MSP hikes isn't the only tool to incentivise farming

Policy on price and procurement support should not encourage more production of abundant crops

As the government battles to keep food inflation within manageable limits, the Economic Survey has advocated the use of tools other than the existing price support mechanism to incentivise farming in the medium term.

It also said the policy on price and procurement support should be so calibrated as to not encourage more production of crops that were abundantly available. India's wheat and rice production has reached record highs in the last few years because of a steady increase in the minimum support price (MSP).

But the high production has put enormous pressure on the government's fiscal balance as procurement by state agencies have also grown in the same proportion. The Survey, tabled in Parliament today, said other measures to increase investment in farming and supply should also be explored in the medium term. It also criticised the government's off and on policies on exports, imposition and removal of tariffs and the futures markets. "These (measures) tend to make it harder for producers to plan and reduce incentives to produce by limiting their remuneration and inhibits their production increases that are needed to bring food prices under more sustained control," the Survey noted.

The overall agriculture and allied activities growth in 2012-13 is pegged at around 1.8 per cent in the Survey, which, though lower than the annual target of four per cent, is not a bad projection considering that monsoons were patchy in 2012.

The Survey also called for urgent reforms in agriculture to achieve greater efficiency and productivity, which can sustain the growth. On crop insurance, the Survey said it needed to be modified further to cater to unavoidable climatic conditions or pest epidemics. It said the private sector should be allowed to operate in developing critical market linkages for better supply chain management. India needs to improve the productivity of various crops to maintain its self-sufficiency in grains and be competitive in global markets, it added.