Falling prices major cause for worry

By Gargi Parsai

NEW DELHI, FEB. 25. The declining prices of agriculture commodities in the domestic market is the major issue facing the Government today. What is worse is that it is not as if any major farm commodities, except edible oils, are being imported to influence prices in the open market. In fact, the share of agriculture products in overall national imports fell to 4.65 per cent between April and October, 2000 from 7.87 per cent during the corresponding period the previous year.

What is worrying farmers is that if they are unable to get good prices for their produce now, what will happen when the Quantitative Restrictions (QRs) on farm commodities are lifted under the agreement on agriculture (AOA) signed by India in the General Agreement on Tariffs and Trade (GATT)? Cheaper products might be dumped, they say. This is exactly what the Finance Minister, Mr. Yashwant Sinha, will have to address in his Budget proposals.

While estimating a 9.9-million tonne shortfall in foodgrains production, the Economic Survey predicted a 3.5 per cent decline in the growth of the farm sector. Public sector investment is marginally up but private sector is inadequate.

The wholesale price index of foodgrains showed a sharp decline over last year, particularly in rice, wheat, jowar, bajra, maize, barley and ragi. Prices of pulses showed a minus 1.4 per cent decline over last year especially due to arhar and masur. Gur prices also declined to 4.5 per cent. According to figures available with the Ministry of Agriculture, there has been a nearly 3 per cent drop in the export of farm products between April-October, 2000 and the corresponding period in 1999, apparently due to depressed international prices.

Mr. Sinha might again seek to reduce the subsidy on foodgrains sold through the Public Distribution System (PDS), although it is unlikely he would tinker with farm inputs, except fertilizer, when there is already pressure to provide incentives to farmers.

Last year, all attempts by the Centre to contain the food subsidy bill came to a naught because of the concessions given on the procurement of sub-standard quality of paddy (an additional Rs. 600 crores) or because of unviable minimum support price for cereals. Arbitrary raising of the procurement price, more for political reasons than sound economic ones, triggers off a process which has to complete a full circle. Unless the PDS issue price of a commodity is raised simultaneously, the subsidy bill just mounts. And the PDS cost of wheat today is higher than the market price. Added to this are the excess food stocks (over 45 million tonnes) adding to the carrying costs. There is no cap on procurement, lifting is poor, exports are low and so is the open market sale of foodgrains.

In the last year, the Government virtually edged out the Above Povertyline Population (APL) from the PDS by hiking the cost of foodgrains sold for them, which is higher than the open market price of wheat and rice impacting the offtake. As the Government moved towards decontrol of sugar, the allocation of rationed sugar was stopped for the APL population. Yet, the food subsidy bill could not be reduced. On the contrary it is now almost Rs. 11,000 crores from the (revised) budgeted level of Rs. 9,200 crores.

Mr. Sinha's plans would be revealed only on February 28, but it is likely that he would have to assuage apprehensions by announcing hike in import duty on certain products, particularly palmolein, ignoring the fear the measure might flood the market with soybean oil which has a binding duty of only 45 per cent. Support price for pulses and oilseeds would have to be enhanced. Incentives should come for food processing, diversification and investment in storage and infrastructure.

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