Policy watch June 2007

Make agriculture more profitable, says PM

Prime Minister Manmohan Singh will undertake a tour of six states in July 2007 to enhance farm sector productivity and make agriculture more profitable and sustainable in dryland and rainfed areas.

The PM has asked the sub-committee of the National Development Council on Agriculture to initiate steps to boost domestic and export demand, and to converge the resources of Bharat Nirman and National Rural Employment Guarantee Scheme with agriculture schemes.

Singh has also drawn attention to the stress on land and water resources caused by heavy dependence of the population on agriculture, and the slowdown in agricultural growth since the 5th Five-Year Plan.

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Rs 150 crore for tribal forest villages

The government has allocated Rs 150 crore for development of forest villages during 2007-08. The move will accelerate development and bridge existing gaps in tribal areas.

The 2,474 villages -- with 2.5 lakh families -- are spread across Assam, Chhattisgarh, Gujarat, Jharkhand, Meghalaya, Madhya Pradesh, Mizoram, Orissa, Tripura, Uttaranchal, Uttar Pradesh and West Bengal. Madhya Pradesh has the largest number of such villages: 893.

In 2005-06, proposals for 1,832 villages of eight states were approved and Rs 191. 81 crore released to the state governments. In 2006-07, proposals for 556 villages were approved and Rs 220. 97 crore was released to 11 states. The Union ministry of tribal affairs reported that some villages had been abandoned in the last two years, and proposals for 13 villages in Uttar Pradesh had not been received.

The ministry has recently written to all states, which have forest villages to send their project proposals, and to seek funds where more work needs to be done.

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Cash, not bonds, for recapitalising regional rural banks

In a consultative committee meeting with the Reserve Bank of India (RBI) and National Bank for Rural Development (NABARD) in April 2007, the Union ministry of finance acknowledged Regional Rural Banks (RRBs) as important agents of financial inclusion. On the occasion, the ministry announced that RRBs should be recapitalised as cash and not as bonds.

The ministry has been under pressure to completely delink RRBs from the sponsor banks, and bring them under the regulatory authority of NABARD. Though the exact amount of recapitalisation is yet to be firmed up, it is estimated to be Rs 1,500-2,000 crore to be provided by the Centre, state governments and sponsor banks.

With 96 RRBs in the country, finance minister P Chidambaran has directed 1,000 additional branches be introduced. The ministry has asked RRBs to maintain a minimum capital adequacy ratio of about 7 per cent, assessing them on the same parameters as state owned banks.

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Cashew prices fall due to closure of processing units

Cashewnut prices have dropped by 30-35 per cent over the last three months in Palasa, the largest cashew market in Andhra Pradesh. This is due to the closure notices issued by the Andhra Pradesh Pollution Control Board, asking operators to change the processing system from the existing roasting method to steam boiling method to check emission levels.

About 70 cashew-processing units out of a total of 210 -- with a capacity of 2,000 bags a day -- have stopped operations since April. During the beginning of the 2007-08 cashew season in March, processing operators paid Rs 3,000 for a 80 kg bag to farmers. In the beginning of the previous season, the rate for the same was Rs 3,600-4,000.

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Dwindling wheat output threatens India’s food security

Low production of wheat over the last couple of years is threatening India’s food security. Wheat production has come down from 76 million tones (MT) during 1999-2000 to 74 MT during 2007-08. Falling short of the 109 MT target set for 2020, the government has been impelled to import 5 MT wheat for the second consecutive year, says S Nagarajan, former director of the Indian Agricultural Research Institute.

Professor Ramesh Chand at the National Centre for Agricultural Economics and Policy Research says that many farmers in North India’s wheat belt are now cultivating profitable cash crops. Setting up of industries in large parts of this belt has further aggravated the problem.

The total area under wheat cultivation in India has declined from 28 million hectares (mha) in 1998-99 to 26 mha in 2005-06. “Availability of good seeds is also crucial for higher yields. Although more than 60 different varieties of high yielding varieties (HYVs) are available in India, 40 per cent farmers still opt for cheaper ones. This has led to a drop in yield -- from 2,778 kg/hectare in 1999-2000 to 2,617 kg/hectare in 2007-08,” says Chand.

Declining production in turn affects the government’s buffer stock and public distribution system procurement. The latter has dropped by 55.5 per cent from an all time high of 21 MT in 2002 to 9 MT during 2006-07. Even the prices of wheat have risen by 17 per cent. With wheat production growing at just 2 per cent ever year, India’s food security is under threat, says Chand.

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Gender mandate to deal with panchayat related issues

The Union ministry of panchayati raj has initiated the Panchayat Mahila Shakti Abhiyan -- a movement to strengthen women elected to panchayati raj institutions (PRIs). This programme is being run under the guidance of National Commission for Women’s (NCW’s) project titled ‘Chalo gaon ki ore’.

The abhiyan has been introduced to initiate awareness about gender issues in governance and to facilitate elected women representatives (EWRs). As part of the programme, the Centre and state governments have constituted a core group comprising EWRs of PRIs, activists and academicians to draft a women’s charter to deal with panchayat related issues.

“Most EWRs see themselves as isolated and unorganised, functioning without a structure. They have spoken of the need to form into groups or associations, which address their special needs in a patriarchal social and political milieu,” reads the mandate of the abhiyan.

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Water resources ministry starts work on water bodies in 15 states

The National Project for Repair, Renovation and Restoration of Water Bodies completed work on 619 water bodies till March 2007. The Union ministry of water resources has approved district projects for repair, renovation and restoration of 1,098 water bodies in 15 states -- Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Karnataka, Madhya Pradesh, Orissa, Rajasthan, Tamil Nadu, West Bengal, Himachal Pradesh, Jammu and Kashmir, Gujarat, Kerala and Maharashtra -- at an estimated cost of Rs 299.92 crore.

Under the same project, a World Bank loan agreement was signed with Tamil Nadu for Rs 2,182 crore to restore 5,763 water bodies with a cultural command area (CCA) of 4 lakh hectares (ha). Till March 2007, the Andhra Pradesh Community-Based Tank Management Project had completed the restoration of 3,000 water bodies with a CCA of 2.5 lakh ha at a cost of Rs 1,000 crore.

Pilot schemes under the project began in June 2005 at an estimated cost of Rs 300 crore to be implemented during the remaining period of the 10th Fiver-Year Plan. It proposed the restoration of water bodies throughout India and to significantly upgrade the storage capacity.

The proposed funding pattern of the project is Centre:State, 75:25. Under the scheme, projects are taken up in one or two districts of each state. To be completed in two years, the states are to take up restoration of water bodies having an original irrigation CCA of 40 ha to 2,000 ha.

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Parliamentary committee observes lack of growth in village industries

Inadequate research and development activities, lack of proper monitoring mechanism and standardisation of products are hampering the growth and development of village industries, the Parliamentary Standing Committee on Industry has observed.

Headed by Santosh Bagrodia, the committee also expressed concern over the plight of traditional artisans. Recommending preferential treatment for artisans for establishing units under the Rural Employment Generation Programme, the committee has advised the government to instruct all banks through the Reserve Bank of India to lend more to its beneficiaries and establish a uniform rate of interest.

“In the backdrop of a reduction of 20 per cent in allocation of all schemes implemented by ministry of agro and rural industries, would pose serious problems for the khadi and village industries,” says Bagrodia.

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PM announces Rs 25,000-crore plan for agricultural sector

Prime Minister Manmohan Singh has announced a Rs 25,000 crore-package for boosting the farm sector. “The Centre will commit funds only if states maintain their baseline levels of expenditure,” Singh said.

The package encourages states to come up with localised solutions for problems faced by the agricultural sector. With an aim to reduce the country’s dependence on imports of basic commodities, a Food Security Mission will be announced to raise the production of wheat by 8 million tons (MT), rice by 10 MT and pulses by 2 MT.

The PM referred to the non-viability of small and marginal farming in reducing rural poverty and distress, and said that public and private investment in agriculture should be seen in the context of a larger trend whereby subsidies have been increasing and investments declining. ‘Technology fatigue’ has resulted in a slowdown of the agricultural sector -- an issue, which needs to be addressed.

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Maharashtra to conduct poverty survey of tribals

The Maharashtra government will conduct a poverty survey of tribals during the monsoon season this year. The decision was taken at a meeting of the Maharashtra Janajati Sallagar Parishad -- an advisory body on tribal affairs -- held in June 2007.

Tribal leaders have complained that the government has conducted surveys to detect below poverty line (BPL) families only during the fair season when tribals migrate in search of work. As a result, many families that should have been registered as BPL in order to avail special benefits were left out.

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Punjab to allow shifting of paddy crop after June 15

The Punjab government may pass an Act whereby the summer paddy crop will only be transplanted after June 15 every year. The State Farmers’ Commission had earlier sent a proposal to the state government with recommendations to preserve sub-soil water and improve soil health in Punjab. The state has been facing an ecological crisis with soil fertility rates diminishing.

The Act also seeks barring of farmers from sowing paddy before May 10, and penalising those who breach any of the provisions. This fine will be in addition to the recovery of the charges incurred for destroying the crop sown/transplanted before a prescribed date.

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Rising interest rates affect micro-finance sector

The recent hike in Reserve Bank of India (RBI) interest rates has led to micro-finance institutions (MFIs) revising their interest rates as well. With ICCI Bank’s micro-finance associate KAS Foundation increasing its rate of interest from 18-21 per cent to 21-24 per cent, other institutions are under pressure to follow suit.

“The cost of funds is 13-14 per cent, while an additional 6 per cent is spent on transportation -- to disburse money and for recovery -- and salaries to the persons disbursing and collecting funds,” says S Kathiresan, founder and CEO of KAS Foundation.

Some institutions like SKS Microfinance have not increased their rate of lending yet, and have absorbed the increase. However, they are under tremendous pressure to follow suit. With the cost of funds rising, the increment in rates of interest would be in the range of 2- 3 per cent, at par with the hikes executed by RBI.

Previously, MFIs -- particularly the larger ones -- were able to sustain the rates by increasing the volumes much faster to cover for decreasing spreads rather than by passing them to the customers, says Moumita Sensarma, head of micro-finance at ABN Amro Bank.

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Rural business hubs to be empowered

In a bid to promote rural business hubs, the Union ministry of panchayati raj has encouraged the convergence of state and central government extant schemes, as well as financing institutions/banks with decentralised rural production units through the intermediation of panchayats.

Under the franchisee guidelines of the Rajiv Gandhi Grameen Vidyutikaran Yojana 2006, a series of memoranda of understanding (MOUs) have been signed in Karnataka between panchayati raj institutions (PRIs) and electricity generation and distribution companies (from public and private sectors) to promote rural business hubs.

In the Lok Sabha recently, minister of panchayati raj and youth affairs Mani Shankar Aiyar said that the Electricity Act, 2003, suggested that the Central government formulate a national policy for rural electrification and for the management of local distribution in rural areas through PRIs or franchisees. The Rural Electrification Policy, approved in 2006, directed state governments to encourage PRIs to take on the responsibility of franchisees, raise resources and discharge associated legal responsibilities.

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Assets and liabilities must for BPL status

In a revamp of guidelines defining individuals below poverty line (BPL), the government will take into account future liabilities and assets, and not just incomes. This revision may increase the number of BPL families in India from the 22-23 crore estimated in 2002 by the Union ministry of rural development.

The change of guidelines implies that a person’s social commitment, liabilities and financial status over the last 15 years will be considered for inclusion in the BPL list, rather than just his or her income.

Officials associated with the exercise say that the current score-based ranking system used in the BPL census carried out by the rural development ministry will be replaced. The new method will also mean that the states might lose the flexibility to decide cut off scores for identifying and categorising households as poor and enabling the scores to be uniform for all.

The move will leave certain basic needs like pucca houses in hilly areas, and cattle in plains outside the purview of BPL. Migration will also be used as a criterion to define the status of a person as BPL for those individuals who might not have migrated and would have found work locally, but are still poor.

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