Reboot Indian Agriculture
Agricultural policies need urgent modification, especially in taxing domestic producers.
The ambitious reform agenda under implementation since 2014 in India, if carried forward without modification, may push the country into great trouble. The country is going to be the world's most populous country within ten years and, by 2050, even China's population will be only around 65 per cent of India's. Demand for food will rise sharply putting great pressure on agriculture and food supply in the country. This stark reality cannot be allowed to terrorise the people of the country; neither should it be allowed to veil under the deceptive data of 'fastest growing economy', 'doubling farmers' income', et al.
It is true that some changes in the agriculture and food policy of the country have been affected during the last four years under the Modi government, but they remained cosmetic against the enormity of the requirement. With sustained improved access to inputs such as fertilisers and seeds, as well as better irrigation and credit coverage, agriculture production has been increasing on an average at about 3.6 per cent annually since 2011. But, it is still far below the decadal population growth rate of 17.64 per cent.
Diversification of agriculture has lately necessitated and been largely driven by evolving demographics, urbanisation and changing demand patterns in the country, rather than being affected by policy initiatives of the government. It is more likely to create distortions in the production of staple food – such as rice and wheat – a shortfall of which may create havoc. People are diversifying mindlessly from grains towards pulses, fruit, vegetables and livestock products. There should be a balance somewhere in the production chain. We also need more rice and pulses to feed our people, along with agricultural produce. It is here that good governance is needed to push growth in the production of all crops and food items, as against a pattern of lopsided growth at the cost of grain production.
During the last four years, nothing equivalent to the Green Revolution of the 1960s-70s, which led India to self-sufficiency in food grains at the national level, has been rolled out. In the next step, we were to ensure food self-sufficiency at the household level, a dream yet to be realised. Today, the challenges in agriculture and the food sector remain alarming and we are not left with much time to address them successfully before we encounter the spectre of food insecurity in the near future.
The major challenges we are facing today are the prevalence of very large numbers of smallholders, low productivity, Climate Change, pressure on natural resources such as water, persistent food insecurity, and an under-developed food processing and retail sector. Among these challenges, Climate Change has emerged as the most dangerous element which may affect a reduction of 15 per cent in agriculture production in the country. The government knows this but is yet to plan and implement effective measures to handle this challenge.
It is worth mentioning that the agricultural policies in the country are designed and implemented by a complex system of institutions. The primary responsibility for many aspects of agriculture is vested constitutionally on the state governments, most of whom are presently not well off in terms of finance. The lack of funds and political will prevents them from implementing even the urgent policies and programmes potentially effective for agriculture and allied activities. Here, the Centre has an important role to play by developing national approaches to policy and providing the necessary funds for implementation at the state-level, in which the failure of the Union Government is clearly manifested in the food insecurity, nearly total dependence on rainwater, shortfall of food articles, distress of the farmers and their suicides and the pathetic condition of the agricultural labourers.
Moreover, there is no strong mechanism to bring state and Central level policymakers together to discuss problems, design solutions and monitor performance, as is rightly said in the latest OECD report on the Agriculture Policies in India, 2018. At the Central level, while the Ministry of Agriculture and Farmers' Welfare has the responsibility of agriculture policy, many other ministries and agencies have important roles to fulfil. It put the country under a significant risk of fragmentation, overlapping and unclear attribution of responsibilities.
To catch the bull by its horn was the need, but through decades, our governments only did the things that were politically needed, not the things that were needed as per the requirement of the agriculture sector. It led to such agriculture policies that have sought to achieve only food security. That is our struggle with the food insecurity, which governments preferred to tag euphemistically and politically as 'initiatives for food self-sufficiency'. They only sought to ensure remunerative prices to producers alongside safeguarding the interest of consumers by making supplies available at affordable prices. The mechanism of MSP has been politically exploited to appease farmers as vote banks but actually covering only 6 per cent of the farmers through it. The mechanism under the provisions of the Food Security Act is still under-developed and unable to provide food articles to all at affordable prices.
It is disheartening to know that the level of support to producers, as measured by the share of transfers from consumers and taxpayers in gross farm revenues, averaged -6.2 per cent during 2014-16. It is composed of budgetary spending corresponding to 6.9 per cent of gross farm receipts and negative market price support of -13.1 per cent of gross receipts. They together generate a negative producer support estimate (PSE), which needs careful interpretation. The negative price support has been continuing for many years, across many commodities.
This implies that domestic producers were implicitly taxed, says the OECD agriculture and food policy review of 2018, which is partly policy-induced, and partly related to other inefficiencies in the marketing chain. Policy-induced inefficiencies are due to the MSP being set below international prices for several commodities, domestic regulations and trade policy measures. These also add to the uncertainties in the supply chain driving up transaction costs.
Virtually all budgetary transfers to agricultural producers in India are subsidised for variable input use, with overwhelmingly subsidised fertilisers, electricity, and irrigation water. Public expenditure financing general services have actually declined over the last decades resulting in poor development and maintenance of infrastructure, particularly hydrological, followed by the cost of public stockholding and expenditure on the agricultural knowledge and innovative systems.
(The views expressed are strictly personal)