The government may significantly increase public investment in the agriculture sector in the coming Budget.
It is also expected to address the decline in private sector investment in agriculture by providing tax concessions. Private sector companies engaged in agricultural activities have, in the past, spoken about the difficulties in owning large tracts of land.
The finance ministry may cut down subsidies for fertilisers, seeds and power and instead allocate more money for irrigation, a major problem area in the farm sector. Besides, measures may also be taken to enhance production of paddy, wheat, pulses and oilseeds.
Finance Minister P Chidambaram had said the challenge was to promote private investment, including investment by the corporate sector, in pre-farming and post-harvest activities in a manner that would not affect the sacred relationship between the tiller and land.
To maintain the 9 per cent rate of economic growth and to contain inflation, the government has realised that improved productivity of the farm sector is a must. The country's farm sector needs urgent attention because it provides livelihood to nearly 60 per cent of the population and is vital for food security.
The decline in public investment in agriculture is a matter of concern, economists say.
"The decline in public investment in agriculture is likely to be reversed," said Rajiv Kumar, director and chief executive of Indian Council for Research on International Economic Relations.
Average public investment was only Rs 8,790 crore (Rs 87.90 billion) a year during 1999-2004. Since then, public investment increased to Rs 14,660 crore (Rs 146.60 billion) in 2003-04 and Rs 15,380 crore (Rs 153.80 billion) in 2004-05. The decline, as a percentage of GDP, is from 2.2 per cent in the late 1990s to 1.7 per cent in 2004-05. Though agriculture grew by 6 per cent in 2005-06, the average growth during 2000-05 was at a low of 2.2 per cent.
Achieving 4 per cent agricultural growth in the Eleventh Five-Year Plan of is not an target to reach.
"I expect the government to put in more money to run government programmes in the farm sector and create funds for use of better technology in farming," said Shyamal Mukherjee, deputy tax leader of Pricewaterhouse Coopers.
The decline in investment by the private sector in agriculture calls for a revisit of the incentive structure in agriculture.
To address this, the finance ministry may look at tax concessions for private investments in agriculture.
Private sector investment at Rs 40,658 crore (Rs 406.58 billion) in 2002-03, came down to Rs 38,190 crore (Rs 381.90 billion) in 2003-04 and Rs 35,863 crore (Rs 358.63 billion) a year later.