The complexity of the Indian agricultural economy can bewilder any observer. And not just because of the agri climate zones or the types of crops, but also because it suffers from problems that are neither easily visible nor easily comprehensible or solvable. Despite being the country with the second largest agricultural land in the world, hardly two fifth or forty percent of the agricultural land is irrigated. Also, even though the country boasts of being the highest producer of many major agro commodities in the world, it suffers from low productivity. As for the strength of the farming community, it is inconceivable that any political party can form government or even find representation in parliament without making significant inroads in the agrarian population. All political parties make over the top attempt to show themselves as the biggest supporter of farmers’ cause. And yet, year after year, farmers in different parts of the country are forced to commit suicide crop failure or inability to repay the loans, large scale loan waiver programs of governments notwithstanding. The granaries are overflowing with food stocks and huge stocks are lost to rain or rodents every year, but minimum support prices are still raised liberally and even more food grain is procured. And of course, the government cannot distribute food to poor for free, regardless of the Supreme Court strictures. Confused? You are not alone; hardly anyone has a complete handle over the great game of the Indian agricultural economy.
Critical for economy
It may sound clichéd, but agriculture remains a critical element of the Indian economy. Even though agriculture and allied sectors contribute just about 14 percent to the GDP (2013-14 estimates of the Central Statistics Office), its direct and indirect impact on Indian economy are huge and multifaceted. Approximately 70 per cent of the rural households survive on agriculture and this population has a lion’s share in the consumption of many consumer durables and non-durables, rural vehicles, two wheelers and tractors. Also, rural income which primarily is farm driven, is a critical component of infrastructural sectors such as construction and cement. Another dimension of the importance of agriculture in Indian economy is the forex that it generates for the country. Agricultural and allied industries exports account for nearly one fifth of the total exports of the country and have grown sustainably over last decade or so. Indirectly, agriculture plays a big role in some industries such as food processing by providing bulk inputs.
Many industrial segments like tractors are dependent on rural demand A second way of looking at the criticality of agriculture is how fast it reduces poverty. Like any other agrarian country, farm growth in India pulls down poverty much faster than other sectors. According to a research of Delhi based Indian Council for Research on International Economic Relations (ICRIER), farm growth could reduce poverty two to three times faster than other sectors. This proves how important it is for India to ensure a healthy farm sector. Not only it offers livelihood to the majority of the population, but also has the ability to reduce poverty at a
much faster rate than industry. However, the farm sector has never been given the due importance in national economic planning it deserves and resultantly, it is tottering towards collapse.
Beyond rising production
It is commonsensical that if a sector which employs nearly two third of the country’s population is in distress, the country cannot do well overall, regardless of how high the national GDP is growing. But what is the actual status of the farm sector? Most common noise that we hear is of record agricultural production, record food grain procurement by the government, the stupendous growth of agricultural exports and the innumerable schemes launched to benefi t farmers. And stats are made available to paddle such claims. Sure, we are breaking records of production. GDP of agriculture and allied sectors stood at USD156.1 billion in 2013-14; production of wheat and rice reached an all-time high of 95.85 million tonnes and 106.29 million tonnes respectively. Total agricultural exports from India grew at a CAGR of 22.3 per cent over 2007 to 2013 to reach USD42.37 billion. Capital formation in the farm sector stood at a record 6.8 percent in 2013-14. All glossy and happy. But these are only one set of statistics. The other side is equally staggering, but not in a good way. Between the years 2007-14, agricultural production in the country grew at a compounded rate of just 2.8 per cent. The combined food grain production of Rabi and Kharif crops grew at a CAGR of even lower 1.83 per cent, in the six years leading to 2014. So, when the overall economy was growing at around seven percent, the sector sustaining two-third of the country’s population chugged along at such low rate.Uninspiring.
Census of 2011 showed that on an average, 2,300 people are quitting farming every day and migrating to the cities. Between 2005 and 2009, roughly 140 million people left the farmland. Over 35 million farmers are estimated to have left farming since 2007 to work in cities. Naturally, farming has not been able to sustain these farmers, uprooting them to migrate to cities looking for menial jobs. A survey by the Delhi based Centre for the Study of Developing Societies (CSDS) found that three out of four farmers wanted to leave agriculture because farming was not economically viable. According to the National Sample Survey Organization (NSSO), as many as 78.1 million of the 90.2 million farming households do not earn enough from farming to meet their expenses. The data show that on an average, a farming family lives on a monthly income of Rs 2,115 Rupees, which is less than the official threshold of the poverty line. The extreme distress is not visible to us in the cities.
Noted scientist and educationist Prof Yash Pal raises a pertinent question; how can the country be prosperous if two third of the
population is growing at less than two percent in an overall growth of seven percent? The inequality that it is generating is enormous and inhuman, he laments. When we see the impact of a sustained and large growth differential between India’s agricultural GDP and overall GDP, a scary situation emerges. If two third of population is creating less than one seventh of the economy and is growing at a one third rate of the broader economy, it means that not only there is a huge income differential, but that gap is increasing at a high rate. Add to it the menace of inflation, which has ruled at double digit for the last few years, it is not hard to imagine the stress that India’s agricultural economy is going through. And this stress reveals in most depressing and sad way. The National Crime Records Bureau (NCRB) records show that nearly 300,000 farmers have committed suicide in the past seventeen years or so. Two farmers on an average are committing suicide every day in Punjab, which is among the prosperous states of the country. Maharashtra and Andhra Pradesh have also recorded high suicide rates. The increasing episodes of natural calamities during the last decade has made matters even worse for farmers as the government’s interventions have been hopeless at best. If loss of income because of crop failure have been the primary factor behind these deaths, unserviceable loans have too made farmers’ lives hellish. Nearly 60 percent of the farmers are deep in debt, the bad part of which is that small landowners owe to local lenders who charge much more than banks and financial institutions.
But why is agricuture languishing?
According to Food and Agricultural Organization, India’s yield for rice stood at a low 2.4 tonnes per hectare against 4.7 tonnes per hectare and 3.6 tonnes per hectare for China and Brazil respectively. In wheat, India’s yield per hectares stood at a little over 3 tonnes per hectare against 4.19 tonnes per hectare in the case of China. However, according to data of the Ministry of Agriculture, in 2013-14, the yield of rice jumped to 3.6 tonnes per hectare but that of wheat plummeted to under three tonnes per hectare. Is low productivity a problem? Actually, it is the cumulative net result of multiple problems. First and foremost problem is the small average size of landholding. As per the Agriculture Census of 2010-11, small and marginal holdings of less than 2 hectares accounted for 85 percent of the total agricultural land holdings. As many as 62 million households have landholding of less than one hectare and these accounts for 70 per cent of total farm households. What is even more disturbing is
that the average size of holdings has been coming down, and for all classes of farmers, from small & marginal to medium and large.
The average landholding for all classes has come down from 2.82 hectares in 1970-71 to 1.16 hectares in 2010-11, a National Bank for Agriculture and Rural Development (NABARD) study revealed. Even as the number of farmers has increased tremendously over last four decades, the total agricultural land has barely increased, resulting in such decline in average landholding, which manifests in multiple problems. On one hand, it makes the cost of inputs high relative to the income, and on the other, it disincentivizes farmers from ferrying their produce to markets where their crop can get right price. Middlemen make merry of the situation. Furthermore, the decreasing size of land holdings makes it very tough to mechanize and increase yield.
The low productivity also is a manifestation of some unique problems that India faces. First, the human capital is of very low quality. The farmers are mostly uneducated or ill educated. This makes adaptation of technology impossible. This is exacerbated by the poor help from government in technical matters. For example, because of poor understanding of the ill effects of excessive use of chemicals, farmers have overused these chemicals eroding the soil productivity. Secondly, the landowning and rental rights are skewed against farmers. Excessive rent, insecurity regarding land tenure and no land ownership rights reduce the incentive for farmers to do anything for enhancing productivity and increasing production.
Poor infrastructure is third huge problem of Indian agriculture. The most visible and prevalent problems are lack of irrigation and unconnected markets. Sixty percent of the agricultural land is unirrigated, making monsoon all important factor in agricultural production. This not only makes food prices extremely volatile, but also makes farmers’ income unpredictable. Another way in which poor infrastructure severely distorts agri commodity market is poor road transportation and broken logistical network. The poor road network makes it hard for farmers to reach markets to sell their produce. Also the storage facilities across India are in bad shape. The condition is especially bad for perishable items such as fruits and vegetables. All of these result in poor income for farmers. Then there are Institutional issues. It is an acknowledged fact that agricultural productivity is directly linked with ready and reliable access to quality inputs such as seeds, fertilizers, pesticides, farming equipment and technical know how. Unfortunately, Indian farmers do not have access to any of these. High Yielding Variety (HYV) seeds are rarely available and technical information and know how is hard to fi nd. The middlemen, entrenched because of the Agricultural Produce Marketing Committee (APMC) Act further reduce the bargaining power of small farmers for most crops. Agricultural loans were planned to ensure that small farmers can afford input costs. However, the experience has been anything but encouraging. Most of the times, credit is not available to small landowners forcing them to go to local lenders who offer loans at exorbitant rates, making loans unsustainable right from the beginning. On the other hand, large landowners who do get loans from banks at lower rate, have been found to have a high propensity to default.
The way out
What transpires from above is that the Indian farmer is suffering at three levels. First, he is too small and poor to afford modern farming with high quality inputs and modern technology. Secondly, he does not have adequate state support. And third, the poor infrastructure prevents him from realizing the right price for his produce. Action is required at all these levels. The most fundamental of the agricultural inputs is seeds. State governments who are primarily responsible for the production and distribution of quality/certified seeds distribute seeds through a number of channels such as departmental outlets at block and village level, cooperatives and outlets of seed corporations and private dealers. But the structure is very often so broken that farmers have to buy seeds only from private outlets at a high price. Also, HYV seeds are too costly for most farmers. As such, a
mechanism needs to be found to ensure that high quality seeds are available at the right price at all places. Supplemented with other facilities such as proper irrigation and right fertilizers, quality seeds can increase production in excess of 30 percent, according to numerous researches.
At the infrastructure level, improving irrigation is the most crucial and immediate requirement. There is no shortcut to this. A long term plan needs to be put in place for effective and cost effective irrigation coverage. The river interlinking plan could be a
game changer in this regard. Also, efficient irrigation technologies such as piped conveyance and drip irrigation, etc. need wider application. As for logistics, more private investment needs to be attracted in higher end projects like cold storage facilities. Private sector investment in marketing and value chains have started to trickle in but needs further encouragement. At institutional level, action is required at four broad fronts. First and foremost, adequate financing must be made available to small farmers so they can afford quality inputs. These include seeds, fertilizers and pesticides, irrigation and mechanized tilling. Farm credit is among the most important yet neglected areas of banking with high losses. Proper targeting, monitoring and assistance is required so that credit level can be increased but losses kept low. Crop insurance is the second big initiative that is required to prevent extreme losses to farmers. While there are complex technical issues related to crop insurance, but the government has taken up the initiative which is commendable. Third, the entire mechanism of procurement and marketing of agricultural produce needs a radical improvement. The APMC mechanism which was invented to prevent middlemen from robbing farmers, has itself become a monster and is harming farmers as well as end users. It has to be done away with immediately.
Finally, the government needs to beef up its capability to guide the farming community in best practices. Because farmers are mostly not aware of the best farming methodologies, they are unable to take advantage of the best mix of fertilizers and pesticides, crop mixing, water management and the weather forecasts. Even though the government has started to leverage technology to make information available through telephone and call centers, its reach and ease needs to be enhanced to make such information ubiquitous. Additionally, there is a dire need for improving the information quality that is being provided. The fragmented farming is a systemic bane of Indian agriculture. It is common knowledge that small and marginal farmers are separately too poor and weak to adapt new technology or market their produce. The government can intervene to encourage collective farming that could allow members to buy seeds or fertilizers, plan crops and market produce together. While the experience in cooperative farming has mostly been a failure because of unclear work incentives, excessive government interference and inefficient leadership, some have done extraordinarily well. For example, the Gambhira Collective Farming Society in Mahisagar district of Gujarat has sustained for over sixty years. The Society undertakes primary tillage, purchase of inputs, irrigation and marketing of produce for nearly 300 members who cultivate over 500 acres of land. The proceeds obtained from crop production from the land allotted to groups, after meeting all the expenses and contribution towards the reserve. The members have got higher returns for their produce by achieving economies of scale and optimum utilization of resources.
At the end of the day, government needs to move out of the paradigm of promoting agriculture by merely increasing MSPs and waiving off farm loans. It needs to address deeper structural issues that plague the system. The first Green Revolution rode the wave of better seeds, irrigation and fertilizers. India needs another round of radical improvement in agriculture to feed its population. But this time, a much bigger template would be required. Besides research labs, it would need judicious government intervention to ensure sound infrastructure and efficient market for agricultural produce and proper incentive structure to lure
private sector money in the sector. There are no quick fix solutions for a sector as complex and big as agriculture. But failing is not a choice because it is not only an economic challenge, but also a social and human one.