India’s quest for keeping food prices low

Oct 14 2013, 13:23 IST
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Ensuring food security for a rapidly increasing population has been the goal of India's food & agriculture policies. Ensuring food security for a rapidly increasing population has been the goal of India's food & agriculture policies.
SummaryThere is a need to shift from input- to investment-subsidies and from consumption subsidies in kind to direct cash transfers

Indian agriculture has made remarkable progress, with food grain production growing five-fold in the last six decades—from about 50 MMT in 1950 to more than 250 MMT in 2012. Despite the increase in population from 361 million to 1.2 billion during this period, India has turned from a food-deficit to a food-surplus country. From the angle of achieving growth in production, India’s agricultural trade policy has been highly successful.

Underpinnings of India’s agricultural trade policies

Ensuring food security for a rapidly increasing population has been the principal goal of India's food and agriculture policies, and all agri-trade policies have been subservient to this. In the quest for self-reliance in basic food (especially key staples like rice and wheat) trade policy has oscillated between export controls and high import duties. Nevertheless, over the years, India has been integrating its agriculture with global markets, and its agri-trade (imports plus exports) as a percentage of agri-GDP has risen from about 5% in 1990-91 to about 18% in FY12.

India still has the largest number of poor and malnourished people in the world. So, one of the major concerns has been to keep food prices under control. It is this overriding concern that has often led to export controls, high stock holdings to feed the PDS, and large food subsidies for the poor. To incentivise production, cultivators have been provided input subsidies and minimum support prices for some crops. This approach of keeping food prices low for the consumer and incentivising production through domestic support has been the hallmark of India’s agricultural policies.

Due to the rising population, the per capita availability of cultivated land and water has declined and raising food production in a sustainable manner has become quite a challenge. Concerns over sustainability of agriculture have risen with falling water tables and forecasts of an increase in frequency of droughts and floods owing to climate change.

Policies and programmes to support farm operations

In FY11, input subsidies generally available to cultivators (non-product-specific subsidies) totalled $27.6 billion, comprising subsidies for irrigation ($4.7 billion), power ($6.5 billion), fertilisers ($13.7 billion), credit ($2.47 billion), and a small amount coming from subsidies for seeds, insurance, etc. In that year, these subsidies were 8.88% of the total value of agricultural output but earlier, in FY09, the level had topped 15%. But, how these figures measure up against the WTO Agreement on Agriculture's (AoA) de minimis level of 10% depends on the interpretation of

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