PM Modi grapples with falling farm output

Back-to-back droughts, the lack of long-term investment in agriculture and increasing demands from a growing population are undermining India's bid to be self-sufficient in food.
Back-to-back droughts, the lack of long-term investment in agriculture and increasing demands from a growing population are undermining India's bid to be self-sufficient in food.PHOTO: REUTERS

NEW DELHI • India's Prime Minister held a late-night meeting with food and farm officials last week to address falling agricultural output and rising prices, and traders warn the country will soon be a net buyer of some key commodities for the first time in years.

Back-to-back droughts, the lack of long-term investment in agriculture and increasing demands from a growing population are undermining the country's bid to be self-sufficient in food.

That is creating opportunities for foreign suppliers in generally weak commodity markets, but is a headache for Prime Minister Narendra Modi, who needs the farm sector to pick up in order to spur economic growth and keep his political ambitions on track.

"The top brass is dead serious about the farm sector that is so crucial to our overall economic growth and well-being," Reuters cited a source, who was present at the recent gathering of Mr Modi, his agriculture and food ministers and other officials, as saying.

Mr Modi sat through presentations and asked the ministers to ensure steady supplies and stable prices, urging them to find solutions, the source said. He did not suggest any immediate interventions of his own.

The long-term impact on commodity markets could be significant. Last month, India made its first purchases of corn in 16 years. It has also been increasing purchases of other products, such as lentils and oilmeals, as production falls short.

Wheat and sugar stocks, while sufficient in warehouses now, are depleting fast, leading some traders to predict the need for imports next year.

"There's a complete collapse of Indian agriculture and that's because of the callous neglect by the government," said independent food and trade policy analyst Devinder Sharma.

"Given the state of agriculture, I'm not surprised to see India emerging as an importer of a number of food items. Maize is just the beginning."

The farm sector needs to grow at about 3 per cent to help Finance Minister Arun Jaitley achieve his target of 7 to 7.5 per cent economic growth in the 2015/16 fiscal year.

In the first half of this fiscal year, agricultural growth fell to 2 per cent from 2.4 per cent a year earlier.

Mr Jaitley wants to present a credible budget this month with realistic targets for tax revenues and asset sales, people involved in the process say, but businesses may end up picking up much of the tab.

He is staring at a big revenue tax shortfall as India, again, misses an unrealistic target for raising cash from selling off state assets, while the sliding commodity prices and exports have dented revenues.

Those familiar with the budget process told Reuters that Mr Jaitley may pare tax breaks on capital investment, research and development, and projects in under-developed regions. As of now, the government is not considering raising its deficit target.

They declined to estimate how much those measures would raise, but one said they would more than offset revenue losses from cuts in India's corporate income tax announced a year ago.

Back then, Mr Jaitley had promised to bring down the tax to 25 per cent from 30 per cent over four years, pruning exemptions as he goes.

REUTERS

A version of this article appeared in the print edition of The Straits Times on February 03, 2016, with the headline 'PM Modi grapples with falling farm output'. Print Edition | Subscribe