The Hindu : Proper pricing policy for water suggested

Online edition of India's National Newspaper
Saturday, Jul 13, 2002

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National

Proper pricing policy for water suggested

By Our Special Correspondent

CHENNAI JULY 12. There should be a proper pricing policy for water if Indian agriculture is to be saved from increasing salination caused by overdrawal and steep decline in the water table, the Chairman of the Madras School of Economics (MSE), Raja J. Chelliah, said here today.

Speaking at a function to mark the completion of 20 years of service by the National Bank for Agriculture and Rural Development (NABARD), Dr. Chelliah said water being price elastic (viz. demand for the commodity is affected by and inversely proportionate to price), underpricing of water, as obtained now, would cause a serious crisis for farming by encouraging wasteful, inefficient and excessive use of water.

Similarly, fixing the support price for crops at an unreasonably high level led to excessive production by farmers who responded "rationally'' to the administered price signal. However, the consequence was low market prices and unconsumed food stocks warranting high costs of storage, he said.

Complimenting NABARD for its various schemes and for maintaining profitability and a low ratio of bad loans (non-performing assets), Dr. Chelliah said the rate of growth of agriculture could not be increased without major changes in the agriculture policy. The reform should include freedom for farmers to decide what to produce, how much to produce and where to sell, including export, and removal of restrictions on movement of produce within the country which was a single common market.

Dr. Chelliah said there was not enough support to the farming community from research departments of universities. As for capital formation in agriculture, the Government must make investments in irrigation and other infrastructure, though its efforts could be complemented by banks and the Rural Electrification Corporation. He said problems plaguing the cooperative financial system as a result of politicisation had not been addressed. "The laws of economics cannot be evaded for ever and money (loan dues) must flow in to enable continued disbursal of loans,'' he said.

The Chairman and Managing Director of Indian Bank, Ranjana Kumar, said it was in view of the fact that even now about 40 per cent of farmers depended on moneylenders and were outside the banking system that Indian Bank had recently initiated a "franchisee scheme.''

Under this scheme, franchisees of the bank were allowed to lend to farmers with a spread of not more than two percentage points over the interest charged on them by the bank. This would enable greater coverage of the farming sector at rates much lower than what the traditional money-lenders charged.

Ms. Kumar said that under Indian conditions, farmers sometimes needed special accommodation even when there was no natural calamity, like pressing personal situations involving a marriage in the family, death etc.

Keeping this in view, the bank had undertaken another experiment to rephase loans of farmers in such circumstances to keep the farmers' account alive and healthy in the long term. Otherwise, it would result in a "lose-lose situation'' for the suffering farmer as also the lender-bank, she added.

T.S. Sridhar, Agricultural Production Commissioner and Secretary Agriculture to the Government of Tamil Nadu, experssed concern over the stagnating share of agriculture in the State's gross domestic product. He said the State Government's Plan proposals called for increasing the growth rate of agriculture to four per cent from less than 2.5 per cent at present, and it would not be possible to achieve this objective without focussing on horticulture, floriculture and exports.

C.R. Patnaik, Chief General Manager, NABARD, Chennai, said the bank aimed at promoting sustainable agricultural development.

The district-wise potential-linked credit plans prepared by NABARD annually had become a primary database and framework that enabled lead banks to finalise their actions plans for the year, he observed.

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