Just a few days before the upcoming Union Budget, the World Bank has suggested that India should address the political economy of farm subsidies and set up investments in rural infrastructure.
The bank says in its latest report that subsidies on fertilisers, electricity, water, and credit have caused high fiscal cost. It even criticised over-regulation in agriculture like public grain procurement and land markets. It also says that subsidies can be used but with attention to market development, equity and exit strategy.
The World Development Report-2008 with the theme Agriculture for Development released on Friday notes: “public investment on agriculture in countries like India is heavily skewed towards providing subsidies rather than investments. In fact, subsidies are more than four times that of public investments in agriculture.”
The Bank’s report called for moving towards a “new agriculture” with dynamic demand for high value crops, non-traditional exports, horticulture, poultry, livestock, fish and dairy products which can increase farmer’s income when the share of cultivatable land per household was shrinking.
The report also says that reduced taxes on agriculture coupled with high international prices can induce investments in the farm sector.
It urged for reduced taxes on agriculture and extension of multiple institutional and technological innovations like IT for financial services and extension and genomics for new seeds. It advocated the role of private sector, producer organisations and greater public-private partnership.
Releasing the report, the World Bank Country Director, Isabel Guerro said : “The challenge on Friday is to recast agriculture in the new environment of globalisation, rising prices, growing demand and greater private sector involvement.”
“But this will require greater investments to increase farmer’s yields and profitability and in rural infrastructure such as irrigation, roads, power and markets,” he added.
The report also pointed out that genetically modified crops and organisms have unrealised potential for the poor, but attention should be paid to biosafety norms.
It expressed concerns over the slowdown in crop yield growth and large crop yield gapsa in many states. Crop
production has been insufficient to create gains per worker, the report says.
It said that the “new agriculture model” would be able to combat climate change and reduce the competition for water. It advocated bio-fuel programme as a potential source of renewable energy and possible large market for agricultural producers.
“But few current bio-fuels programmes are economically viable and most have social and environmental costs,” it said.
On WTO issues, the report felt the need for completion of the Doha Round, but attention should be paid to transitional issues and supply response in developing countries. The economies in transition should be givenaid to cope with the emerging situation.