Undergraduate Economist

Perspectives of an economics student

On Indian Agriculture

Posted by Alex M Thomas on April 2nd, 2007

There is a consensus about the crisis which the Agricultural sector is facing in India. The contribution to GDP has been falling and it is under 20% of the GDP now. The sector provides employment to about 60% of the population. Most of the farmers under this sector fall under the ‘informal sector’ where there is a dearth of reliable statistics. This can be one of the causes for the low share of agriculture in the GDP. From the figures of employment and ‘contribution to GDP’, we can conclude that there is the presence of a high degree of disguised unemployment.

Agriculture in the Budget

The proposals to revive the agricultural sector are:

  • Farm credit raised to Rs 1,75,000 crore, providing relief to additional 50 lakh farmers.
  • At 7 percent interest rate farmers receive short-term credit from NABARD, with Rs 3,00,000 upper limit on principal amount.
  • The outlay for Accelerated Irrigation Benefit Programme (AIBP) has been raised by 58.22 per cent to Rs 7,120 crore for 2006-07 from Rs 4,500 crore during 2005-06.
  • Banking sector to credit-link an additional 3,85,000 Self-Help Groups (SHGs) in 2006-07.
  • NABARD to open a separate line of credit for financing farm production and investment activities.
  • The corpus of Rural Infrastructure Development Fund (RIDF) in 12 tranches to be increased to Rs 10,000 crore.
  • The programme for repair, renovation and restoration of water bodies to be implemented through pilot projects in 23 districts in 13 states. The estimated cost of the programme stands at Rs 4,481 crore.

[Via Surfindia]

The current budget has addressed the farm credit, pulses, plantation sector, irrigation, rainfed area development, restoring water bodies, ground water recharge, training of farmers, fertilizer subsidies, agricultural insurance, social security etc. [Budget 2007-08]

Are these enough to significantly affect the agricultural sector? Moreover since India claims to growing at over 8% in GDP, are these allocations sufficient?

An important constituent of the strategy to revive agricultural performance in the country must be to increase the level of public investment in agriculture research and development and rural infrastructure. Increase in public investment in agriculture in turn requires significant rationalisation and restructuring of government subsidies on food and agricultural inputs, including power, canal irrigation and fertilisers. Greater public investment in agriculture research and extension and rural infrastructure would stimulate private investment in agriculture and agro-processing. A policy of higher investments without commensurate reforms in the institutions endowed with the charge of managing the resources created is, however, unlikely to succeed. Participatory management and selective privatisation can contribute greatly to improving the delivery of major inputs to agriculture. [Sharma and Gulati 2005]

Reasons for the crisis

Only 2 reasons are being highlighted as all the other reasons are associated to there too or spring form these two. So broadly speaking, the crisis is due to

<!–[if !supportLists]–>1) <!–[endif]–>Pressure on land: Population has outstripped land supply. Faster growth of population goes with slower rise in per capita output. [Vaidyanathan 1988] The rate of growth of population is more in the rural areas than in the urban areas. Population growth can be said to be indirectly proportional to education. Where there are more family planning programmes and adequate education, which lays emphasis on both the male and female child, the tendency to have more children is less. Moreover, with the rapid expansion of SEZ’s, the pressure on agricultural land is further aggravated.

<!–[if !supportLists]–>2) <!–[endif]–>Structural deficiencies: Indian agriculture is characterized by inefficient distribution, marketing and financial institutions. As more of the agriculture falls under the ambit of the informal sector, there is a dearth of efficient institutions. The loans are hard to come by as they lack the necessary assets to keep as collateral. Moreover, with the current rates of inflation, the prices of inputs will rise, further adding to the farmers’ distress. The distribution systems fail as the agricultural produce most often does not reach the targeted population.

US and Indian Agriculture

Rich nations preach free trade but practice protectionism against poor nations, especially in agriculture. For example, the United States severely limits sugar imports from Latin America to benefit American sugar beet growers, even inhibiting imports of Brazilian cane-based ethanol, which is far cheaper and more energy efficient than domestic ethanol. [Noll 2006]

The subsidies that the developed nations offer their farmers’ vis-à-vis to what the developing countries can offer is very large. The developing nations find it difficult to withstand this competition in the world markets. If the subsidies are not reduced by the US and the EU, it will be the developing nations who will have to bear the brunt. [Thomas 2006]

Globalization and Indian Agriculture

Once again, there are some individual cases where globalization has led to deprivation and suicide. About 800 km away from Mumbai is the cotton-growing region of Vidarbha, perched on the Deccan Plateau. Hundreds of cotton farmers here have killed themselves in recent years. The reasons are complex and varied. Among the reasons is this one: farmers here cannot compete with cheap cotton imported from the United States, whose farmers are lavished with huge subsidies by a government that preaches the virtues of competitive markets to the rest of the world. Their deaths can be linked to imperfect globalization. More generally, though, reform and globalization have led to faster growth and sharp drops in poverty levels. [Knowledge Wharton 2007]

The article talks about individual cases which resulted from imperfect competition. I wonder if anything in this world can work in a perfect way! And in Vidarbha, it is not individuals who are dying but ‘groups of individuals’. Yes, globalization has led to faster growth but ‘sharp drops’ in poverty levels is hard to agree, though the statistics does say so.

Conclusion

On the whole, the condition of Indian Agriculture is bleak. If the current allocations of the budget will help the agricultural sector will be seen in the next few years. The sector is pressurised by the domestic as well as the international economy. Agriculture finds it hard to compete in international markets with other products which are highly subsidised. More of funds need to be devoted to research in agriculture which should aim at improving agricultural production and productivity. The size of agricultural markets needs to be increased. This can be facilitated by the extension and improvement of transport. [Vaidyanathan 1988]

Agriculture is a sector which cannot be neglected as majority of the Indians depend on it for their livelihood. Targeted policies which bring about favourable outcomes are necessary. Of late, the rhetoric is about the booming GDP and bulling bourses; that significant issues like ‘agriculture’ are not getting adequate attention.

References

<!–[if !supportLists]–>1) <!–[endif]–>Pooja Sharma and Ashok Gulati, Can the Budget Boost Agricultural Performance?, EPW, May 21, 2005.

<!–[if !supportLists]–>2) <!–[endif]–>Alex M Thomas, Why fear subsidies?, Undergraduate Economist, August 16, 2006.

<!–[if !supportLists]–>3) <!–[endif]–>Roger G. Noll, The Foreign aid Paradox, SIEPR Policy Brief, October 2006.

<!–[if !supportLists]–>4) <!–[endif]–>A Vaidyanathan, India’s Agricultural Development in a Regional Perspective, 1988.

Further Readings

<!–[if !supportLists]–>1) <!–[endif]–>On Private Participation in Agriculture- M Rajivlochan (Via the commenter, Chetana)

No Responses to “On Indian Agriculture”

  1. The Acorn » How to think about Indian agriculture Says:

    [...] Concluding a post on Indian agriculture, The Undergraduate Economist writes: Agriculture is a sector which cannot be neglected as majority of the Indians depend on it for their livelihood. [TUE] [...]

  2. Ashish Tyagi Says:

    Rightly said that, Agriculture (or people dependent on agriculture) cannot be neglected & this is more so under the 11th Five Year Plan which stresses on the ‘Inclusive Development’ a lot. But, considering the enormous amounts of funds required to improve agriculture reasearch (keeping in mind that the task is more onerous than Green Revolution because yields should incraese this time & not the acreage) & Rural Infrastructure , Govt’s obstinacy to achieve the FRBMA goals by 2008 & the fact that high rates of GDP can be achieved even when agriculture languishes (source at the end), it appears that the worst is yet to come.

    One thing I would like to point out is that SEZ will not really put more pressure on the land. Out of the total land area of 2973190 sq km in India, total agricultural land is around 1534166 sq km (51.6%). The approvals granted till now (which currently are under a halt) & land under the possession of 63 notified SEZs amount to no more than 417 sq km. This is not to say that SEZs will not affect agriculture adversely, but just that SEZs will not make the land-man ratio significantly worse.

    (Agriculture’s Role in Contemporary Development
    May 23rd 2006, C.P. Chandrasekhar and Jayati Ghosh, http://www.macroscan.org/the/food/may06/fod230506Agriculture.htm)

  3. Ashish Tyagi Says:

    Regarding the WTO & the issue of subsidies by the Developed countries to their farmers, Brazil, at The World Economic Forum held at Davos recently, clearly gave the signs of solving out its issues with the USA & EU. So, if a deal on the agriculture gets struck between the three – the US, the EU, and Brazil – many developing countries (including India) will be asked to pay by opening their markets for both agriculture and industrial goods. A scenario which will further aggravate the agriculture crisis.

  4. Smoky Says:

    I am always very interested in the Indian economy. I feel as westerners, we are left out of the conversations concerning India’s economy most of the time.

    Thanks,

    Smoky

  5. Dweep Chanana Says:

    Alex,
    I heard Montek Alhuwalia while I was in India late last year, and apparently agriculture is one of 4 core areas of focus for the upcoming 5-year plan. It seemed, at least from what he said, that getting agricultural productivity up was key to maintaining India’s economic growth. Growth of the agro sector has, on average been 2% or so, and the target is to increase that to 4+%. The approach paper to the plan might be a useful further reference.

  6. paddy Says:

    hi alex ,
    do you know any online resource on agricultural productivity . like i am just looking for any recent study on the productivity and farm size of indian agriculture

  7. Alex M Thomas Says:

    Paddy,

    Hope this link helps.

  8. Ami Says:

    The scenario for Indian agriculture does seem to be bleak, judging from its present condition. But what I see here is a two-faceted problem -

    One is the problem of the agricultural sector as a production system, which suffers from inefficiency, disguised unemployment, credit issues, lack of incentives to attract private investment, and so on. This is addressed, if not at ground level, then at least in budget figures.

    The other side of the problem is the humanitarian aspect – the problems faced by Indian farmers which have to given attention separately from the attention given to the agri sector. And the main problem when we talk about ‘farmers’ (and not in general abt ‘agri’) is the kind of social relations of distribution that they are subject to, which essentially derive from the class structure and the local power balance. Farmers, at the end of their 6-month cropping cycle, ultimately have to turn to middlemen (commission agents or adhatiyas) to sell their produce. And it is here that the bargaining power of the agents proves to be stronger than that of the farmers. And so they have to settle with prices that are even below the govt’s MRP, low enough for them to remain stagnant at their current (low) standard of living.

    The way out of this ‘class’ problem for farmers could only be if their dependence on these agents could be reduced, by making farmers empowered to take the ‘next logical step’ after their output is ready. What I’m talking about is , say, some kind of agro-processing industry where they’ll have a STAKE in its functioning and will manage it themselves. This is the ‘participatory management’ that you talked about, in another context.

    Even Macro solutions like improvements in productivity etc., if achieved, cannot be all that effective in improving the lot of farmers unless ground problems like disguised unemp, farmer helplessness & indebtedness (due to weak position wrt agents etc) are addressed.

  9. sagar nidavani Says:

    cos of the sez there is an increase in diff between rich n poor and also decreased the agricultual productivity so its better that we call our india as a captilist rather than democratic nation

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