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Pre-budget perspective/Gurnam Arora

A case for foreign direct investment in agri sector

The agriculture lobby, of which I'm a member, met Finance Minister Yashwant Sinha on January 6. We put forward our demands and listed our expectations from the Union Budget 2000-2001 which will be tabled in Parliament next month.

Let me share the agriculture sector’s concerns and suggestions.

The agriculture sector is not looking for just subsidies and budgetary support. We think the government, especially Finance Minister Yashwant Sinha, should take a serious look at the agriculture industry.

I say industry because it is time people realised that agriculture is not just a whole lot of farmers harvesting and selling wheat or rice. There are issues that need to be tackled effectively and within a time-frame.

The problems need to be viewed in the light of the fact that agriculture is the prime source of income for a large population in the country.

We have requested the government to allow foreign direct investment in agriculture because the fund requirement of the sector cannot be met through budgetary support.

Since Indian economy is talking global, agriculture sector should also gets its due. If the Indian farm sector has to play a really global role, then it is time to talk about FDI in this sector.

Another way of tiding over the fiscal problems in this sector is by allowing corporates to go in for wasteland management. This can be done by abolishing the Land Ceiling Act.

We really don’t agree with the viewpoint that subsidies are the answer to the fund crisis in the farm sector. Every year, the finance ministry earmarks its budgetary support and subsidies for the farm sector, but the point is that they do not really reach the target population.

Hence, the government should rationalise fesrtiliser subsidies. There are too many bad subsidies -- the good ones are very few. Since the subsidies don’t really reach the target population, there is no point in increasing the amount. Instead, subsidies should be given via banks like Nabard (the National Bank for Agriculture and Rural Development) or nationalised banks, with the government monitoring its disbursements.

However, even as we talk about globalisation, we would like to remind the government that a lot needs to be done in the domestic market too. On the one hand, India is keen to see our farm sector in sync with the global economy; on the other, the domestic market for agriculture goods itself is fragmented.

The government must take steps to remove the impediments to domestic movement of farm goods. The government should also improve its cold chain management, and the railways should have proper facilities for transportation of agriculture produce.

Besides, credit and distribution, a major concern in this sector is that of irrigation facilities. Despite being an agricultural country, over 50 per cent of the 14.2 million hectares cultivable land in India still depends on monsoon for irrigation. And a poor rainy season creates havoc for the poor farmer. On this front, the government should encourage dry farming, drip irrigation and flood water harvesting.

Added to these concerns, the sector is saddled with the pressure of having to fight tough competition in the global market on the price front. For instance, India’s position in the rice market deteriorated drastically last year.

On the one hand, there is stiff competition from Pakistan’s variety of basmati rice and the US Texmati, on the other, India's rice is steeply priced in the overseas market. Our prices are not competitive because the government had increased the procurement price of non-basmati rice by about $25 per tonne. Consequently, our exports suffered.

The government should not increase the procurement price for at least two years. Besides, to make ourselves globally competitive, the government should exempt rice dealers from local taxation such as purchase tax, sales tax, market fee, etc. These levies add up to about 10 per cent to the price. The government must take necessary steps to keep our prices competitive in the global market.

It is not just lowering of levies that will help us become globally competitive. We should look at issues like patents and gene technology more positively.

Environmentalists are demanding that the government should ban use of transgenic plant variety. But we believe that genetically modified organisms or GMOs could emerge as the harbinger of the next Green Revolution. We need to encourage use of GMOs because they will not only raise yields further but help in reducing consumption of pesticides and other chemicals.

Gurnam Arora, president, All India Rice Exporters’ Association, spoke to Neena Haridas

Budget 1999-2000

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