Budget seen advancing farm sector reforms

Hari Ramachandran

India's Budget for the next fiscal year will press ahead with farm sector reforms through changes in duties on the sector but no major surprises are seen as several significant reforms were announced earlier this month.

Analysts and traders said reforms in the sector were key to ensuring long term economic growth as more than two thirds of India's population of more than a billion people live off agriculture and related activities but it currently contributes only around 25 per cent to GDP.

The Budget, due on February 28, was likely to tinker with the rates and structure of duties relating to commodities and increase budgetary allocations to the farm sector, they said.

As promised in the last Budget, the government earlier this month removed restrictions on the movement and storage of foodgrains and edible oils, proposed complete decontrol of the sugar sector later this year and allowed free exports of grains.

But these measures, though in the right direction, were "peripheral and marginal," wrote farm leader Sharad Joshi in the Business Line newspaper.

Traders' expectations vary from a cut in import duties on oilseeds to a rationalised duty structure for the textile sector, and from increased allocation for farm-related activities to strengthening agricultural research.

POSSIBLE TARIFF CHANGES

Edible oil traders said the government might cut import duties on oilseeds to reduce dependence on imported oils and help several idle processing units.

There was also speculation on whether India would raise duties on soyoil imports over 500,000 tonnes annually to protect domestic soybean producers.

An industry source said last week a farm ministry proposal for a tariff rate quota scheme, whereby soyoil imports above that amount would attract 75 per cent duty instead of 45 per cent, was opposed by the commerce ministry saying the measure would violate India's World Trade Organisation obligations.

India, the world's largest edible oils buyer, imported about 60 per cent of its total edible oil imports in 2000-01 (November-October) from Malaysia and Indonesia. Both countries, have asked India to reduce its duties on palm oil imports.

The government may also lower import levies on crude palm oil for hydrogenated vegetable oil makers who face problems from duty free imports of the oil from neighbouring Nepal under a bilateral trade treaty.

The country's cotton textile industry is seeking to correct what trade says are "distortions" in excise duty concessions that apply only to some segments of the industry.

Grains traders said they did not expect major announcements by way of duty changes in the Budget since several measures to encourage exports had already been announced.

FUNDS TO BOOST AGRICULTURE

"In order to spur growth along with reforms there is a need to increase budgetary outlay for production-related programmes and strengthen agriculture research and extension services," said G Chandrasekhar, a Mumbai-based commodity analyst.

He said GDP growth could not cross six per cent a year unless the farm sector grew at least four per cent annually.

"We have land, labour, water and sunshine in adequate measure but what is lacking is the managerial ability to exploit these factors," he said.

The economy is estimated to grow 5.4 per cent in the year to March, sharply up from 4.0 per cent the previous year mainly on growth in farm sector output. Agricultural output is estimated to expand 5.7 per cent in 2001-02 after falling 0.2 per cent the previous year.

Analysts said production-related programmes could include the creation of a fund to induce farmers to grow more oilseeds by shifting from grains cultivation.

India has huge stocks of wheat, rice and sugar after consecutive good monsoons but lacks oilseeds because of low productivity.

Anil Sharma, agriculture economist with the National Council of Applied Economic Research said the Budget should also stimulate the private sector's interest in areas like post-harvest infrastructure, transport and storage.

Reuters

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