Call to reduce subsidies on agri products

RBI REPORT ON CURRENCY & FINANCE: 2002-03

Reserve Bank of India (RBI) is urging for correction in the excessively high minimum support prices for agricultural products, which otherwise is distorting the resource allocation in the agricultural sector.

The central bank further pointed out that in view of the relatively high level of food security, the climate is now right for further policy reforms in agriculture.

In its Report on Currency and Finance released today, RBI urged for reduction in various subsidies in order to provide a significant dividend for the country and thereby enable higher public investment where it is most required, especially in the agricultural sector.

The RBI has pointed to necessary changes in the current policies related to other subsidies, in particularly those related to fertiliser, power and water.

"To reap fruits of opening up of the economy, enabling conditions need to be created and decisive actions need to be taken to promote agricultural diversification and active investment in rural infrastructure," stated RBI in its report.

On the industrial sector, RBI said that following the liberalisation process, globalisation has brought about changes in the expenditure pattern of the industries as there are evidences that the cost of production including interest payments declined.

The entire reform package carried out over the past 12 years was expected to lead to significant industrial restructuring.

However, the central bank stated that resources should have moved from the more capital-intensive sectors to the more labour using ones, leading to higher output and employment growth.

RBI opines that further industrial restructuring in terms of more rapid bankruptcy procedures, easier reallocation of capital, faster transformation of urban land use and flexibility in labour use, as well as legislative changes, social security mechanism and technological upgradation need priority.