Mumbai, Aug. 30: The Reserve Bank of India (RBI) today came out against minimum support prices (MSPs), calling for a phased reduction in cross-subsidisation of administered farm prices.
In its annual report for the year 2001-02, the central bank said the policy of declaring differential and exogeneously determined MSPs has emerged as a major factor inhibiting crop diversification, and added that removal of restrictions on inter-state movement of farm produce and greater exposure of the agricultural sector to international trade terms will considerably “improve the price sensitivity of cropping and land use”.
The RBI said that over the medium term, administered support prices should give way to vibrant spot and futures markets for both foodgrains and non-foodgrains which will enable farmers to obtain remunerative prices for their produce and transfer various risks associated with their perishable stock.
With large parts of the country ravaged by the drought, the RBI was of the opinion that variability in agricultural production has emerged as a cause for serious concern.
Much of this volatility seems to stem from poor performance of non-foodgrains which is related to their excessive dependence on monsoon.
“The declining public yields in agriculture is resulting in reduced yields and slowdown in the growth of rural non-farm employment. There is an urgent need to increase public investment in irrigation and water management,” the apex bank noted.
This could be achieved by restructuring the existing allocation of resources to agriculture and by increasing user charges (power and irrigation) with due consideration to appropriate phasing. Moreover, investment needs to be directed towards watershed development in view of its salutary environmental implications.
Even as the RBI and the government have been taking a number of initiatives to ensure adequate credit to the agricultural sector, the central bank observed that “although public sector banks as a group have achieved targets for lending to the priority sector, flow of credit to these areas by other segments of the banking system has not been buoyant”.
Efforts were on to improve the recovery rate of agricultural loans and advances, as accumulated dues have constrained capabilities of expanding credit to the agricultural sector, it said.
However, there is a need to examine the issue of rural credit and its delivery systems in an objective as well as transparent manner and accord it priority in legislative actions and financial allocations. It further said the scheme of micro-finance has made rapid strides in India, both in terms of self-help groups linked with banks and number of beneficiaries covered, the apex bank said. “The progress of micro-finance across the states has, however, been uneven,” it added.