The Hindu : National : Economic Survey suggests freeze on support price

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Thursday, Jul 08, 2004

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Economic Survey suggests freeze on support price

By Our Special Correspondent

NEW DELHI, JULY 7. Even as there is a growing concern on the uneven spread of monsoon so far, the Economic Survey for 2003-04 has forecast "bright prospects'' for agriculture production in 2004-05 based on the forecast of normal monsoon by the India Meteorological Department.

It has suggested a freeze on the cost-based minimum support price (MSP) of agriculture commodities and an increase in the central issue prices of foodgrains (sold through the public distribution system) in line with the economic cost to contain the food subsidy bill which stands at Rs. 27,746 crores.

A good monsoon last year helped increase the level of foodgrains production from 174.2 million tonnes to 210.8 million tonnes in 2003-04 contributed by increase in the production of both cereals and pulses. The strong agricultural recovery of 9.1 per cent is contributed to a growth of 8.1 per cent in real GDP during 2003-04. Inflation as measured by the wholesale price index was 4.6 per cent at March-end 2004 and is likely to remain around five per cent in 2004-05.

But high stocks of foodgrains and increasing MSP had created problems of surpluses resulting in burgeoning food subsidy bill. The food subsidy went up from Rs. 2,450 crores in 1990-91 to Rs. 27,746 crores in 2004-05. "During 2000-01 and 2001-02, there were excessive build-up of public stocks of foodgrains, much above the minimum buffer stock norm. Large volumes of unsold public stocks pushed up carrying costs and pushed the subsidy bill. The carrying cost accounts for 25 per cent of the subsidy bill,'' it observed.

It said the policy of providing price support by raising MSP continuously had distorted domestic prices and eroded export competitiveness. Being an exporter of grains, India could not have its domestic grain prices greatly out of sync with free-on-board export prices. A consequence of the recent MSP had been to disturb the inter-crop price parities, leading to a shift of area towards cereals, even when there are huge stocks and huge imports in edible oils.

The survey suggests the proposal to announce a procurement price inclusive of four per cent State levies in lieu of the MSP be pursued.

On the agriculture front, the survey recommends diversification from cereals and higher productivity as critical for achieving agricultural growth of over 4 per cent on sustained basis. The full potential of agriculture could be realised through backward and forward linkages with the rest of the economy with horticulture, organic farming, commercial crops, agro-processing, livestock and fisheries as the potential areas of high growth.

Noting with concern the decline in capital formation from 1.9 per cent of GDP in the early 1990s to 1.3 per cent of the GDP after 2000-01.

The decline in share is attributed mainly to stagnation or fall in public investment since mid-90s.

But there is an indication of a reversal of this trend with public sector investment attaining a five-year high in 2002-03, the survey notes.

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