New Delhi, February 27
The Economic Survey today suggested a freeze in minimum support price (MSP) of wheat and rice and re-orientation of the foodgrain policy, even as it warned that the foodgrain output would fall by 300 lakh tonnes due to drought and asked the government to raise irrigation potential and overhaul the regulatory mechanism in agriculture.

Continuous increase in MSP has not only distorted domestic market prices but has also eroded India’s export competitiveness. While developed economies continue to protect their exports through export subsidies, Indian rice and wheat are not export competitive.

It said perhaps the only solution at hand was to freeze the current MSP until it became equal to “C2” cost or until annual procurement settled down to earlier levels of 24-30 million tonnes, the pre-Budget Survey tabled in Parliament said.

The country’s food subsidy rose alarmingly by 20.3 per cent to a mammoth Rs 21,200 crore in 2002-03 alone, mainly due to a continuous hike in the MSP for foodgrains and consequent increase in the Centre’s grain procurement over the years.

Warning that this was a cause for concern, which if not checked would exert a further upward pressure on the already high subsidy bill, the survey said “substantial increase in MSP of rice and wheat above the cost of production in efficient states like Punjab and the system of open-ended procurement have caused farmers to divert more land for production of these crops from coarse grains, cotton and oilseeds.”

Alarmed at the “vulnerability” of Indian agriculture to monsoon failures, the Survey said: “It is time to rethink whether the country can afford irrigation through field flooding, which is basically wasteful, and evaluate more economic methods of irrigation.”

Asking the government to accelerate diversification in agriculture, it said value addition in horticulture, floriculture and sericulture as also in food processing could yield rich dividends and infrastructure like cold storage must be strengthened through public-private partnership.

The Survey said the 13.6 per cent fall in foodgrain output to 183.2 million tonnes, lowest since 1996-97, was mainly due to the decline in kharif production from 111.5 million tonnes last year to 90.3 million tonnes year, showing a decline of 10.09 per cent.

The rabi foodgrain output is also likely to drop to 92.9 million tonnes compared to last year’s 100.5 million tonnes, a drop of 7.5 per cent, it said, adding that the effect of drought on oilseeds was expected to be severe and production may fall to 15.4 million tonnes from last year’s 20.5 million tonnes.

However, the surplus foodstocks have been a blessing in disguise in an year of drought. Surplus foodstocks are a fundamental resource for drought relief in an year when 17 major states were hit by the scantiest monsoon of the century. It also cautioned that the interests of the poor had to be safeguarded while undertaking grain management.

It said unlike floods where the impact was limited to only one season, the impact of drought lasted not only through the four months of kharif season (July-October) but also through rabi (November-March) and next kharif up to October when new harvest arrived and incomes began to accrue.

Fortunately, this year the country’s godowns were overflowing with surplus foodstocks which provided timely relief to the states under various welfare schemes of the government. Total foodstocks as on January 1, 2003 were 48 million tonnes as against a minimum norm of 16.8 million tonnes. This helped mitigate adverse effects of drought, the Survey added.