‘‘The UPA’s economic reforms will be oriented primarily to spreading and deepening rural prosperity.” So mandates the Common Minimum Programme. The outcome is a bonanza for the farming sector: increasing public investment, improving credit flow, encouraging diversification into horticulture and floriculture, and above all, emphasis on making available to the farmer his most precious input—water.

Yet there have been no reforms in the Budget and there are only bureaucratic ‘Fund and Figure’ measures that have been tried earlier with marginal results. This is because the delivery mechanism to reach these funds, schemes and benefits to the farmers continues to be ineffective and corruption ridden. Drastic steps need to be taken to strengthen delivery mechanisms.

Of all infrastructure and resources, Energy has the best potential to be the catalyst of rural prosperity and poverty alleviation. Providing rural households with access to superior energy sources like electricity or LPG for cooking/lighting/heating has important economic and social benefits. This could also encourage rural folk to diversify their activities and go in for cottage and micro-enterprises, thereby earning additional income besides generating non-farm employment.

The provision of improved energy services to agriculture will have a cascading effect that can contribute to poverty reduction through substantial increase in farm income and enhancement of gross cropped area, which in turn augments non-farm employment.

By making renewable energy development an important part of rural reforms, substantial revenue earning linkages like energy plantations and agro-waste utilisation can be established. This will considerably boost the rural economy. A catalyst to be effective should be backed up by strong capital formation in the rural sector. India is the second-largest producer of rice and wheat in the world, first in the production of pulses and fourth in coarse grains. It is the largest producer of coconut, cashew nut, ginger, turmeric and black pepper, and the second-largest producer of groundnut, fruits and vegetables. Milk production in the country, estimated at 84.6 million tonnes, is the highest in the world. India is also the fifth-largest producer of eggs and seventh-largest producer of meat. Despite these achievements capital formation in agriculture has declined from 1.9 per cent of GDP in the early 1990s to 1.3 per cent of the GDP after 2000-01. Capital formation in agriculture as a percentage of total capital formation in the country, which was 15.4 per cent in 1980-1981, fell to 9.9 in 1990-1991 and to only 7.7 to 2000-2001.

The best way to augment capital formation in rural India is to help the farmer to generate surplus which he can invest in farm upgradation or value added activities. The main bottleneck in this is the absence of proper rural marketing infrastructure and enabling government policies. Private participation in developing marketing infrastructure is severely constrained. Since the Food Corporation of India is gobbling up most of the food subsidy (currently at Rs. 27,746 crores) it does not add to the farmer’s cash flow. The Economic Survey therefore calls for a “rethink” on the existing cost-plus minimum support price (MSP) system of unlimited foodgrain procurement, which is imposing a heavy burden on government finances.

If farmers are to earn reasonable income and generate surplus, the vice like grip of the state on the trading of food grains should be removed and farmers given freedom to market their products with provision for a safety net. Instead of MSP, a flexible price mechanism can be introduced by announcing ‘parity prices’ for foodgrains, which fully compensate the farmers for rise in cost of inputs and their other necessities of life and also setting the limits between which the foodgrain trade will have to operate. Fixing a floor and a ceiling price respectively to be called ‘support price’ below which prices will not be allowed to fall and ‘intervention price’, beyond which prices would not be allowed to rise, can do this.

To make this mechanism work, there is need to establish a chain of rural and peri-urban godowns with warehousing/foodgrain banking facilities. These warehouses should also function as sale agencies on behalf of farmers selling farm products to buyers, consumers, co-operatives, government agencies — at a price set by the owner of the stock. Instead of individual farmers going to buyers, which puts them in weak bargaining position, buyers may go to these warehouses for their requirements. Farmers should also be helped and encouraged to set up co-operative shops in cities to sell their produce directly to consumers, so long as they do not transgress the ‘intervention’ prices.