Relevance: G.S Paper III
( irrigation systems storage, transport and marketing of agricultural produce and issues and related
constraints; e-technology in the aid of farmers
• Issues related to direct and indirect farm subsidies and minimum support prices;
• Land reforms in India. )
It is essential to take care of the food needs of a growing population. But in India, agriculture is under stress, as pointed out by the recent Economic Survey. The untimely rain in north India before and after Holi has also caused much damage to the crops. Agricultural growth seems to have regressed to 1.1 per cent, according to the First Advance Estimate of Kharif Crop (July-September 2014), following a bumper year in 2013-14. With only 88 per cent of rainfall, the growth rate is thankfully positive.
A lot of thinking should be done about how to reinvigorate agriculture because rural demand is important for reviving manufacturing sector. Agriculture is important also because 52 per cent of the population is still occupied in agriculture and it has a share of 17 per cent in the GDP. There will have to be higher agricultural growth in the future to take care of the food needs of a growing urban population. Those who think that we can import food to feed our population of 1.2 billion are underestimating the importance of self-sufficiency. We cannot depend on imported food as it can lead to manipulations by food exporters. We cannot afford it especially when there is so much malnutrition among children. India is already importing edible oil and pulses. Good nourishment is what we need in the future to reduce the malnutrition among women and children.
After the Green Revolution, India reached self-sufficiency in food production but the impact was limited as it focused on regions that were well irrigated and grew two crops, rice and wheat. The benefits were reaped by farmers, who could mobilise the necessary investment in the adoption of the new technology.
For some years, the terms of trade have been in favour of agriculture and the agricultural sector has been better off in terms of its purchasing power of industrial goods, but this trend seems to have peaked according to the Economic Survey. There will, therefore, be a pressure on agricultural incomes and farmers will call for an increase in price support. Agriculture has to grow at 4 per cent to be able to bring sufficient income growth to farmers. From 1981 to 1997, there was an increase in agricultural growth and it averaged at 3.5 per cent but during 1997-2005, there was a decline in agricultural yield to 2 per cent. When crops failed, it led to an increase in farmers’ suicides.
Around 14 million farmers have committed suicide in the last 17 years. Although there has also been a decline in per capita land availability, there is a slower reduction in the share of employment in agriculture. It means that productivity of labour has declined.
The net sown area is around 140 million hectares and the area under forests and non-agricultural uses has increased. In the process, the quality of total stock of agricultural land has deteriorated as good quality agricultural land in the urban fringe has gone out of cultivation and comparatively inferior quality land in the form of waste land has come under cultivation.
An important problem in agriculture is that a combination of low quality land and low labour productivity is leading to a widening of gap between agriculture and non-agricultural occupations. The share of marginal land holdings to total land holdings has increased from 70 to 85 per cent in the last decade.
Lack of diversification of crops, slowdown in public investment in agriculture, slowdown in private investment, slow growth in use of technology, low fertilizer use and soil erosion have resulted in the stagnation of agriculture. Price incentives like increase in output support prices have had less impact in increasing productivity than if quality of inputs, technology, institutions and infrastructure had been improved.
Since the size of the holdings is small and because majority of farmers are cash strapped, it is difficult for them to undertake innovations for productivity improvement. It has led to an increase in the number of subsistence farmers who have very little surplus to sell.
Many agricultural scientists are advocating GM food trials. As Chief Minister of Gujarat, Narendra Modi had introduced BT cotton, which changed the face of cotton production in India. It remains controversial, however, and people are not fully convinced about the long-term advantages of GM food.
Irrigation is also of utmost importance. There is still 41 per cent of land under cultivation that is not irrigated. Small irrigation works will help a lot. In the Budget, minor irrigation works have received attention and an amount of Rs 1,800 crore has been allocated. Another Rs 3,500 crore has been allocated for other irrigation projects. Similarly, the MNREGA programme has also received extra money of Rs 5,000 crore that may benefit the small farmer and the agricultural labour.
Water conservation is very important in agriculture. Various water conservation programmes have received money in the Budget. Basically the problems about water in India are the same as in China. It is going to be the number one problem in the future in both the countries. ‘Drop per crop’ is a slogan adopted in both China and India.
Reforms in agricultural marketing have been spelt out in the Economic Survey and dismantling of the APMC will probably bring more options for farmers to realise better prices. Storage space is important also. What the government wants to do in agriculture has not clearly been spelt out in the Budget except for the infrastructural fund of Rs 25,000 crore. Agriculture is a state subject and states are responsible for the ‘extension work’ and supply of better inputs to farmers. Some states have succeeded in increasing agricultural productivity but others have not.
Rural credit, which is very important, has got a hefty increase in funds but the problem is that small farmers still find it difficult to access formal sources of credit and turn to moneylenders.
Higher support prices are clearly in the offing. It can mean an increase in domestic prices, which will contribute to inflation and widening of the fiscal deficit. In all, the Budget ought to have given more help to farmers to raise productivity but the Central government is pinning its hopes on the states. This leaves much room for speculation about the outcome.
Major Issues:
Despite the substantially increased investment in agriculture and the launch of several new programmes, there has been a general feeling of farmer distress across the county.
The question one must ask is: When and where did things go wrong? It appears that agriculture is excessively supported by the government, and almost everything in this sector is controlled by the government.
For example
(1) Growing subsidies in production (fertiliser, power, irrigation, machines, seeds, credit)
(2) Raising minimum support prices and
(3) Increasing funds’ allocation to new schemes such as soil health cards, agricultural insurance, National Food Security Mission, agricultural insurance, etc.
In addition, several research studies reveal that
(1) Agricultural subsidies are overcrowding investment
(2) Incentives continue to traditional crops and production systems (rice and wheat) and
(3) There are no incentives to demand-driven agricultural commodities.
The fact is that farmers are not given incentives to produce efficiently, compete in the global markets, and carry out agriculture as agribusiness. Unless the agriculture sector is liberalised and the government control is minimised, it will continue to suffer.
Solutions:
The new government may consider the following to improve the agriculture sector and subsequently farmers’ welfare:
* First, modernise the sector:
Globally, the next 20 years will witness a remarkable change in agriculture and agricultural practices. The focus will be on increasing production from a declining resource base, especially land and water. Labour will be replaced by machines and drones.
Solution:
Therefore, Indian agriculture must keep pace with the changing scenario and respond to the dwindling resource base, unfolding demand for agricultural commodities at national and global level, and the rising climate change threats.
Modern technologies need to be promoted to make agriculture more efficient, competitive, sustainable, resilient and environment friendly. This will require investment in agricultural research, and in developing linkages between research and industry and service centres for disseminating modern technologies. Equally important is to reform the agricultural research system with more decentralisation to undertake target-oriented research.
* Second, develop agricultural markets:
Volatile prices of agricultural commodities are a major source of agrarian distress. Prices steeply fall immediately after a crop harvest, when a majority of farmers sell their produce. However, consumers continue to pay higher prices. It means that
(1) Consumers are ready to pay higher prices, and
(2) Demand is there to absorb supply.
The huge margins between, what farmers receive and what consumers pay is due to inefficient, unorganised and fragmented markets of agricultural commodities. Despite the rising agricultural production of almost all commodities, appropriate markets have not been developed at the same pace. In the past, excessive efforts have been made to increase agricultural production (which is good), but without giving due attention to developing new markets.
Solution:
Therefore, developing and liberalising markets should receive high priority as the volume of produce from different parts of the country has increase manifold.
The government should gradually withdraw in fixing agricultural prices and their procurement. Instead, the organised private sector must be attracted to develop agricultural markets—let the market decide prices and the government may compensate farmers in case there is a steep fall in prices of key agricultural commodities.
* Third, promote exports of agricultural and processed commodities:
Indian agriculture has already achieved food self-sufficiency, and now it needs to leapfrog from the food security syndrome to market-oriented agriculture.
Solution:
This will require a stable and proactive trade policy. Exports of many agricultural commodities are increasing, but imports are rising faster than exports.
India has a huge potential to export several of its agricultural commodities to Africa, Central Asia, South East Asia and West Asia, besides to its neighbouring countries in South Asia.
India can take advantage of the ongoing trade war between China and the US to develop its own market. It requires identification of niche commodities to different markets depending upon their taste, preferences and requirements. However, success will depend upon how quality and food safety issues are ensured.
* Fourth, consolidate small and marginal farmers:
Indian agriculture is dominated by small and marginal farmers—more than 86% holdings have land less than two hectares. This group has tiny marketable surplus; they have high transaction costs and low bargaining power.
Solution:
Small and marginal farmers and their produce may be consolidated through-
(1) Incentives to form farmer producer organisations, self-help groups and/or cooperatives;
(2) Promote contract farming and develop vertical integration; and
(3) Incentivise states to implement the already developed model land lease Act. There is a misperception that (2) and (3) will lead to corporate farming.
What is wrong if corporate sector brings in new technologies, best practices, more investment, and gives higher returns to farmers?
Care may be taken that the corporate sector does not exploit farmers.
* Fifth, expand the scope and amount of PM-KISAN:
In this year’s Interim Budget, the government announced an income support scheme to the farmers, called the Pradhan Mantri Kisan Samman Nidhi Yojana (PM-KISAN).
Solution:
Farmers must be supported as a majority of them are small and marginal. It is proposed that the amount of Rs 6,000 per farmer is increased. This can be done by ceasing many of the old and existing schemes that are not making any impact on farmers’ welfare and have become redundant with time.
The success of agriculture reforms will depend on a strong political will. The new government may consider constituting an Agricultural Council on the pattern of GST Council for having consensus on issues related to model market Act, model land lease Act, subsidies, investment and strengthening agricultural research and extension.
It is also an opportune time that a new agricultural policy may be drafted to prepare a medium- and long-term roadmap for various reforms in the agriculture sector.