Agriculture’s woes beyond packages

The Kissan Package of Rs1.8 trillion indicates that two main concerns of farmers have been addressed

It is common knowledge that investment in agriculture revives growth quickly, especially when the economy has been on the downhill. The declining index of manufacturing since March signalled the need for alternative action. But it took the march of a different kind in the wake of floods — the Kissan March in September — to wake up the government. The just announced Kissan Package of 1.8 trillion rupees indicated that the two main concerns of the farmers had been addressed. These are the high cost of electricity and fertilisers. To the farmers’ disappointment, the ‘lower’ price fixed for the DAP by subsidising the manufacturers is higher than the price in the market. Fears are being expressed that the electricity concession will soon be neutralised by the fuel adjustment charge. Tractor manufacturers are worse than the car assemblers for a complete lack of innovation. The permission for the concessional import of old tractors will force some competition in future, but the time lag in imports does not help the present emergency. Another good measure is provision of seeds, though the time is again a constraint with the sowing of wheat having already started. The most important measure is the access to interest-free loans to shift the tubewells to solar power.

A new initiative is the SMEs in agricultural activities. There is some anxiety that this might open agriculture for corporatisation. No danger of it, if one looks at the dismal share of credit going to the non-agricultural SMEs. As the Prime Minister rightly noted in his presser, the commercial banks lend to government and then sit back and relax. All our structural adjustment efforts have ended up in crowding out the private sector. At the end of September, the outstanding position of schedule banks’ credit to the government was 14.85 trillion rupees. The corresponding figure for the private sector was 8.37 trillion rupees, with agriculture sector trailing far behind at 327 billion rupees.

Only a small amount of the package’s total of 1.8 trillion rupees will come from the budget. The bulk of it is expected to come from the banks. How will the private banks be forced to deliver remains a question. As a matter of fact, the State Bank already has annual targets for agricultural credit. Is it a mere coincidence that the current year’s target was also 1.8 trillion rupees? But it is an indicative target, pursued by moral suasion. In the first quarter, the disbursement stood at 383.8 billion rupees. Studies suggest that most of these credits benefit the large farmers who have a collateral to offer. Around 13% of the disbursement as microfinance could be presumed to be reaching the small farmers also. Rural Support Programmes and microfinance institutions extend only small loans, but their total disbursement in the quarter was merely 5.7 billion rupees.

Banks looking askance at agriculture is not the only weakness of the package. Agriculture is a provincial subject. In the present atmosphere of polarisation, two provinces are not on board, particularly in areas of federal-provincial sharing of the burden. As nearly all components require bureaucratic procedures of clearances and approvals, influence will matter and the urgency to deliver is likely to suffer. Perhaps a single measure of substantial increase in the support price of wheat, coupled with subsidies targeted at flood-affected areas, would have sufficed for revival in the short run. In the long run, agriculture is too serious a business to be left to ad hoc packages. It requires an integrated approach covering the issues of food security, poverty, climate change, water scarcity, productivity and innovation.

Published in The Express Tribune, November 4^th, 2022.

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