Food for Thought in India

http://online.wsj.com/article/SB10001424052970203513204576047541282652696.html 

It is time for India's government to put its money where its mouth is. 

New Delhi has raised some $30 billion since March by selling state assets and telecom airwaves. That is about as much as the country will attract in foreign direct investment this fiscal year.

The neglect of India's farms threatens the nation's economic future.

There is one area above all else where this money should be directed: food security. New Delhi talks a lot about guaranteeing food for India's poor, but there's a need for smart investment to address fundamental problems. 

The neglect of India's farms poses a significant threat to the nation's economic future, not least through inflation. The persistence of double-digit increases in food prices earlier this year, regardless of weather, has made clear this is a structural problem.

Meanwhile, lagging productivity in agriculture is contributing to income inequality. The sector employs 52% of India's work force but the farm economy is growing at a rate of less than 2% a year. That is half its rate of growth in the late 1980s and 1990s. Yet GDP growth in agriculture is at least twice as effective in reducing poverty, compared with similar growth in other sectors, the World Bank estimates.

India's problems lie with infrastructure. A plan to target irrigation would be particularly compelling; 60% of India's farmland still depends on rainfall for its water needs. The Ministry of Agriculture's total annual budget, including spending on the development of such infrastructure, stands at just $4.6 billion, or 2% of India's annual budget. 

Building more storage capacity is equally important, so that millions of tons of food grain don't rot in open fields. The good news here is that foreign retailers, which would build their own cold-storage capacity, are eager to enter India. And government co-investment and tax incentives would go a long way toward speeding up investment.

Building up research facilities and setting up education programs would be more fruitful than other handouts. For example, New Delhi subsidizes fertilizers, but fails to educate farmers on how to use them properly. The resulting overuse is actually reducing crop yields.

India's successive governments have been criticized for not delivering on promises to make India's economic growth more inclusive and sustainable. They should use the recent financial windfall to change that.