Indian sugar mills association

PM against subsidies that result in disproportionate use of resources

Date:	16 Feb 2012

Source:	The Financial Express

Reporter:	FE Bureau

News ID:	922

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New Delhi: Prime Minister Manmohan Singh on Wednesday called for a review of subsidies that lead to “disproportionate use of resources” and degradation of soil, and stressed the need for boosting productivity to feed a growing population.

“Distortions arising from pricing and subsidy regimes, which have resulted in degradation and depletion of soil through unsuitable cropping patterns and disproportionate use of resources, need to be reviewed,” Singh said at a workshop on agriculture at Rashtrapati Bhavan, attended by President Pratibha Patil, around 20 governors, eight union ministers, five chief ministers and 37 vice chancellors of agricultural universities.

A right approach towards fixing the benchmark crop prices is key to enhancing farm production, which prevents any sharp flare-up of food inflation, while misplaced subsidies hurt the government`s fiscal prudence.

Fertiliser accounts for the largest chunk of subsidies the government offers to farmers and makes the most significant dent in its fiscal rigour. Scientists have expressed concern about excessive use of urea by farmers as it is highly subsidised, ignoring its adverse impact on soil health that threatens productivity in the long run.

The government has already loosened its tight grip over the pricing of phosphatic and pottassic fertilisers and started offering subsidy on nutrients instead of the finished products to encourage farmers to use a right mix of different farm nutrients. However, the move to ease control over urea pricing was suspended late last year after strong opposition from fertiliser minister and DMK leader MK Azhagiri on grounds that it will drive up the cost of production for farmers. An inflation-wary government chose to put the issue on the backburner.

But Singh`s latest statement, although vague, hints at a possible review of the state control over urea pricing, said a top fertiliser industry executive, who didn`t want to be named. “Fiscal deficit is widening and fertiliser subsidy rising. The government is even thinking of defering subsidy payment for this fiscal to the next.... Meanwhile, excessive use of urea is affecting the soil quality as its prices are highly regulated while those of other nutrients are rising. This is the right time to decontrol urea prices,” he said.

The government is considering deferring the payment of R27,000 crore, or close to a third of the total fertiliser subsidy demand for this financial year, to the next as revenue expenditure is set to trip the Budget estimate of R10.97 lakh crore. High global prices of key nutrients have pushed up the fertiliser subsidy bill for the fiscal to over R90,000 crore, only a tad short of the record level of R1,00,000 crore in 2008-09.

The country`s fiscal deficit touched 92.3% of the Budget estimate in the first three quarters of the current fiscal on slower-than-expected revenue mop-up, sparking fears it could widen even up to 6% of the gross domestic product in 2011-12 from the targeted 4.6%. The Prime Minister also called for improving productivity to sustain the high growth achieved in the sectors in the past few years. "...to meet the total demand of grain in the year 2020-2021, we need a growth rate of at least 2% per annum in food production. This has to be contrasted with the average annual rate of only 1% that we achieved in the ten year period from 1995-96 to 2004-05,” Singh said.

“Although food production has regained momentum in the recent years, we cannot afford to be complacent since the demand for horticulture and animal products is increasing very rapidly and this will require some shift of area away from production of grain. Therefore agricultural productivity in grain production has to go up handsomely,” he added.

Singh also sought renewed focus on farm research and reforms in agricultural marketing. Despite repeated requests by agriculture minister Sharad Pawar, some states are yet to amend the APMC act to strengthen marketing.

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