering high food inflation. “This was due to the plethora of interventions by the previous UPA government which actually served as barriers to trade,” it says.

More than 85 per cent of investment in the agri sector is by the private sector.

Seeking a “paradigm shift” in the role of the government in all spheres of foodgrains production and distribution, the Survey favours setting up of alternative markets initiatives such as direct marketing and contract farming.

In pursuance of this goal the government will examine all such acts and legislations that contain provisions that are restrictive and create barriers. These include the Agriculture Produce Marketing Act, Essential Commodities Act and Land Tenancy Act. The APMC Act creates cartels of buyers who possess market power, it said.

The government will also consider inclusion of agriculture-related taxes under the General Goods and Services Tax (GST) and establish a stable trade policy based on tariff interventions rather than non-tariff barriers.

For generating investments in the agro-processing sector, the Survey calls for greater incentives for the private sector.

The Survey noted that the share of agriculture and allied sector in gross domestic product (GDP) declined to 15.2 per cent during the Eleventh Plan and further to 13.9 per cent (provisional estimates) in 2013-14.

While agriculture still accounts for about 54.6 per cent of the total employment, there has been an unprecedented decline in the absolute numbers of cultivators to 118.7 million (Census 2011) from 127.3 million (Census 2001).

The growth rate of productivity in agriculture is far below international standards. Soil is degrading rapidly due to declining fertilizer-use efficiency and productivity levels of rice and wheat have declined, says the Survey.

It notes that food subsidy (accruing from distributing subsidised foodgrains under the Public Distribution System) has increased substantially in the past few years. Food subsidy was Rs. 92,000 crore in 2013-14. It is estimated at Rs. 1.26 lakh crore under the National Food Security Act.