Current Context Agricultural Policy in India

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1 Facilitating Efficient Agricultural Markets in India An Assessment of Competition and Regulatory Reform Requirements Final Workshop February 2011, New Delhi Current Context Agricultural Policy in India Consensus around the need for reform currently due to: - food price inflation - decelerating agricultural productivity - farmer distress (small and marginal farmers) - escalating subsidy burden 1

2 Economies in Transition Agricultural policy Our Objective to assist with agricultural policy formulation to help achieve India s National Goals of: - food security - poverty reduction - improving the situation of small and marginal farmers How Does The Project Do That?? By drawing on relevant international policy reform experience from large transitional BRICs economies, particularly in relation to: - policy review processes and policy principles being used to underpin reform - undertaking focussed collaborative research on immediate reform priorities (government regulation significantly impacting on competition) 2

3 Project Components The BRICs Report R. Chadha & S. Davenport The Food Corporation of India S. McCorriston & D. MacLaren Negotiable Warehouse Receipts J. Gujral The Application of Competition Law to Agriculture J. Gujral & P. Joshi & Anuradha R.V. Original Project Elements Additional Project Elements New Project (Preliminary) Food Supply Chain Case Studies R. Chadha & A. Tandon S. Jayasuriya & S. Davenport Is There a Role for Agricultural Offsets in Sustainable Infrastructure Development 2010 India Infrastructure Report J. Gujral, S. Davenport & S. Jayasuriya - Agricultural Offsets - Reducing the cost of GHG Emissions Intensity Targets Policy Principles The BRICs Lessons Market based policy reforms = higher rural incomes, increased agricultural productivity and reduced poverty. Well functioning competitive markets drive productivity, rather than governments attempting to 'drive' growth through subsidised agricultural input and output prices. 3

4 Policy Principles The BRICs Lessons The Role of Government Shift from: acting as a market participant through efforts aimed at directly influencing input and output farm prices Shift to: being a market facilitator of efficient markets (by adopting a market failure focus) Policy Implications Decouple farm assistance from input/output prices - phased transition suited to circumstances Identify the most efficient policy instruments to target national key objectives - food security & rural poverty - facilitate industry adjustment - productivity - more efficient investment 4

5 Policy Option 1 Adopt a Market Failure Based Policy Framework The Indian Government, with the Competition Commission of India, move to adopt a market failure based policy framework to guide agricultural policy reform Policy Option 2 Key Components of the Framework A transparent regulation review process, whereby agricultural regulation that significantly influences competition and food chain prices is subject to an independent, rolling, 5 year review process Government objectives focus on facilitating efficient input and output markets with necessary targeted assistance and safeguards for vulnerable groups Regular monitoring (surveying) of the farm sector to enable a sound understanding of developments in farm incomes and productivity in response to the government s policy reform agenda The strategic application of competition law to food chains 5

6 Policy Option 3 The Food Corporation Address the FCI s food security objective through the introduction of targeted programs which effectively meet government food security objectives in relation to the rural and urban poor, such as a food stamp program Address the FCI s farm income objective through alternative arrangements, such as a guaranteed price deficiency payment scheme Require the FCI to focus on objective of management of the buffer stock Policy Option 4 Complimentary Reforms Facilitate adjustment by improving the ability of rural labour and farm families to adopt more efficient farm practices and to move into other sectors of the economy Implement an orderly transition program from currently provided input subsidies to new farm programs which focus on more appropriate measures of productivity and the market failure issues typically associated with agricultural production systems 6