[Economic Survey Ch1] Agriculture challanges, tax to GDP, steps by Government (part 3 of 3)

1. AGRO and Food Management
2. Agriculture: Problem areas?
3. #1: Land holding
4. #2: Nutritional security
5. #3: Supply Chain  Management
6. Kelkar
7. Tax to GDP ratio?
8. Steps Taken by Government

AGRO and Food Management

• The declining share of the agriculture and allied sector in the country’s GDP= this is characteristic of any fast growing economy
• but that doesn’t mean we should ignore agro and pay more attention to manufacturing / service sector.
• Because fast agricultural growth = vital for jobs, incomes, food security, + curbing food inflation.
• 11^th Five year plan has led to improvement in agricultural performance. Even states that were traditionally not procuring sufficient foodgrains, e.g. Bihar, Madhya Pradesh, Bihar, Chhattisgarh, and West Bengal have showed significant increase.

Agriculture: Problem areas?

#1: Land holding

• Indian agricultural sector is the domination of small farmers with small sized landholdings. = they cannot afford sophisticated tractors, thrashers, irrigation system etc. Therefore, per hectare Agricultural yields or productivity= very low
• Government  should carry out land reforms, land consolidation, promote cooperative farming etc. to reduced these “small sized farms”.

#2: Nutritional security

• Food security =everybody should get food. But doesn’t mean nutritional security.
• For example, you can feed a poor-child with cheap quality wheat / rice. But for healthy growth of body and mind, you also need various vitamins, fruits, vegetables, milk, protein, oil, etc. nutritional items. Malnutrition is a big problem in India.
• So we don’t just need “food security”, we also need “nutritional security”.
• For ensuring nutritional security, Government has to arrange the right amounts of food items in the food basket of the common man.
• So, Government must give a thrust on horticulture products and protein-rich items, apart from the regular wheat, maize, rice and foodgrains.
• + invest more money in agricultural research.

#3: Supply Chain  Management

• Another critical issue is supply-chain management in agricultural marketing in India.
• Lot of agro-produce gets wasted due to infra problem (bad roads, no cold storage, electricity etc.)
• Government needs to link wholesale processing, logistics, and retailing with farm-production activitie.
• Recently the government allowed FDI in multi-retail, = It’ll bring for investment in new technology, storage, processing and marketing of agro produce.= less spoilage, better prices for farmers.

Other problems:

• soil erosion,
• soil salinity,
• waterlogging,
• excessive use of fertilizers and pesticides
• overexploitation of groundwater for irrigation.
• Still dependent on the vagaries of monsoon.

Kelkar

• The government appointed a committee headed by Dr Vijay Kelkar to chalk out a roadmap for fiscal consolidation. We already discussed his recommendations in detail. click me
• Target: Reduce fiscal deficit to 3.0 per cent of GDP in 2016-17. But how?
• Government will have to control the Expenditure on subsidies.
• Government will need to increase the domestic prices of petrol, diesel, LPG as per the prevailing in international markets.
• Government has capped the number of subsidized gas cylinders to nine.

^this will decrease the “outgoing” money for Government.

But that alone, cannot solve the fiscal deficit problem. Government also needs to increase the “incoming” money.

Tax to GDP ratio?

• As the name suggest: It is the Ratio of tax collection against the national gross domestic product.
• From Government’s point of view, higher tax to GDP ratio= “incoming” money is more.

• Therefore, if Government wants to achieve fiscal consolidation, it must raise the tax-GDP ratio to above the 11 per cent level. But how?
• Of course, one way is increase the tax rate like 75% income tax for rich people, 25% income tax for middle class. But then people will feel more compelled to evade tax and / or relocate to some other country where tax rates are low.
• So, instead of raising the taxes very much, better try to broaden the base and improve the tax collection mechanism. There are two ways to do it 1)GST (for indirect taxes) 2) Direct tax code (direct tax)

Steps Taken by Government

(list not exhaustive)

1. Government has setup CCI: Cabinet Committee on Investments. This Committee is headed by Mohan. It’ll fast-track projects more than Rs.1,000 crore.
2. Cabinet has cleared the Land Acquisition and Rehabilitation and Resettlement (LARR) Bill. already discussed click me
3. Government has increased FDI in a number of areas including multibrand retail, power exchanges, and civil aviation.
4. Government is increasing investment in irrigation, storage and cold storage networks = less farm produce wasted during transport.
5. Government has passed The Banking Laws (Amendment) Act 2012. This will strengthen RBI and make way for entry of new banks. (we already saw this in detail. click me).
6. Financial Sector Legislative Reforms Commission is formed. This Commission is examining the laws governing the financial sector and suggest ways of modernizing those laws.
7. Government introduced new External Commercial Borrowing (ECB) scheme for companies in the manufacturing and infrastructure sector. So they can get cheap loans from abroad.

HUMAN DEVELOPMENT

• In 12^th FYP>> social sector Expenditure, Government aims to spend lot of money on education + health.
• Nevertheless, India’s expenditure on health as a per cent of GDP is lower than in many other emerging and developed countries.

Poverty removal

• As per Tendulkar Committee, the percentage of people living below the poverty line in the country has declined

• In the last few years public expenditure on social programmes increased dramatically.
• In the Eleventh Plan period nearly 7 lakh crore has been spent on the 15 major flagship programmes.
• To secure the rights of people, Government made many laws in recent years

• But the main problem is: Government money isnot reaching the targeted beneficiaries. There is lot of corruption.
• Government has come up with solution: Direct benefit transfer (DBT) with the help of the Unique Identification (UID).

This concludes the gist of Chapter 1 of Economic Survey. Next chapter, next time.

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