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Kathmandu Friday May 11, 2001 Baishakh 28, 2058.
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Subsidy hinders development ?
It is interesting to observe that subsidies,
including production subsidies, are coming under fire. Much has been debated over the
advantages and disadvantages of subsidies in a resource-poor country like ours. There are
apparently two dimensions of the debate: ideological and pragmatic. Ideologically,
elimination of subsidies has been perceived as essential for market-oriented and
sustainable development. No subsidies encourage private-sector involvement in economic
development. In pragmatic terms, budget constraints and the possibility of misuse speak
against them. On the other hand, subsidies are being seen as crucial for poverty
alleviation, particularly among the vulnerable groups. They cannot be left in the hands of
"market forces" alone. Obviously, one should undertake an in-depth analysis of
the real situation before making any comments on this issue.
In Nepal, the history of subsidy dates back to
early 1960s. During the early days of development planning, there was a provision for
subsidy in fertilizers, irrigation, agriculture tools, seeds, improved livestock,
agriculture credit and other inputs. Many of these subsidies have had encouraging impact
on economic growth. Even now, many programs such as big surface irrigation projects,
agricultural credit, and transportation of fertilizers and food in remote areas, have been
heavily subsidized by the government.
It is true that economic liberalization,
globalization and market-based economy discourage subsidies. However, most development
managers agree that there should be safety nets and special arrangements for poor and
vulnerable groups so that they could be mainstreamed in development.
While talking about market forces, we should also
look at the situation in our neighbouring countries, which are subsidizing agricultural
production, leaving our farmers vulnerable in the market. The recent fall in the price of
rice should be an eye-opener for us.
The Agricultural Perspective Plan (APP) aims at
commercializing the existing agriculture. Irrigation plays a crucial role in this context.
The mid-term evaluation of the Ninth Plan reveals that agricultural growth (2.4 percent)
has belied all our expectations. This should have drawn the attention of policymakers and
planners for irrigation development.
The subsidy regime has often been associated with
benefits going to the already better off sections of the society. This is not true in its
entirety. Our own experience in Community Shallow Tube Well Irrigation Project (CSTIP)
funded by IFAD reveals that poor and vulnerable groups can reap the benefits of subsidies,
if designed properly. This project has assisted small farmers in installing 503 community
shallow tube wells providing irrigation facility in 3267 hectares covering 6970
households. In fact, it is the methodology, which decides whether or not the poor can get
benefits from the subsidy.
Subsidy, particularly in the irrigation sector, can
have direct effects on production. Increased production leads to an increase in economic
activities, creating new employment opportunities in rural areas. This could positively
affect the lives of the poor.
In conclusion, subsidies that are targeted to poor
and vulnerable groups and focused on infrastructure development for agriculture may have a
greater development impact through a reduction of poverty. We as development workers from
the non-governmental sector would like to draw the attention of the government to the need
for upholding practical and farmers-friendly while dealing with donor agencies/governments
so that the poorer groups can also reap the fruits of development.
Pitamber P Acharya
Executive Director, DEPROSC-Nepal |
