46 CHAPTER 5
the likelihood of a 13.5 million ton drop in foodgrain production if fertilizer prices were to increase to import parity level (MoF 2004a). Concerns about the low productivity of Indian agriculture, also discussed in Chapter 4, need to be taken into account when discussing fiscal concerns. The government needs to balance fiscal concerns against the need for food security and the need to increase agricultural productivity.
A second fiscal consideration has to do with the distribution of the fertil- izer subsidy. As noted earlier, calculations suggest that over the long term, 62 percent of the subsidy on fertilizers has gone to farmers, and the remaining 38 percent has gone to fertilizer manufacturers (Gulati and Narayanan 2003). In the context of fiscal stress, it is difficult to justify the latter. Although R. Singh (2004) finds evidence of interclass equity in the distribution of fertil- izer subsidies, a more recent and disaggregated study tells a more complex story. It finds that the fertilizer subsidy is distributed less than equitably among different classes of farmers in Punjab, whereas in Andhra Pradesh, the fertilizer subsidy acts as an equalizing factor (Vashishtha 2006). In general, a case can be made against the need to subsidize owners of medium-sized and large farms. However, those arguments must be balanced against concerns about increases in price of food and the interests of poor consumers.
Increasing Public Investment in Agriculture
In 2000/01, the anticipated growth rate in agriculture and allied sectors was 0.9 percent. There was concern about the falling share of public investment in agriculture. This decline was attributed to the increased levels of food, irriga- tion, fertilizer, and other subsidies that were eating up a large proportion of public expenditure (MoF 2000a). It has been suggested that reversing this trend, that is, increasing public investment and decreasing spending on subsidies, will lead to higher growth rates (Gulati 2006). Such public investment could go toward providing better seeds and irrigation facilities, which are necessary for remedying regional inequities in agricultural production (R. Singh 2004).
Balancing the Use of Nutrients and Mitigating Environmental Problems
The existing subsidy regime has contributed to an unbalanced use of nutri- ents, with possible negative consequences for soil health and productivity. The primary threat is that of nutrient mining: crops draw nutrients from the soil far in excess of those applied in the form of fertilizers. Indian soils are losing not only nitrogen, phosphorus, and potassium but also crucial micro- nutrients such as sulfur, zinc, iron, and boron. While the ratio of N, P, and K fertilizer use was never close to ideal in India, it has faced substantial dis- tortion during the past decade and a half. In 1991/92, immediately prior to
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