Food Subsidy Bill stands at Rs. 107823.75 crore during 2014-15

Food Subsidy Bill stands at Rs. 107823.75 crore during 2014-15 (upto January, 2015), shows an increase of 20% over previous year Rationalisation of subsidies and better targeting of beneficiaries will release resources for public investment in agriculture: Economic Survey

The Economic Survey 2014-15 has acknowledged that the Food Subsidy Bill has increased substantially in the past few years putting a severe strain on the public exchequer.             An amount of Rs. 107823.75 crore has been released as Food Subsidy during the year 2014-15 (upto January 9, 2015).  This is a substantial increase of 20.15% over 2013-14 when an amount of Rs. 89740 crore was released as food subsidy.              Provision of minimum nutritional support to the poor through subsidized foodgrains and ensuring price stability in different states are the twin objectives of the food security system. The Economic Survey states that while the economic cost of wheat and rice has continuously gone up, the issue price has been kept unchanged since July 1, 2002.  This has resulted in large amounts of subsidy on foodgrains distributed through the TPDS/NFSA and other welfare schemes.  The Economic Survey also states that agriculture and food sector needs huge investment in research, education, extension, irrigation, fertilizers, and laboratories to test soil, water and commodities, warehousing, cold-storage.  Rationalization of subsidies and better targeting of beneficiaries would release resources for public investment in agriculture. The survey opines that the focus of public expenditure for agriculture so far has been on provision of subsidies (public expenditure in agriculture is only one-fourth of expenditure towards food and fertilizer subsidies, CACP Kharif report 2014-15) and it is time it shifted towards investments to boost productivity. Recommendations of Shanta Kumar Committee provide useful suggestions for the future road-map of food-policy, says the Economic Survey.

Foodgrains production for 2014-15 estimated at 257.07 million tonnes,Agriculture and allied sectors contribute 18% to GDP and grow by 3.7% in 2013-14

Foodgrains production for 2014-15 estimated at 257.07 million tonnes; will exceed average food grain production of last five years by 8.5 million tones Groundnut production increases by a massive 105.8% in 2013-14, shows a remarkable increase of 75.9% in productivity Agriculture and allied sectors contribute 18% to GDP and grow by 3.7% in 2013-14 Economic Survey 2014-15 emphasizes the need to improve productivity in the agricultural sector to ensure food security The Economic Survey 2014-15 states that as per the 2nd Advance Estimates, total Foodgrains production in the country is estimated at 257.07 million tonnes during 2014-15.  This is the fourth highest quantity of annual Foodgrains production in the country. Despite deficiency of 12 % in the monsoon rainfall during the year, the loss in production has been restricted to just around 3 % over the previous year and has exceeded the average production during the last five years by 8.15 million tonnes. As compared to last year’s production of 265.57 million tonnes, current year’s production of Foodgrains is lower by 8.5 million tonnes. This decline has occurred on account of lower production of rice, coarse cereals and pulses due to erratic rainfall conditions during the monsoon season of 2014. According to the new series of national income released by the CSO, at 2011-12 prices, the share of agriculture and allied sectors in total GDP is 18% in 2013-14 which is the same as that of 2012-13 i.e., 18%.   As against a growth target of 4% for agriculture and allied sectors in the Twelfth Plan, the growth registered in the first year in 2012-13 (at 2011-12 prices) was 1.2%, 3.7% in 2013-14 and 1.1% in 2014-15.  As per the fourth Advance Estimates for 2013-14, the production of rice is expected to be 106.5 million tonnes, showing an increase of 1.3% over the previous year.  The Production of wheat is likely to be 95.9 million tonnes with an increase of 2.6% over the previous year.  Similarly, pulses with a production of 19.3 million tonnes show an increase of 5.3%.  The oilseeds production of 32.9 million tonnes shows an increase of 6.4%.  Within oilseeds, the groundnut production of 9.7 million tonnes show a commendable increase of 105.8% over the previous year. As per the fourth Advance Estimates for 2013-14, the overall productivity of Foodgrains has gone down by 1.3% over the previous year.  Rice productivity has shown a decline of 1.5% and wheat of 1.3% in the same year.  The yield of groundnut increased by a remarkable 75.9%, that of Tur increased by 9.2% and cotton by 9.4% in 2013-14 over the previous year. Among the states, for the year 2013-14, Punjab has shown the highest productivity of rice (3952 kg/ha), wheat (5017 kg/ha) and cotton.  Gujarat has shown the maximum productivity of groundnut (2668 kg/ha) and West Bengal of Sugarcane (114273 kg/ha).  The Economic Survey 2014-15 states that to improve resilience of the agricultural sector and bolster food security--including availability and affordable access, the strategy for agriculture has to focus on improving yield and productivity.

External Sector is returning to the path of strength and resilience: Economic Survey

As per the Economic Survey, the outlook for the external sector is perhaps the most favorable since the  2008 global financial crisis and especially compared to 2012-13, when elevated oil and gold imports fuelled a surge in the current account deficit. The Global Economy is likely to gain strength if lower global crude petroleum prices drive the demand recovery process in emerging markets. After the global crisis of 2008, the global economy came under a cloud of uncertainty and prolonged weakness in euro area particularly since 2011. This led the IMF to revise the global growth downwards.  The global economic environment appears poised for a change for the better with recent sharp fall in the international prices of crude petroleum which is expected to boost global aggregate demand.  On the Issue of India’s Merchandise Trade, over the last ten years, India’s Merchandise Trade (on custom basis) increased manifold from US$ 195.1 billion in 2004-05 to US$ 764.6 billion in 2013-14 helping in improving India’s share in global exports and imports from 0.8% to 1.0% respectively in 2004 to 1.7% and 2.5% in 2013.   ·         The Economic Survey says the overall trade performance signals an opportune time for withdrawal of restrictions on gold. ·         The financial inflows in excess of the financial requirements has helped shore up foreign exchange reserves (US$ 328.7 billion at the end of January,2015). These have helped the lessen the vulnerability concern that led to serious stress last year.  ·         Reconciling the benefits of the financial inflows with their impact on exports and the current account remains an important challenge going forward.                                                    In 2013-14, India’s trade deficit(on custom basis) declined to US$ 135.8 billion from a high level of 190.3 billion in 2012-13 mainly on account of a decline in the growth of imports even though growth in exports was sluggish at 4.7%. The decline in imports owed to lower growth in oil imports (0.4%) and negative growth in gold and silver imports. Some of the Trade Policy Measures Taken by the Government as per the Economic Survey Ø  To promote domestic manufacturing capabilities different schemes namely FPS, FMS, VKGUY, MLFPS, Served From India Scheme , Agriculture Infrastructure Incentive Scheme(AIIS) for import of goods can be utilized for payment of excise duty for domestic procurement.  This is an important measure for import substitution and will help save foreign exchange as well as create additional employment.  Ø  Similarly scrips issued under the FPS, FMS, Vishesh Krishi and Gram Udyog Yojana(VKGUY) schemes can be utilized for payment of service tax. Ø  To diversify India’s export, seven new markets (Algeria, Aruba, Austria, Cambodia, Myanmar, Netherlands, Antilles and Ukraine) have been added to FMS and 7 new markets(Belize, Chile, El Salvador, Guatemala, Honduras, Morocco and Uruguay) to Special FMS, 46 items to MLFPS and 12 new markets for first time and 100 new products to FPS list. Ø  Indian trade portal (www.indiantradeportal.in) was launched on 8th December, 2014. Even though 2013-14 witnessed a sharp depreciation of the rupee in the initial part of the year with significant reserve drawdown, steps taken by the government and the Reserve Bank of India (RBI) resulted in a rise in the stock of foreign exchange reserves which was placed at US$ 304.2 billion at end-March 2014 as against US$292.0 billion at end-March,2014.  In the first half of 2014-15, India’s foreign exchange reserves increased by US$ 18.1 billion on BoP basis(that is excluding valuation effect). Economic Survey says among the major economies with current account deficit, India is the second largest foreign exchange reserve holder after Brazil.                                                  Post 1991 BoP crisis India’s prudent external debt policy and management with a focus on sustainability, solvency and liquidity have helped contain the increase in size of external debt to moderate level.  India’s total external debt stock at end March 2014 stood at US$ 442.3 billion (8.0 per cent) over the end-March 2013 level.    The rise in the external debt during the period was due to long term debt particularly NRI deposits and commercial borrowings.    At the end of September, 2014, a long term debt accounted for 81.1% of the total external debt vis-a-vis 79.8 per cent at the end of March, 2014 and short term debt accounted for 18.9% of the total external debt vis-à-vis 20.2% at the end of March, 2014. The net external commercial borrowing has also increased from US$ 2.4 billion in 2013-14 to US $3.4 billion in 2014-15.

India’s National Solar Mission Being Scaled up Five-Fold to 100,000 Megawatts

Clean Energy Cess Doubled to Rs.100 per Tonne to Mop up Rs. 17,000 Crores in NCEF India’s Action-Oriented Policies to Bring Rapid Development to People While PurposefullyAddressing Climate Change The Economic Survey 2014-15 presented in the Parliament today says that India has made considerable progress in tackling climate change issues. The year 2015 is going to witness new agreements on climate change and sustainable development. India has been following action-oriented policies to bring rapid development to its people while purposefully addressing climate change. India has been one of the foremost advocates of long-terms global cooperation in combating climate change in accordance with the principles and provisions of the UN Framework Convention on Climate Change (UNFCCC). India launched its National Action Plan on Climate Change way back in 2008 and is currently revisiting National Missions in the light of new scientific information and technological advances. India’s total renewable power installed capacity as 31 December 2014 has reached 33.8 GegaWatts(GW). Wind energy continues to dominate this share accounting for 66 per cent of installed capacity followed by biomass, small hydro power and solar power. India’s #Nationalsolar Mission is being scaled up five-fold to 1,00,000 megawatts by 2022 In the next five years proposals are likely to generate business opportunities of the order of 160 billion US Dollars in the renewable energy sector. It offers very good opportunity for businesses to set and scale up industry, leapfrog technologies and create volumes. Some of India’s major immediate plans on renewable energy include scaling up cumulative installed capacity to 170 gegawatts (GW) and establishing a National University for Renewable Energy. India introduced the clean energy cess on coal in 2010 which very few countries have in the world. This has been doubled to Rs.100 per tonne in 2014. The total collection so far under the National Clean Energy Fund NCEF has crossed Rs. 17,000 crores and till September, 2014, 46 clean energy projects worth Rs.16,511.43 crores have been recommended for funding out of this fund. Efforts are also under way by the government to build India’s institutional capacity for mobilizing climate change finance. India has set a National Adaptation Fund with an initial corpus of Rs.100 crores in 2014 to support adaptation actions to combat the challenges of climate change in sectors like agriculture, water and forestry. The Survey says the global agreement on climate change expected by December, 2015 under the UNFCCC applicable to all countries must be ambitious, comprehensive, equitable and balanced taking into account the huge development needs of developing countries. It should address the genuine requirements of developing countries like India by providing them equitable carbon and development space to achieve sustainable development and eradicate poverty. Simultaneously, the multilateral Green Climate Fund (GCF) under the UNFCCC has made progress and is now ready for business with around US$ 10 billion pledged to it by the contributing Parties. At the country level, institutional mechanism required to access the GCF resources are being set up. Prime Minister Shri Narendra Modi in his address in UN General Assembly in September, 2014 said “We should be honest in shouldering our responsibilities in meeting the challenges. The world community has agreed on a beautiful balance of collective action – common but differentiated responsibilities. This should form the basis of continued action.” India’s stand in the ongoing negotiations has been guided by the principle of Equity and Common but Differentiated Responsibilities (CBDR). India believes that the climate change agreement of 2015 should take into consideration a whole gamut of issues including adaptation, finance, technology development and transfer, capacity building, transparency of action and support in a balanced manner and loss and damage in addition to mitigation. The latest scientific findings has estimated that out of the carbon budget(CO2 emissions) of 2,900 Giga tonnes (Gt), only 1,000 Gt remains to be used between now and 2100 in order to limit the temperature increase to 2°C. Most of the current and cumulative carbon budget has been used by the developed countries. The World Resources Institute estimates that if emissions continue unabated, the remaining budget will last only 30 more years. The key issue therefore for designing emission reduction commitment is how the remaining carbon budget needs to be allocated with a fair burden sharing mechanism. India’s contribution to cumulative global CO2 (1850-2011) was a meagre 3 per cent as against 21 per cent by USA and 18 per cent by the EU. The Economic Survey 2014-15 focusses on sustainable development goals for India saying that the challenges for India are manifold. India is at the threshold of an urban flare-up. With more than a billion population, India has to address the problems associated with increasing urbanization, tackle the problem of eradicating poverty, providing energy access to all and address other developmental priorities. It says that hidden in these challenges are great opportunities. Unlike many countries, India has a young population and therefore can reap the fruits of demographic dividend. With more than half of the India of 2030 yet to be built, we have an opportunity to avoid excessive dependence on fossil fuel based energy systems and carbon lock-ins that many industrialized countries face today. A conscious policy framework which takes into account both developmental needs and environmental considerations could help turn the challenges into opportunities, the Economic Survey suggests. India’s development plans lay a balanced emphasis on economic development and the environment. The country has witnessed the introduction of landmark environmental measures for conservation of rivers, improvement of urban air quality, enhanced forestation, significant increase in installed capacity of renewable energy technologies, shift towards public transport and enhancing rural and urban infrastructure. Recent key initiatives include the Swachh Bharat Mission, Clean Ganga Plan, scaling up of the National Solar Mission fivefold from 20,000 MW to 1,00,000 MW with an additional investment requirement of US $ 100 billion, development of 100 smart cities with integrated policies for sustainable development and preparations for developing a National Air Quality Index and a National Air Quality Scheme.

Recommendations made by the Shome Committee/Tax Administration Refroms Commission

The Tax Administration Reforms Commission (TARC) has analysed all aspects of tax administration reform in their four reports. The objective is to get all stakeholders-both tax payers and tax officers to operate in ways that promote overall goals of efficiency and equity in tax-collection by facilitating taxpayers with a customer focus, while at the same time, segmenting taxpayers to reduce tax evasion. TARC recommendations comprise many immediate needed reform measures as well as long term structural reforms. The Shome Committee/TARC has pitched for taxing large farmers with incomes above Rs. 50 lakh a year. The reason for this recommendation as given by TARC is that this will broaden the tax payer base and help mobilize additional revenue without affecting any but a miniscule proportion of the very large farmers whose annual income exceeds the threshold limit of Rs. 50 lakhs. Currently, the recommendations of the TARC are under examination of the Government.

From Carbon Subsidy to Carbon Tax: India’s Green Actions

Economic Survey 2014-15 acknowledges the green actions taken by India, including imposing significantly higher taxation of petroleum products and thereby reenergizing the renewable energy sector. India shifted from a carbon subsidization regime to one of significant carbon taxation regime, from a negative price to an implicit positive price on carbon emissions. India has cut subsidies and increased taxes on fossil fuels (petrol and diesel) turning a carbon subsidy regime into one of carbon taxation, by putting an effective price on emissions. This has significantly increased petrol and diesel price while serving as price signal to reduce fuel burnt and hence CO2 emissions. Calculating CO2 emission reductions from measures taken for petrol and diesel suggests that there will be a net reduction of 11 million tons of CO2 emissions in less than a year compared to the baseline or 0.6 percent India’s annual emissions. In addition, India has increased the coal cess from Rs. 50 per ton to Rs. 100 per ton, which is equivalent to a carbon tax of about US$ 1 per ton. A higher tax on coal offsets the domestic externalities including health cost of coal for power generation. The Economic Survey points out that any rationalization of coal pricing must take account of the implications for power prices and hence access to energy for the poorest in India which is and must remain a fundamental objective of policy. The Economic Survey observes that there is still a long way to go with potential large gains still to be reaped from reform of coal pricing and further reform of petroleum pricing policies. Broadly, the move to substantial carbon taxation combined with India’s ambitious solar power program suggests that India can make substantial contributions to the forthcoming Paris negotiations on climate change.

Create National Common Market in Agricultural Commodities: Economic Survey

2014-15

The Economic Survey emphasizes on the need for a national common agricultural market and identifies un-integrated and distortion ridden agricultural market as the one of the most striking problems in agriculture growth. The Economic Survey suggests 3 incremental steps as possible solution, building on the Budget 2014 recognition for setting up a national market, farmers’ markets and need for the Central Government and the State Government to work closely to reorient their respective APMC Act. 1. It may be possible to get all States to drop fruits and vegetables from APMC schedule of regulated commodities and followed by other commodities. 2. State governments should also be specifically persuaded to provide policy support for alternative or special markets in private sector. 3. In view of the difficulties in attracting domestic capital for the setting-up marketing infrastructure, liberalization in FDI in retail could create possibilities for filling in the massive investment and infrastructure deficit in supply chain inefficiencies. As a last resort, the Economic Survey suggests using Constitutional provisions to create a national common market for agricultural commodities. The Concurrent List Entry 33 covers trade and commerce and production, supply and distribution of food stuff including edible oilseeds and oils, raw cotton, raw jute etc. Entry 42 of Union List, viz., ‘Interstate trade and commerce’ also allows a role for the Union. Presently, markets in agricultural products are regulated under the Agricultural Produce Market Committee (APMC) Act enacted by respective State Government. This Act notifies agricultural commodities produced in the region such as cereal, pulses, edible oilseed and even chicken, goat etc. The first sale in these commodities can be conducted only under the aegis of APMC through the commission agents licensed by the APMC. The typical amenities available in or around the APMC are: auction halls, weigh bridges, godowns, shops for retailers, farmer’s amenity center etc. Various taxes, fees/charges and cess levied on the trades conducted in the Mandis are also notified under the Act. Currently, APMCs charge multiple fees, of substantial magnitude, that are non-transparent. They charge a market fee of buyers, and they charge a licensing fee from the commissioning agents and licensing fees from a whole range of functionaries. In addition, commissioning agents charge commission fees on transactions between buyers and farmers. These statutory levies/mandi tax, VAT etc. varying from state to state are the major source of market distortion. Such high level of taxes at the first level of trading has significant cascading effects on the price. The APMC Act treats APMC as an arm of the state and the market fee as the tax levied by the state, rather than fee charged for providing services. This provision acts as a major impediment to creating national common market. The APMC operations are hidden from scrutiny as the fee collected is not under State legislature approval. Also the commissions charged by commission agents are exorbitant as they are often charged on entire value of product sold rather than the net value. There is a perception that the positions in market committees and market boards are occupied by the politically influential and leading to the formation of cartels in APMC. Ministry of Agriculture developed a Model APMC Act, 2003 for the freedom of farmers to sell their produce. The farmers could sell their produce directly to the contract-sponsors or in the market set up by private individuals, consumers or producers. The Model Act also increases the competitiveness of the market of agricultural produce by allowing common registration of market intermediaries. Many of the States have partially adopted the provisions of model Act and some states such as Karnataka have adopted changes to create greater competition within State. Karnataka Model provides for a single licensing system, offers automated auction and post auction facilities. It also facilitate warehouse-based sale of produce, facilitate commodity funding, prices dissemination by leveraging technology and private sector investment in marketing infrastructure. However, the Model APMC Act does not go far enough to create a national or even state level common market for agriculture commodities. The Act retains the mandatory requirement of the buyers having to pay APMC charges even when the produce is sold directly outside the APMC area. Though the Model Act provides for setting up of markets by private sector, this is not adequate to create competition even within the state since the owner will have to collect fees/taxes on behalf of the APMC in addition to their own charges. Economic Survey reemphasize that India needs a national common market for agricultural commodities by making the Agricultural Produce Market Committee just one among many options available for the farmers to sell their produce.