Debaki Nandan Mandal While laying the foundation stone of the Indian Agricultural Research Institute at Barhi, Hazaribagh, on 28 June, the Prime Minister called for a second Green Revolution without delay. The condition of the agricultural sector, he regretted, was far from satisfactory. While farmers have progressed the world over, they are languishing in this country.
It bears recall that the NDA was strongly criticized for its dismal record in agriculture during its previous stint in power (1998-2004). It now has an opportunity to perform better. In the month of May, Narendra Modi launched a 24-hour state-run TV channel for farmers. But a public discourse on how India could improve its dreadfully backward agriculture is yet to gather momentum.
Despite decades of industrial development, about 600 million Indians, or roughly half the population, depend upon growing crops or rearing animals to earn a living. The country still relies on imports of essential items, such as pulses and cooking oil. Almost half of the average Indian household’s expenditure is on food, an important factor behind inflation. Food security at the micro level remains elusive. The global development experience, especially of the BRICS countries, reveals that one percentage point growth in agriculture is at least two to three times more effective in reducing poverty than the same degree of growth emanating from the non-agriculture sector.
On the surface, however, the state of affairs isn’t too bad in the countryside. Rural poverty appears to have declined in terms of certain indices, notably mobile phones or motorbikes whose sales have boomed across the country. Increased welfare spending in the countryside (MGNREGA) might also be another factor. But the productivity of farming itself has been dismal. Contributing just 13.7 per cent to the GDP , agriculture has grown by around 3 per cent in recent years, far slower than the other elements of GDP. The findings of the Socio-Economic and Caste Census 2011, just released, presents a grim scenario of rural India.
Of late, the woes of the farmer have exacerbated. Untimely rain damaged winter crops in northern India. The heat wave killed more than 2000 people - mostly working in the fields. Suicides by farmers, owing to the low price of their produce, is almost a recurrent tragedy. There is general concern over the monsoon; patchy or inadequate rainfall can spell disaster.
Rural incomes are not adequate. Potato-growers get as little as Rs.2 to 3 per kilo of potatoes. Cotton-farmers, who had prospered through export to China, have recently been hit by declining demand. The minimum government price for staples, notably wheat and rice, was cut presumably to help curb inflation. But it was not accompanied by any transitional support for farmers who were hit by the adjustment.
Low productivity is a chronic problem because of the shrinking size of the cultivated plots. Two grain harvests a year are fairly routine. But the yields are low by global standards.
It has been estimated that unless the agri-sector takes off to a 4 percent plus growth trajectory, the possibility of reducing poverty in a significant manner and within a short timeframe is slender. China initiated agricultural reform in 1978, and during 1978-84 agri-GDP increased by more than 7 percent per annum and farm incomes by more than 14 percent a year.
The policy message for reforming agriculture is very clear. The areas which merit urgent and concerted attention to streamline agriculture revolve around investment, incentive and institutions.
We need to rationalize and prune input subsidies. The savings, thus generated, should be invested in agricultutre - R&D, rural roads, rural education, irrigation and water works. Higher levels of investment in agriculture both by the public and private sector can yield much better results. Policy-makers must be bold to bite the bullet and drastically cut subsidies which will open the avenue for increasing the size of public investment. One way to contain the subsidy bill is to provide subsidies directly to farmers. In the manner of the LPG subsidy, the fertilizer subsidy can be directly transferred to farmers’ accounts on a per hectare basis. The previous fiscal year witnessed one of the biggest cuts in public farm investments in recent years to meet the fiscal deficit target of 4.1 percent.
Private investment is the engine of agricultural growth. Again, it responds to incentives. Much of the adverse impact on incentives comes from strangulating the domestic market under the Essential Commodities Act (ECA) 1955. This law allows the state to restrict movement of agri-products across state boundaries.
Furthermore, the law bans the storage of large quantities of any of the 90 commodities, including onions and wheat. The intention is to deter ‘hoarding’, but it has adversely affected investment in cold storages and warehouses. Therefore, a substantial quantity of crops rot before they reach the dining table.
Agricultural markets are fractured and distorted. The Agricultural Produce Marketing Committees (APMCs) are in favour of commission agents at the cost of both farmers and consumers. According to the government’s Chief Economic Advisor, Arvind Subramanian, India has 3,000 to 4,000 separate agricultural markets. A clean sweep of both ECA and APMC Acts can ensure free movement of goods across India, without multiple taxes, and direct buying by organized retailers and processors from the farmer groups.
Institutional reform should aim at organizing small farmers - a dominant feature of Indian agriculture - into clusters and cooperatives and link them with processors and organized retailers. The AMUL model needs to be replicated in high-value perishable commodities such as fruit and vegetables, poultry and meat products.
Finance is the critical need of the farmers. State-aid is skewed towards providing cheap inputs - by subsidizing fertilizer, water and power - rather than helping to insure farmers’ crops against inclement weather or a natural disaster.
Agriculture remains under the control of states. The central government has hitherto done very little except to insert a few high-voltage objectives in the Five-year/Annual Plan documents. The talk of a second Green Revolution will again remain a distant reality, if things are not shaken up to alert the state leaders who are obsessed with the conservative rural vote. It is crucially imperative to reform the ailing Indian agriculture. Reforms must of necessity benefit farmers... not harm them.