India should not allow reductions in import duties on agriculture under its free trade agreements (FTAs), Minister of State for Commerce Jairam Ramesh said on Tuesday.
"We simply cannot afford to be liberal on imports of agriculture. I am also of the view that international price sentiments can depress domestic prices as well, even without physical imports taking place," Ramesh said while delivering the Colonel Ajay Mushran Memorial Lecture in New Delhi.
He suggested the establishment of a trigger mechanism that would automatically raise duties when world prices fall and reduce duties when world prices rise.
Ramesh said the futures markets, that have been have been introduced in a large number of agricultural commodities to provide for better prices to farmers, were functioning in an imperfect way.
"They have to function for the benefit of farmers—not of hedge funds, traders and a few large corporates," he said.
Ramesh said restructuring of subsidies was a political exercise. "When there is widespread distress and when there is declining profitability, a call to restructure subsidies is both cruel and untimely," he said.
He said the fertilizer subsidy was perhaps the singlemost important "political economy" issue confronting India. In 2007-08, fertiliser subsidy bill is expected to be around Rs 50,000 crore.
"It is not just a financial nightmare but an agronomic peril," Ramesh said. "If we can spend the existing level of subsidies better without even cutting it, Indian agriculture will stand to gain," he said.
"Rigid labour laws and hassle-intensive environment for factories, policies on small-scale reservation and romanticised, non-technology, non-market approach to the KVIC (Khadi and Village Industries Commission) and our woeful investment in rural infrastructure have all prevented a faster diversification of the rural employment structure," Ramesh said.
However, Ramesh said that there appeared to be a recovery in public investment in the farm sector. Recent Planning Commission data reveals that after a prolonged period of stagnation, public investment in agriculture at constant prices has increased from about Rs 5000 crore in 2002-03 to around Rs 11,000 crore in 2005-06.
"This is very significant and will begin to have an impact since public investment, although now accounting for around 30 per cent of total investment in agriculture, has a multiplier stimulative impact on private investment as well," he said.