Reviving Indian Agriculture
12:07 AM
Reviving Indian Agriculture : Back to Basics
The strategies for reviving Indian agriculture include innovation in using technology and resources, future policies that are quantity and business-oriented, and creating a competitive market for allowing public-private partnership to invest in agriculture infrastructure, extension, and technology transfer.
It is a norm to observe the relative decline of agriculture' s share in the GDP of a developing economy. Nearly half of India's GDP came from agriculture sector in 1960, and even more in her early unrecorded primeval history. However, agriculture made up only one-fifth of India's GDP, with stark differences in the growth rate compared to that of industrial and services sectors in recent years. This phenomenon only managed to attract slightly more attention when food security was threatened after feeling the heat from food crisis and perhaps riots in the first half of 2008. Pessimists call it the dire agricultural crisis. Optimists watch the sparkling opportunities, beyond the gloom, in times of crisis.
Some quarters, particularly those who do not understand what is included in the accounting system of agriculture sector in GDP, are generally against the painful disproportionate growth of agriculture sector in GDP during the development process of an open economy. They have every right to protest because post-farm and value-adding activities are in the boundary of industrial or services sector, leaving the least primary level of agricultural production value for the account of agriculture sector in GDP. Bear in mind that agricultural production value is a result of multiplication between quantity and price.
Food security to the nation has been the thrust of the policy for the agriculture sector in India. The need for food security is translated into a number of multi-pronged policy objectives: to attain a reasonable level of self-sufficiency and buffer stocks and affordable prices for consumers. The major objectives of attaining self-sufficiency and adequate buffer stocks were achieved predominantly in the Green Revolution by the end of the 1970s.
With ample agricultural production as well as government interventions, prices of agriculture commodities have been relatively low over the years. The ultimate aim is to ensure food accessibility for food security among rural poor. However, low agricultural commodities prices mean less farmers' income. Agriculture is then less profitable compared to other economic activities. Farmers are trapped between increasing input costs and marginal returns. With the rise of other more profitable sectors, the opportunity cost of basic resources—namely, land, water, and labor—becomes obviously high. Some farmers therefore switched these resources for other sectors. The remaining farmers, on the other hand, though are aging and uneducated, still understand the importance of raising agricultural productivity to increase farm income.
This `formula' of reducing poverty by raising agriculture productivity was realized and articulated in various government policies. The subsequent results were pleasing, particularly after the reforms introduced in the early 1990s. India recorded significant productivity growth and continued enjoying more than self-sufficiency in major crops. The surpluses were traded. Agricultural commodities exports at primary level increased steadily to about $3 bn in 2005, while imports recorded constantly just below $0.75 bn during 1992-2005. India, being a net exporter of commodities, started to shine at international level. However, it is the post-farm and value-adding activities that represent greater value.
The post-farm and value-adding activities are made possible by its ability to transfer commodities surpluses to the more important industrial and service sectors. Regardless, it is an intermediate or final agricultural product; they are processed and value-added. Further, marketing efforts even see obvious differentiation in their values. The combined value of intermediate and final agricultural products easily outshines the trade value of commodities. The export value of processed agricultural products was a triple of commodities export value during 1992-2005. What would it be if they were captured under the account of agriculture sector in GDP? Regardless of the accounting system of GDP, they are close-knit siblings in a family. 
Economists highlighted the potential of agriculture to stimulate industrialization, and some argued that industry's demand that promotes modernization would boost agricultural production. This sounds encouraging, but the interconnection may soon find out there is supply scare to support post-farm and value-adding activities on top of competitions for direct human consumption and animal feed. This is because productivity growth has been stagnant in recent years. The food crisis in 2008 was a whammy as well as timely to pull the trigger of red alert for India's agriculture sector to make huge strides in increasing productivity, although early success was tasted in the 1990s.
The room for productivity growth is blindingly obvious. Yields of major crops in India are lower than in many other countries. For example, the average rice yield in India (3.21 ton/ha) was lower than world average (4.15 ton/ha), China (6.35 ton/ha), and Bangladesh (3.88 ton/ha) in 2007. The low yield was mainly attributed to below average performance in Assam, Bihar, Chhattisgarh, Gujarat, Jharkand, Madhya Pradesh, Maharashtra, Orissa, Uttar Pradesh, Uttaranchal, and other states. Comparatively, the richer states (Andhra Pradesh, Punjab, Haryana and Tamil Nadu) have attained a yield of 5-6 ton/ha in recent years. The gap in yield performance is not only just a challenge but also an opportunity for growth.
The challenge and opportunity for growth, yet, are overshadowed by climate change. Drought that keeps monsoon away may see major crops—rice, wheat, soybean, cotton and sugarcane—take a severe hit. It may not be so severe if a farm has modern irrigation system and energization of wells. However, it is the uncertainty in climate change which is less predictable, less stable, and wilder. Sudden monsoon may lead to thunder flood and wipe out farm production in an unprecedented way. Unexpected long-term drought may send agricultural production down adversely. Climate change is not something that technology can do away with, but certainly there is technology that can help farmers cope with it.
However, worrisome climate change may not be as guilty as man-made market failure. Ever since the 1980s, agricultural investment as a share of total investment has been on a downward trend. Public investment in agriculture was just 1.9% of agriculture GDP in the early 2000s. Agricultural subsidies, on the other hand, were below Rs 50 bn in 1980, but spurred tremendously to about Rs 450 bn in 2005. Bulk of the subsidies was made up by power subsidy, fertilizer subsidy and irrigation subsidy. These measures produced promising result in productivity and area expansion during 1980s-1990s when other sectors were `newly promoted' as more profitable. However, with the rise of industrial and services sectors, the agricultural output growth rate started stagnating and more so in recent years.
The well-intentioned subsidy programs, in simple terms, have resulted in adverse impact and caused disorder and distortion, albeit unintentionally. The destruction it wrought has also made the agriculture sector fail to respond to market signals. The subsidies were misallocated and failed to render its service where it was most needed. This episode implicitly addresses the need for subsidies to be revisited. Without freedom for market adjustment and efficiency in resource allocation, the subsidies have crowded out productivity- enhancing investments for irrigation development, agricultural research and extension, rural roads and electrification.
Investments: Need of the hour
More investments are needed in agricultural science, technology, capacity building, research and development. The reasons for this seem evident when one considers the growth of rice yield in West Bengal that increased about 43% to 3.85 ton/ha during 1990-2007. The success story of rice cultivation in West Bengal can be traced back to the early days of its transformation from low flood valleys to viable farmland. The recent innovation in using technology and resources efficiently has further seen West Bengal market its surplus to other states.
Similar technology and resources are also available to other states. However, the inadequacy in the spread of extension services and information has limited farmers' knowledge and adoption for technologies and modern agricultural practices, including cultivation of High Yielding Varieties. Small farm holders, especially in the rural area, are further marginalized and find it difficult to access new technology and adopt more efficient forms of farm production. All these inherent institutional challenges have unfavorably affected agricultural growth in the country.
Useful suggestions
Some success stories may sound good but may not be relevant to the current scenario. A close look would reveal that the underlying determinants of agriculture share are its production quantities, prices, and subsequently values. Future policies that are quantity (both productivity and area expansion) and business (price) oriented must be introduced to replace the existing `outdated' subsidy programs and policies. The future policies may slowly transform the mechanism of agriculture sector to be business and market-oriented. The motivations for this orientation are efficiency, profitability and sustainability.
There is also a need to revive some old yet relevant and useful suggestions. To name a few: a competitive market is needed for allowing public-private partnership to invest in agriculture infrastructure, extension, and technology transfer. Small farms must be given incentives for consolidation into a powerful generator for resource efficiency, farm productivity, business sustainability, and most importantly, farmers' welfare.
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