While there have been a large number of small steps that make the budget appear pro-agriculture, there is no marked shift in agricultural policy. Finance Minister P. Chidambaram has promised the country that reform will come later. The newly-constituted Planning Commission will embark upon the task of redefining and restructuring government programmes in accordance with the CMP. It is, therefore, not very fair to expect this budget to make significant changes.
The issue of bank credit to agriculture has been addressed by urging banks to lend. The government has not provided banks an explicit subsidy to achieve its social objectives. Chidambaram has also revived the Rural Infrastructure Development Fund. Banks will park the shortfall from their lending to the priority sector in the RIDF. The money will be given to state governments to use for infrastructural development. This scheme was initiated in 1994-95 and did not prove very effective in states that have poor administration. The excise exemptions on tractors will, no doubt, benefit the tractor industry and well-off farmers who buy tractors. But it is clearly a continuation of the pro-kulak, pro-cereal bias in agriculture. The tax holidays for agro-processing industries will give a fillip to the industry. But it is unlikely to make a major impact in rural areas which suffer from shortages of roads and electricity. The FM addressed the question of public investment in irrigation by a phased programme of focusing on some irrigation projects that can be completed in the next few months.
What can be an effective reform of agriculture that leads to an increase in incomes and employment? As the Economic Survey noted, the answer lies in 4 to 4.5 per cent growth in agriculture. This growth cannot come about through an increase in cereal production. It requires a diversification towards high yields and high value crops and allied activities. One approach, which India has already tried without much success, is to commit extra spending for horticulture. If money is being spent on subsidising cereal production, the strategy is to also subsidise non-cereals. The correct approach for promoting a shift towards non-cereals is to take away the incentives for cereal production. A change in government policy away from cereals requires treading on the toes of surplus producing politically powerful farmers. Unless the UPA government takes up this challenge, it will not be able to reform Indian agriculture. If it does so, the payoffs will be huge.
