| Agricultural policy in India: need for a fresh look (1992) |
The terms of trade have been against the agricultural sector since the late 1970s. This has led to transfer of resources including capital from agriculture to non-agricultural activities mostly in urban areas further aggravating the problem of scarcity of capital in the sector. This trend needs to be reversed till agriculture develops to a stage when it can finance development in other sectors of the economy. To do this, the government should support prices of all agricultural commodities at levels that are remunerative to producers and close to world market prices, and that maintain the terms of trade in favour of agriculture. In India, wheat prices always and rice prices most of the time have been kept below the world market prices. This amounts to implicit taxation of farmers which perhaps more than offsets the subsidies given to them and explodes the myth that farm subsidies are a big burden on the Indian exchequer.
Remunerative prices to farmers on a year-round basis can be best assured by farmers’ co-operatives which handle supply of inputs, procurement, processing, storage and marketing of produce. This would also ensure that most of the value-added through these services goes back to the producers and distributed equitably amongst them. In fixing support prices, it should be kept in mind that, given the relatively low price elasticity of aggregate supply of farm commodities, prices have a limited role in increasing farm production and after a certain limit, non-price instruments, like irrigation, land development through various measures, crop insurance etc., become more critical factors in influencing production and hence should receive more attention than prices.