Column on Reviving Indian Agriculture, Businessworld, 30 April

The recent political discourse has centred on the many woes of the Indian farmer, and has become particularly amplified following the suicide of a farmer at a political rally in the capital. While the government has stood its ground on the proposed Land Bill seen by opposition parties as fundamentally “anti-farmer”, it is increasingly clear that the BJP and its allies will have to confront the core issues at stake. Even if the successive failures of previous governments in assuaging the farmer’s challenges are not reason enough, a gridlock on the economic reforms mandate as a result of political developments should provoke a comprehensive response.  

 

Despite the elevated status of the services sector post economic liberalisation, agriculture remains critical to the Indian economy. The sector accounts for the largest share of jobs. Yet, it also accounts for adwindling share of value added. The National Sample Survey suggests that the number of rural workers in agriculture has dropped from a share of 74 per cent of total workers in 1999 - 2000 to 61 per cent in 2010 – 11, and to even fewer today. 

 

While states such as Madhya Pradesh have shown stellar agricultural performance in recent times, many others have not. Unseasonal rains and hailstorms have diminished farm yields. To make matters worse, a slew of ‘legacy policies’, such as Minimum Support Prices (MSP), have created perverse incentives to farm low value, highly susceptible crops. Rice and grains account for account for over two thirds of agricultural produce. They simultaneously account for around a fourth of the value of all agricultural produce. Concomitantly, the cropping of high value produce such as vegetables and fruits remains restricted, leading in turn to lower farm incomes. 

 

As a result of inefficient market functioning on both the input and output side farm profitability has suffered. The proliferation of intermediaries in the sector is a well-recognised problem with few systemic solutions or so it seems. As are other aspects such as low productivity and fragmented production owing to factors such as small land holdings and low levels of farm mechanisation. 
There is certainly no panacea for the ailing sector; however the government may find it prudent to focus its energy on five areas.

 

First, the rejuvenation of the agricultural sector merits a deeper look at how the state has (mis)conducted natural resource management. Agricultural policies must be assessed through multi-disciplinary lens. This has not been the case and as a result, despite the acute land scarcity in the country, low value crop production has been encouraged; and despite acute water scarcity, India is the largest exporter of water through agriculture (through exports of basmati rice in particular). The government shouldtherefore strive to articulate an agricultural policy framework premised on an integrated natural resources management approach. 

 

Second, small and marginal farmers across the country require extension services, ranging from technical training to weather and market related information. Extension services come under the scope of Departments of Agriculture across states, as well as other government entities such as Krishi Vigyan Kendras, private entities such as the seed industry, farmers’ groups, registered producers associations, NGOs etc. There is a need to consolidate the efforts of different stakeholders across states, and build upon existing capacities. There is also a large opportunity in the waiting, for private sector interventions. The key here is for the government to showcase successful case studies, of which there are more than a few, and provide the requisite incentives for private sector participation. 

 

Third, an important determinant, of agricultural growth is the availability of infrastructure in rural areas in the form of roads and power in particular. Perhaps it is time to look at schemes that are analogous to the ‘Provision of Urban Amenities in Rural Areas’. The key question here too would be that of financing. However, most Indian states are fiscally sound – and have greater room to manoeuvre than intuition would suggest. For instance, Bihar, which is one of the poorest states in the country on a per capita basis, is also a state which has budgeted for a revenue surplus of INR 11,980 crore, which is expected to be invested into physical infrastructure. The states should therefore lead the charge on creation of infrastructure in rural areas, and the centre should in turn, play a facilitators role. 

 

Fourth, an increased emphasis on high value activities such as animal husbandry and fisheries is warranted given the high profit margins and the visible investment demand for industries such as dairy, both domestically and internationally. Capital intensive animal husbandry and fisheries should be promoted through mezzanine financing schemes. 

Similarly, there is a need to actively develop the agricultural supply chain for high value agricultural produce, such as cold storage and transportation, through investment programmes. It is imperative for local entrepreneurs to get involved and this will require government to focus on market efficiency. Rent seeking and business cartels act as barriers to entry that demand and supply economics cannot reasonably explain. 
 

And finally, no agricultural sector framework would be complete without a consistent focus on agricultural credit and micro-insurance. While the MUDRA bank may be a good idea, the government is not necessarily a good manager of money. Moreover, the existing micro – insurance products in the market, particularly weather based insurance products, are not necessarily effective tools to mitigate price and income risks faced by farmers. The reasons for this include lack of product awareness and simply bad product innovation – more than a few credible studies already exist meticulously enumerating the flaws and how to address them. Aside from seriously deliberating on the credit challenges, the government would also do well to provide channels for global capital, available at historically low interest rates, towards the agricultural sector. This would benefit food processing and mega food park plans that are capital intensive andare perhaps only unattractive owing to high domestic rates of interest. 

 

The author, Vivan Sharan, is Partner, Koan Advisory Group, India

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