QUESTION : It is said that Indian agriculture is the least reformed sector of the Indian economy. In your opinion, what systemic reforms are needed to revive Indian agriculture so that it could revive the Indian economy as a whole ? Critically discuss.
AN AGRICULTURE- LED REVIVAL AS FLAWED CLAIM
WHAT ?
- Agriculture And India’s Economic Revival
WHY IN NEWS ?
- In the midst of India’s COVID-19-induced economic slowdown there is claim that Agriculture will lead India’s economic revival.
Background:
- The COVID-19 pandemic has induced a severe economic slowdown in the Indian economy.
- Agriculture was the only sector which recorded a modest growth of 3.4%, outpacing 2019’s first quarter’s 3% expansion. Most other sectors saw a contraction, with sectors like construction, trade, hotels, transport and communication services registering almost 50% fall.
ARGUMENTS TO SUPPORT THE CLAIM:
- Rabi Procurement: The procurement of rabi wheat in 2020-21 was 12.6% higher than in 2019-20. India’s food grain production in 2019-20 was 3.7% higher than in 2018-19.
- Inflation and Prices: Food inflation in the Q1 of 2020-21, at 9.2%, was higher than in the previous year due to sustained demand for food. This shows a shift of terms of trade in favour of agriculture.
- Higher Kharif Sowing: the area under kharif sowing in 2020-21 was 14% higher than in 2019-20. Higher kharif sowing was accompanied by higher tractor and fertilizer sales, which bodes well for economic recovery.
- Trickle From Package: Government’s economic package for agriculture — as part of the ₹20-lakh crore Atmanirbhar Bharat package — will further position agriculture as the engine of revival.
CRITICAL ANALYSIS OF EACH CLAIM :
- Rabi Precurement – Need to look at market Arrivals
- The higher procurement claim hides more than it reveals.
- As per official data, only 13.5% of paddy farmers and 16.2% of wheat farmers in India sell their harvest to a procurement agency at an assured Minimum Support Price (MSP). The rest sell their output to private traders at prices lower than MSP.
- One should, therefore, be looking not at procurement but market arrivals
o The market arrivals of major 15 crops were lower in 2020 than in 2019.
o In wheat, barley, potato, cauliflower, cabbage and lady’s finger, market arrivals in 2020 were between 50% and 75% of market arrivals in 2019.
o It was only in paddy, lentil, tomato and banana that market arrivals in 2020 constituted more than 75% of market arrivals in 2019.
- In addition, there were major losses in the milk, meat and poultry sectors; industry associations estimate the total loss for the poultry industry at ₹25,000 crore.
- Thus, the most important problem faced by farmers during the lockdown was the loss of markets, stemming from the disruption in supply chains, closure of mandis and a fall in consumer food demand.
- Higher procurement was hardly alleviating the loss faced by farmers
- Inflation and Prices – Misplaced notion that it benefitted farmers
- Inflation rates estimated using consumer price indices are not representative of farmer’s prices.
- Inflation was largely due to disruptions in supply chains and rise in trader margins
- The dark side of higher rural inflation in India is that small and marginal farmers are not net sellers, but net buyers of food. So, it was not just that farmer’s prices fell; most were also forced to pay more for food purchases.
- Higher kharif sowing – Rise in Rural Unemployment
- Given that rabi incomes fell during the lockdown, many rural households may have returned to farming or intensified farming for food- and income-security.
- Lakhs of migrant workers returned to their villages from urban areas. They may have taken up agriculture in previously fallow or uncultivated lands.
- It is no cause for celebration because the rural unemployment rates rose sharply in 2020, to 22.8% (April), 21.1% (May) and 9.5% (June).
- Trickle from Package – Fresh Spending is meagre
- Agriculture contributes only about 15% to India’s Gross Value Added (GVA). Thus, even if agriculture grows by 4%, it is likely to contribute only 0.6 percentage points to GVA growth.
- To contribute a full one percentage point to GVA growth, agriculture will have to grow by 6%, which is unlikely in 2020-21.
- Total fresh spending for agriculture in the package is a trickle: less than ₹5,000 crore. The rest are schemes already included in the past Budgets, announcements with no financial outgo or liquidity/loan measures routed through banks.
Atmanirbhar Bharat package :
- The total fresh spending for agriculture in the package amounts to less than Rs. 5,000 crore. The rest are schemes already included in the past Budgets, announcements with no additional financial outgo.
- The under-investment in the agricultural sector may prove to be counterproductive as this will lead to a condition where the rural incomes will remain depressed, and push the economy further into a vicious cycle of poor demand, low prices and low growth.
SIGNIFICANCE OF AGRICULTURE IN INDIA:
- Highest Employment Provider: More Indians depend directly or indirectly on agriculture for employment than on any other sector.
Addresses Malnutrition and provides food security:
- Agriculture holds a key to reducing India’s malnutrition problem, directly affecting public health and worker productivity.
Augmenting Economic Growth:
- Agriculture has the potential to spur India’s overall gross domestic product (GDP) growth.
- Agricultural growth of 4%, would add at least a percentage point to GDP, increase exports and improve India’s trade deficit.
- Economic transformation in developing nations is propelled by increases in agricultural incomes underpinning industrial growth. For example, China’s economic growth.
- India’s vital land and water resources, which farmers used for agricultural production, assumes more significance especially in the face of mounting scarcity, environmental degradation, and climate change.
ACTIONS BY GOI TO INCREASE FARMER’S INCOME :
- Subsidizing Input Costs: Providing water,power and fertilizer subsidies to decrease production costs.
- Green Revolution: Increasing yields through better farming practices and timely availability of quality inputs, especially high yielding seeds, chemical fertilisers and water.
- Stabilizing Output Prices: Through minimum support prices (MSP) and public procurement.
- Augmenting Non-Crop related Agriculture Income: KUSUM scheme.
- Providing Direct Income Transfers to Farmers: Pradhan Mantri Kisan Samman Nidhi (PM-KISAN).
OTHER STEPS TO IMPROVE FARMER’S CONDITION :
- Modernise the sector – The focus will be on increasing production from a declining resource base, especially land and water. Modern technologies need to be promoted to make agriculture more efficient, competitive, sustainable, resilient and environment friendly.
- Developing agricultural markets – Volatile prices of agricultural commodities are a major source of agrarian distress. Prices steeply fall immediately after a crop harvest, when a majority of farmers sell their produce.
- Promote exports of agricultural and processed commodities – Indian agriculture has already achieved food self-sufficiency, and now it needs to leapfrog from the food security syndrome to market-oriented agriculture. This will require a stable and proactive trade policy.
- Consolidation of small and marginal farmers – Indian agriculture is dominated by small and marginal farmers—more than 86% holdings have land less than two hectares.
- Expand the scope and amount of PM-KISAN
- Creating separate Council: The new government may consider constituting an Agricultural Council on the pattern of GST Council .
WAY AHEAD :
- Doubling Income Transfer: Instead of frontloading the instalments of PM-KISAN, the government should have doubled the payments to farmers from ₹6,000 a year to ₹12,000 a year.
- MSPs at Comprehensive Cost: Instead of raising the MSP for kharif paddy by ₹53 per, or cotton by ₹260 per quintal, the government should have set all MSPs at 150% of the C2 cost (comprehensive cost) of production.
- Waiver of Interest: Instead of a moratorium on loan repayments, the government should have waived the interest on loans taken by farmers in 2019 and 2020.
- Special Package for Animal Husbandry Sector: Instead of vague loan-based schemes in animal husbandry, the government should have announced a package of direct assistance for the crisis-ridden poultry and meat sectors amounting to at least ₹20,000 crore.
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