K. P. Mani
Even though the share of agriculture in the Gross Domestic Product of India has declined from half, at the time of independence, to less than one-fifth, currently, agriculture remains to be the predominant sector in terms of employment and livelihood with more than half of India’s work force engaged in it as the principal occupation. Agriculture still contributes significantly to the export earnings, and is an important source of raw materials as well as demand for many industries. During the last two decades, the Indian agriculture has experienced a number of severe challenges. The important among them are listed below.
Thus, the challenges before the policy makers are multifold. The formulation of a suitable and competent agriculture policy is also multidimensional. It should broadly cover the following strategies:
Various dimensions of these policies are touched upon in the appropriate chapters. However, a summary of the policy measures is attempted below.
Growth in the production of agricultural crops depends on acreage and yield. Limitations in the expansion of the agricultural land suggest that an increase in gross area can come from multiple cropping. In view of this, the main source of long-term output growth is improvement in the yield. Low yield, a decline in yield and fluctuations in yield are the serious concerns in this context. Except for a few crops, the yield is low or is coming down. This raises a very important policy question—What is the impact of technology on the yield? Evidences suggest that, in the case of many crops, there is negative correlation between the use of technology and the yield. There are different explanations for this, based on technology and on the theories of agricultural science. One explanation is the selection of the crop, and also the agro-climatic suitability of the area cultivated. Many farmers are concerned about the profitability from the output, without bothering about the agro-climatic conditions. One policy suggestion is to make the selection of the crop based on the agro-climatic conditions or, what is precisely called, agro-climatic zones (ACZ). Now we have a narrower version of what is termed as ‘precision farming’. Precision farming is closely associated to the soil conditions, the extent of rainfall, the type of climate, the relative price of agricultural commodities, size of the farms, the availability of inputs, the demand conditions, the system of land holdings, the trade policy, the government policy and a host of other factors. The concept of precision faming can be associated to decentralize planning also. So what we need is an agricultural production strategy, at the village or the panchayat level.
Another related issue in the recent years is the preference for cash/commercial/ plantation crops. Farmers prefer such crops considering the quick profit from it. One of the states in the country where this trend is very clear is Kerala. Here the area under food crops is only around 16 per cent. This shift in trend raises two policy questions (1) What about the demand for these commercial crops? (2) What about the problem of food security? These two questions can be properly answered only with the appropriate strategies. A demand for cash/commercial/plantation crops can be generated, only if there is adequate processing and value addition. It is a fact that a reduction of area under food crops will aggregate the food security problem, which is discussed in detail below.
The food management in India has three basic objectives: (1) the procurement of food grains from farmers at remunerative prices, (2) the distribution of food grains to the consumers, particularly the vulnerable sections of the society at affordable prices and (3) the maintenance of food buffers for food security and price stability. The instruments for food management are the Minimum Support Price (MSP) and the Central Issue Price (CIP). The current and appropriate policy framework is giving incentive to farmers by ensuring fair value for their produce. This is achieved through the MSP mechanism, the distribution of food grains at subsidized rates to 6.52 crore BPL families, covering all households at the risk of hunger under Antyodaya Anna Yojana (AAY), establishing grain banks in the chronically food scarce areas and strengthening the PDS.
Table 18.1 shows the overall procurement of rice and wheat, the predominant cereals, which reached 42.4 million tonnes in 2005–06, declined to 35.8 million tonnes in 2006–07 and marginally improved to 37.4 million tonnes in 2007–08. The decline in wheat procurement is due to a fall in the production of wheat, lower market arrivals, high market prices, negative market sentiments and bulk purchase by the private traders. A marginal increase in 2007–08 is due to an increase in the MSP. To make the procurement more efficient, the Government of India launched a strategy known as Decentralized Procurement Scheme (DPS) from 1997 onwards. The DPS is in operation in 10 states, namely, West Bengal, Uttar Pradesh, Madhya Pradesh, Chhattisgarh, Uttarakhand, Gujarat, Odisha, Tamil Nadu, Karnataka and Kerala. Under this scheme, the designated states procure, store and issue food grains under the Targeted Public Distribution System (TPDS) and the welfare schemes of the Government of India. The difference between the economic cost fixed for the state government and the central government is the issue price, passed on to the state government as subsidy. This scheme has the objective of covering more farmers under the MSP operations, improving efficiency of the PDS, providing food grain varieties more suited to local taste and reducing the transportation costs. The states under this scheme have shown a healthy increase in procurement in paddy. Thus we may observe that the MSP is an important determinant of procurement.
Provision of minimum nutritional support to the poor, through subsidized food grains and ensuring price stability in different states, are the twin objectives of the food security system. In fulfilling its obligation towards distributive justice, the government incurs food subsidies. The food subsidy provided to the Food Corporation of India and the states/union territories has shown an annual increase of above 30 per cent, during each of the three years, namely, 2000–01, 2001–02 and 2002–03. The same trend is noticed in 2007–08 (Table 18.2). The total amount of subsidy has continued to rise at the national level. The ratio of the percentage allocation of subsidies, as given by the off take of food grains under the TPDS and the proportion of people below poverty line, is less than one for many of the poorer states.
TABLE 18.1 Procurement and Off-take of Wheat and Rice Under the Central Pool (Million Tonnes)
Source: Economic Survey (Various Years).
TABLE 18.2 Growth of Food Subsidies in India (Rupees in Crore)
Year | Food subsidy | Annual growth (%) |
---|---|---|
1998–99 | 8700 |
16.0 |
1999–00 | 9200 |
5.8 |
2000–01 | 12,010 |
30.5 |
2001–02 | 17,494 |
45.7 |
2002–03 | 24,176 |
38.2 |
2003–04 | 25,160 |
4.1 |
2004–05 | 25,746 |
2.3 |
2005–06 | 23,071 |
−10.4 |
2006–07 | 23,828 |
3.3 |
2007–08 | 31,260 |
31.2 |
Source: Economic Survey (Various Years).
The most crucial policy variable in agriculture planning is the commodity prices. The price policy is a deliberate move to influence the working of the autonomous forces of demand and supply. Considering the complexities of farm products, the government can not just remain a silent spectator to the interplay of economic forces or manipulations, made by the intermediaries. Thus, interventions are justified on the grounds of income parity, the optimum resource allocation and minimizing the price-induced uncertainty. The main objectives of the agricultural price policy in India are the following:
The agricultural price policy and institutions to implement these policies have evolved in India, with an implicit understanding that the state has to ensure food security for the population by:
This approach, which began during the World War II, was endorsed by the numerous committees and commissions that had been asked to evaluate the food policy. Till the mid-1950s, the prices ruled high. The emphasis during that period was on restraining food grain prices. The procurement and distribution of major food grains were organized and statutory maximum prices were set, though not strictly endorsed. The minimum prices were announced for wheat, jowar, rice and maize in 1954–55, when prices started falling sharply. A comprehensive price policy, together with its institutional framework, was given a concrete shape on the basis of the recommendations of the Food Grain Prices Committee (Jha Committee) in 1964.
India’s agricultural price policy revolves round four main policy instruments, namely, the input subsidies, the MSPs, the procurement prices and the issue prices. Other policy instruments, particularly the macro-policy instruments, like trade policy and exchange rates, are not synchronized to sub serve the objectives of the agricultural price policy. Direct interventions like rationing, price control and compulsory deliveries to public institutions, though introduced occasionally, are not the regular features of the price policy. We have already discussed the recent procurement policy. Now let us examine the recent patterns in the agricultural prices.
From Table 18.3, the recent trends in MSP and CIP are clear. In the case of wheat, the MSP made an increase from Rs 630 per quintal to Rs 1000 per quintal over a period of five years, the per cent increase being 58.73. In the case of paddy, the rise in MSP during the period 2004–2009 is only 48.21 per cent. Also, while we compare this price with the trends in inflation, it is evident that the increase is not sufficient to offshoot the inflationary trends. In other words, the farmers are not getting remunerative price. Another aspect of the price policy is the integration of the domestic price with the international price. This is more relevant today in the context of globalization. The following are some of the consequences of agricultural price policy.
TABLE 18.3 Trends in Minimum Support Price and Central Issue Price (Rs/Quintal)
Source: Economic Survey 2008–09.
In order to meet the basic objectives of equity, productivity and stability, reforms on the following lines are necessary.
The subject of the farm prices is both complicated and sensitive, in view of the farm products forming a part of the daily budget of the people, in general, and a major part of the budget of the poorer sections of the society, in particular. The price management assumes a great significance, not only in the economic sense but also in its serious political implications. The agriculture price policy in India, therefore, has been an important segment of the overall economic policy, in general, and the general price policy, in particular. The actual impact of the price policy on the producers as well the consumers will depend upon the implementation of the policy. In such implementation, the marketing structure and marketing institutions dealing with the sector under consideration at various levels play an important role. The agricultural price policies should be discussed together with the issues and problems of agricultural marketing and trade. The terms of trade are also important, which require a detailed analysis of the agricultural exports and imports, is discussed in Chapter 21.
The terms of trade is the ratio between the export price and the import price. Thus, a detailed calculation is possible only with the use of international and domestic prices and the exchange rates. But some broad trends have emerged. The developed countries account for the bulk of exports and imports in India. Of the developed countries, European Economic Community (EEC) and the United States have a major role. The reform period also shows a greater dependence on these two destinations for the export of India. As compared to the developed countries, the trade with fewer developing countries formed only a meagre amount. As regards imports, there was a decline in the trade with less-developed countries and an increase in trade with OPEC countries, because of a rise in the import of crude oil.
To grow faster and also to compete with the global scenario, the agricultural sector has to be made more export-oriented. Exports should be encouraged more in the value-added and processed form rather than in the raw form because primary commodity prices in the world markets are unstable, and also the non-remunerative terms of trade go against them in such markets. A higher growth in agriculture thus needs a comprehensive revamp of the agriculture policy with a re-orientation towards the rapid diversification of this sector. A progressive correction is required in the incentive structure for agriculture, so that the excessively high MSPs do not continue to distort the resource allocation in agriculture. This will ensure that the farmer’s diversity towards high value-added segments of agriculture, in response to the new demand structure.
The exports of agriculture make the direction of terms of trade positive. However, the exports can be promoted only if the Indian agriculture is made globally competitive. One of the parameters in this direction is more processing and value addition. In India, the rate of processing of fruits and vegetables is below 10 per cent, while it is more than 60 per cent in the developed countries. Now, the concepts of processing and value addition are summarized in the term ‘agri business’. Agri business is the off-farm link in agro-food value chains. It provides inputs to the farm sector, and links the farm sector to consumers through the handling, processing, transportation, marketing and distribution of food, and other agricultural products. Thus, there are strong synergies between agri business and the performance of agriculture for development. Dynamic and efficient agri business spurs agricultural growth. A strong link between agri business and small holders can reduce rural poverty.
Agri business comprises of diverse private agro enterprises, a majority of which are small, mostly in the rural markets, and operated by households that often have wage labour and farming as other sources of income. The medium and large enterprises are mainly urban based, because of the requirements for the economies of scale and infrastructure. The large enterprises are often dominated by the multinational corporations that have consolidated through vertical and horizontal integration. In recent years, influenced by the changes in consumer demand and rapid technological institutional innovations, the structure of agri business has changed dramatically, and its performance has been highly dynamic. Promoting competitiveness and enhancing small holder participation are the two priorities of the agriculture for development agenda. These two are complementary also. In the broad framework of agri business, the necessary policy interventions are the following:
The performance in agriculture is closely associated to the performance in the use of agricultural inputs. An appropriate system of inputs includes technical inputs on one hand and productive inputs like seeds, fertilizers, and pesticides on the other. During the last 40 years, the consumption of fertilizers, tractors, oil engines and irrigation pump sets increased by 130, 100, 55 and 300 times, respectively. The need for the genetically-superior and disease-resistant seeds can hardly be over-emphasized, keeping in view that more than 127 million hectares of land is annually put under food grains, but the share of certified seeds is meagre. Thus, tremendous efforts have to be made if good quality seed is to be guaranteed to the farmers. The present supply is grossly inadequate, keeping in view the national picture. Also, quality seeds are available only at exorbitant prices. The issue of supplying cheap and good quality seeds at the farmer’s doorstep needs serious consideration. At the same time, the preference on the part of the farmers for high yielding seeds is coming down in recent years, because such seeds can be cultivated only if there is an adequate supply of inputs.
But because of the lack of complementarity between the high yielding seeds and other inputs like fertilizers, pesticides and credit, farmer preference for high yielding seeds is coming down.
The issue of supplying cheap and good quality seeds at the farmer’s doorstep, supported with other inputs, needs serious consideration.
It is estimated that, on an average, for every tonne of fertilizer there is an increase of 7 tons of food grains. The consumption of fertilizer per hectare of the cropped area has increased from 5 to 46 kg in 1984–85 and to 98 kg in 2001–02. This trend continued to be more or less the same since 2002. This rate of fertilizer consumption is relatively low, compared to other parts of the world. On the other hand, in certain locations, a negative relation is reported between agricultural production and the use of fertilizers. This is because the farmers are not using the right type of fertilizers. The right type of fertilizers can be used only if the farmers go for soil testing. The percentage of farmers going for soil testing is very low, on an average 10 per cent at the national level. This is an area of policy concern. So the real question is not of fertilizer use, but of the efficiency of fertilizer use.
With the use of intensive agriculture, the use of power has increased. The government promoted a policy of selective mechanization, with a view to increase the efficiency of labour and to popularize multiple cropping, particular in the irrigated areas. In recent years, the Indian farmer has huge investments in the farm machinery, the implements and other related farm structures. Farming has thus become more capital intensive. But, even after becoming capital intensive, the productivity is either stagnant or declining in the case of many crops. This point is raised in the earlier part of the chapter also. One of the probable reasons is again the absence of supporting inputs at the right time, in the right place, and in right quantities. It is also noted that the extent of mechanization is not uniform across the regions and the crops. Changes in the institutional framework for agriculture may reduce this problem.
Another area of concern in the input supply policy is the area under irrigation, and the availability of irrigation facilities. Irrigation is a critical input in agricultural development. In the olden days, it was believed that the Indian agriculture is a gamble on monsoons. Immediately after the Green Revolution, the area under irrigation extensively increased. However, since 1985, there has been a marked stagnancy in the area under irrigation, and Indian agriculture is still a gamble on monsoons. For the last two decades, the government is giving only limited attention for widening the irrigation facilities. One reason pointed out for this trend is the absence of complementarities between public investment and private investment, which is more related to the supply of agricultural credit. There are some changes in the recent months, as a result of the policy changes.
As mentioned, the availability of credit is equally important for agriculture development. The primary agencies for the supply of agriculture credit are the cooperative institutions, the commercial banks and also the regional rural banks. When we examine the trends, composition and challenges of agriculture credit, the following points deserve immediate attention of the policy makers.
Another input recently introduced is training. Training input helps quality control, grading, standardization and information. One of the policy instruments to compete in the global market is developing a well developed information system. Right information to the farmers, at the right time, will help them to decide their planning and harvesting strategies.
The performance of agriculture sector lags not only because of problems with production and yield, but also with the input management. The situation can be improved with the help of appropriate policy interventions.
The agricultural price policy generally involves widely divided responsibilities among the ministries and other institutions. The discharge of these responsibilities must rest on adequate arrangements for the coordination of the distinct but interrelated activities, if policy coherence and effectiveness are to be attained. The institutional reforms play a very crucial role in agriculture development. One such policy instrument is land reforms. Land reform measures abolish the intermediary interests in land, thus eliminating exploitation. Further, the land reforms make tenants the land owners, in which they cultivate. Another related policy intervention is cooperative farming and group farming. In all these cases, the total land area becomes widened, and thus becomes suitable for the use of modern agricultural practices. One of the recent developments in this context is ‘producer companies’. The strict implementation of the land reforms through policy interventions will promote agriculture development. Another institutional intervention is the decentralized planning and also the local level planning. India entered into an era of local governance and planning in 1993. One of the policy interventions in this local planning is the preparation of plans for a local area, like a panchayat or village. This concept, a component of micro-level planning, is relevant and useful in agriculture development. As mentioned earlier, the selection of the crop should be based on agro-climatic conditions or, more precisely, ‘precision planning’. Precision planning gives an opportunity to the people to involve in the planning process, and thus promote local agriculture development. Other institutional reforms are as follows.
Improved inter-institutional relations: There are a host of agencies involved in agriculture development. For instance, there are multiple agencies involved in the disbursement of agriculture credit. This, sometimes lead to the problem of duplication of the credit disbursement. Similarly, the production relations pass through a large number of agencies. If these agencies are not integrated, duplication as well interdepartmental problems may arise.
Another institutional intervention suggested is the efficient use of the existing infrastructure and also developing new infrastructure. Infrastructure is very important for sustainable agriculture. One of the important requirements for developing infrastructure is capital formation, and also a vision based on scientific rationale and not on sentiments, emotions or political interests.
Parastatals play a very important role in promoting agriculture. However, the Acts of many parastatals are outdated. For instance, the Rubber Board functions are based on Rubber Act 1948, which is under restructuring now. So, if India wants to compete with the global changes, institutional reforms are unavoidable. Thus policy changes are needed in a direction, which is slowly coming up for the last four or five years. The institutional reforms will be relevant and effective, only if they are supplemented by fiscal and monetary policies.
Now let us examine what are the constraints which restrict or bring conflicts in the formulation of a suitable agriculture policy.
The discussion on the agriculture policy will be incomplete unless we touch up on the National Policy for Farmers (NPF), 2007. Based on the recommendations of the National Commission on Farmers, and in consultation with the concerned central ministries and the states, the government of India has adopted the NPF, 2007. Major policy provisions include provisions for asset reforms, water use efficiency, use of technology and inputs services like soil health, good quality seeds, disease-free planting materials, support services for women, credit, insurance, etc. Provisions have also been made for the National Agriculture Biosecurity System, setting up of farm schools in the fields of outstanding farmers to promote farmer-to-farmer learning and to strengthen extension services and expand the food security basket to include nutritious crops like bajra, jowar, ragi and millets, mostly grown in the dryland areas. A comprehensive National Social Security Scheme for the farmers for ensuring livelihood security, by taking care of the insurance needs on account of illness and old age is also included.
Agriculture is the back bone of the Indian economy and it continues to be. But there are structural changes now compared to the pre-reforms period. Thus priorities are to be retuned and policy measures to be strengthened and declared, to make the Indian agriculture globally competitive.
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