By Balwant Singh Mehta, Utpal K. De and Arjun Kumar
By Balwant Singh Mehta, Utpal K. De and Arjun Kumar
Agriculture Sector in India
Indian agricultural sector contributors significantly to the country’s economy and meet a major portion of domestic and global demand for agricultural products. Though the contribution to GDP has come down from 56.5 percent in 1950-51 to 34 percent in 1990-91 and further to below 15 percent in 2019-20. However, the annual growth rate of the sector has been below 3 percent. India is among the top three global producers of many crops and contributes about 8 percent of world production. It is the largest producer of milk, the second-largest producer of fruits and vegetables in the world.
The agriculture sector has passed through several phases of growth since Independence. During 1950-51 to 1964-65 the slow growth was guided by the expansion of net area under cultivation, while during 1965-66 to 1984-85 growth in productivity with increasing practice of multiple cropping was reflected, and thereafter the growth of agriculture has been manifested in the practice of cropping pattern changes. During the third five-year plan, special emphasis was given for the improvement in agriculture and to attain self-sufficiency in the foodgrain production followed by the commercialization of agriculture. The sector experienced a significant growth rate in production and productivity between the mid-1960s to 1980s, with the adoption of ‘Green Revolution’ technology through the application of irrigation intensive and fertilizer-responsive high yielding varieties (HYVs), farm mechanization and use of agrochemicals including synthetic fertilizers and pesticides. This transformed Indian agriculture from being a food importer to a net food exporter and today the country stands among the top 15 exporters of agricultural products in the world with a total value of agricultural exports of $38.2 billion.
The agriculture sector has an important role in the Indian economy as it is the highest employment provider, addresses the malnutrition problem, and provides food security. Still now, over two-thirds of the population is directly and indirectly dependent on agriculture and its allied activities. The sector shares 42 percent of employment in the country. Agriculture in India helps to augment economic growth as agriculture growth of 4 percent is expected to add at least 1 percentage point to the increase in GDP, increase export, and improve overall trade deficit. Realizing the importance of agriculture in the improvement of socio-economic conditions, the government has also set an agenda of doubling the farmers’ income in the next few years. The most interesting part of the on-going pandemic COVID-19 is that, where almost all the sectors have been facing severe crises, agriculture being the essential activities is relatively less affected. This clearly displays the importance of the farm sector in the country.
However, the significance of agriculture in the Indian economy has been deteriorating particularly after the 1980s. Its growth has been either stagnated or declined steadily in its contribution to GDP. As mentioned in our previous article on ‘NEP Series - Structural Transformation’, that agriculture sector today is characterized by low productivity and underemployment, which means agriculture has far too many people engaged compared to its contribution to the national income. This sector contributes only 13 percent of the national GDP in 2019 as compared to 42 percent in the 1960s, but still, have a primary source of livelihood for over 44 percent of the people. Rising agrarian distress has been observed in the last few decades in India with the land is become a shrinking resource, while the population is growing day by day, and demand for food grains is widening. The agriculture sector today is facing several other challenges, some are highlighted below.
Challenges
Small and Fragmented Land-Holdings
With the continuous growth of the population in the country and breakdown of the joint family system, there has occurred a continuous sub-division of agricultural land into smaller and smaller plots. At times small farmers are forced to sell a portion of their land to repay their debt, which creates further sub-division of land. Sub-division, in its turn, leads to fragmentation of holdings when the size of holdings become smaller and smaller, cultivation becomes uneconomic. From an average of 2.7 hectares in 1970, India’s farms have become progressively more fragmented, with the latest Agriculture Census 2015-16 showing that India’s average farm size is now barely 1 hectare. Nearly 85 percent of the agriculture land holdings are small and marginal (less than 2 hectares) today. Small landholdings have constrained mechanization, technology adoption, and economies of scale do not accrue at such levels of landholding. All these factors, along with heavy dependence on monsoon (and inappropriate irrigation and water management), account for the low productivity of Indian agriculture. In recent years, however, small and marginal farmers at various places can take advantage of markets developed for technology like the tractor, power tiller, thresher, groundwater irrigation. But those markets are in operation at far below their full potential and there is a long way to go for having competitive markets for such technologies that suit the farmers’ desire to adopt particular cropping patterns and to enjoy the full potential of the sector by removing the barriers of fragmented landholding.
Depletion of Soil and Water Health
The continued practice of high yielding intensive agriculture has put extreme pressure on soil health reflected by the continuous depletion of soil fertility. Due to selective subsidy scheme in the form of Nutrient Based Subsidy (NBS) scheme only for phosphatic and potassic (P & K) fertilizers, there has been an overuse of these fertilizers. This has led to the problem of nutrient mining in Indian soil, impacting soil health over time. Inadequate, imbalanced, and inefficient use of synthetic fertilizers with a lack of use of organic sources of plant nutrients has given rise to multi-nutrient deficiencies. Similarly, the steeply plunging water-table in most of the irrigated areas and deteriorating water quality due to leaching of salts and other pollutants is a major concern. The increasing levels of fluoride and nitrate pollution are adversely affecting groundwater quality and yields across the places.
Decreasing Farmers’ Income
The declining farmers’ income is largely on account of low average crop yield and poor price realization. National Sample Survey Office’s (NSSO) surveys on farm incomes for 2002–03 and 2012–13 showed that farmers’ real incomes grew only by 3.6% per annum during this period. The government announces Minimum Support Price (MSP) for crops and revises from time to time, but that is not at par with the rise in the cost of farming. However, the government procurement does not reach the maximum small marginal farmers, and they are forced to sell their produce at much lower prices due to the exploitation by the middlemen. Therefore, in the absence of effective market interventions, infrastructure, backward and forward linkages, farmers are unable to recover the cost of production. It may be important to note that where levels of incomes are low and agriculture productivity much below the frontier (like in UP, Bihar, Odisha, Jharkhand, etc), it is easier to increase growth rates significantly.
Poor Market Linkages, Value Chain and Pricing
One of the main reasons for the low income of Indian farmers is the difficulty in marketing their produce. Due to small and scattered land holdings, the collection of surpluses for the purpose of marketing poses a serious problem. They still rely on a number of middlemen (intermediaries) for the disposal of their crop produce at cheap prices due to the absence of a competitive local market and lack of proper information. Agricultural Cost and Price Commission has taken up a number of aspects of price policy, such as minimum support prices (MSP), procurement prices (PP), issue prices of food-grains (IPF). However, only a few large farmers are able to take benefits of hike in support prices and market channels, and small farmers, still largely sell their produce through middlemen at low prices and face many other constraints such as low marketable surplus, low bargaining power in influencing output prices, higher transaction costs and greater price volatility especially of perishable crops. The government also introduced Electronic National Agriculture Market (E-NAM), an online trading platform for agriculture commodities’, but its effect has been limited due to the time cost of the transaction, quality assessment challenges, and transportation logistics.
Poor Institutional Finance
Financing is an important driver for the growth of the agriculture sector. The timely availability of money at reasonable interest rates, especially for small landholders, is critical for inclusive and sustainable agricultural growth. In particular, small landholders lack the financial resources to improve land or purchase crop insurance and have limited access to formal credit. Neither do they have enough of their own resources to invest nor do they have access to financial markets. The effect of Kisan Credit Cards and other initiatives has limited success. Though the government has been making efforts to increase the credit flow in agriculture, about three-fifths of rural households depend on informal credit with a high-interest rate and many of them are ultimately entangled in the vicious circle of the debt trap. It appears that the institutional credit network has not yet spread adequately and uniformly in rural areas to benefit small landholders including sharecroppers. Cooperative societies and commercial banks are the dominant agencies in rural areas. Only 27 percent of small landholders have bank accounts in scheduled commercial banks, leaving about 73 percent of them to rely on informal sources for credit. In contrast, 85 percent of all medium and large farmers own bank accounts in various commercial and regional rural banks (RRB). Lack of banking information and financial illiteracy among small landholders is also leading to low financing. The consequence of the predominance of the informal sources of credit with the high-interest rate in many places causes permanent indebtedness among the small and marginal landholders.
Some other hurdles are neglect of crop rotation, lack of irrigation facilities and electrification of minor irrigation facilities, lack of storage infrastructure, changing consumption habits and food basket, inadequate use of efficient farm equipment, government restriction on exports to some agricultural commodities and high agriculture subsidies (fertilizers, power, and credit, MSP) inflicting significant damage on a different aspect of the economy.
Government Steps
The government has taken several steps to increase the income from agriculture as some have been mentioned above.
Subsidies in Input Cost
The government has subsidized’ the cost of fertilizers, water for irrigation, electricity to reduce the production cost and for high return or income from agriculture.
Green Revolution
The government provided a high yielding variety of seeds, chemical fertilizers, and irrigation facilities to increase the yields through better farming practices and timely availability of quality inputs.
Stabilize Output Prices
The government has introduced minimum support prices through setting up Agricultural Cost and Price Commission and storage space or go-downs for the storage of agriculture production and procurement.
In addition, other important steps by the government include the Kishan Credit Card Schemes, Crop Insurance Schemes, introduced Electronic National Agriculture Market System for trading, providing direct income transfers to farmers through Pradhan Mantri KishanSamman Nidhi (PM-KISAN) scheme, doubling farmers income by 2022 with the vision of New India, and the recently announced Agriculture Infrastructure Fund under the AtmanNirbhar Bharat.
Way Forward
There is an urgent need to address the three basic challenges: labor reform-transfer and engagement of underemployed labor resources from farming to other non-farm sectors; land reform- moving to a profitable model of farming on contract farming and agricultural land leasing, and pooling or consolidations of land for agriculture along with designing appropriate cropping choice based on soil characteristic; and market reform- ensuring access to inputs and remunerative output prices by making a marketing chain using digital technology such as e-trading. There is a need to reform the agriculture extension system and expand its mandate and function, the new system should invite more agri-business professionals having knowledge of new tools and approaches to disseminate information and knowledge. Additionally, the promotion of agriculture-based industry for value addition and further employment generation also needs of the hour. It will strengthen the marketing chain system and enhance the price of farm outputs used as input in these industries.
The agriculture sector grew at 11.3 percent at current prices in the year, 2019-20, more than the overall annual GDP growth of 7.9 percent, which happened the first time since 1980-81. It was possible due to various reforms in recent years. But, during the post-COVID-19 pandemic, we need to maintain this momentum by facilitating agriculture diversification towards more high-value crops, adopting an integrated farming approach, and more use of technology in trades of agriculture produce. Organic farming can also be promoted as a sustainable approach for maintaining long term soil productivity. Since agriculture is the basic sector and indispensable for food and nutrition security, in this uncertain situation of COVID-19 with large scale returnees for the closed industries and businesses, it has become more important to maintain the tempo of agriculture and related sector in order to accommodate this sudden rise of an unemployed pool of labor force.
Further, the scope of MGNREGA has been widened and wage was increased amidst lockdown. It will be more appropriate to use the MGNREGA scheme in complementarity with agriculture to boost the efficiency of the farm sector in an integrated manner.
But it is true that the farm sector cannot support the people and economic growth beyond a point. The growth of the non-farm sector is also important for agriculture sector growth and farming communities, not only to increase their household’s income and reduce distress migration but also to invest in high-value crop farming. For, this to happen, there is need to formulate a proper plan to make agriculture more productive or profitable and also generating of additional jobs in non-farm sectors in rural areas by setting up rural-based industries and other infrastructure, where the role of proposed national employment policy document would be significant essence.
Also, read the following articles of the National Employment Policy series;
About the Authors;
Balwant Singh Mehta is Research Director at Impact and Policy Research Institute (IMPRI), New Delhi, and Senior Fellow at Institute for Human Development, Delhi.
Utpal K. De is Professor, Department of Economics, North-Eastern Hill University, Shillong and Visiting Professor, Impact and Policy Research Institute (IMPRI), New Delhi.
Arjun Kumar is Director, Impact and Policy Research Institute (IMPRI), New Delhi, and China-India Visiting Scholar Fellow, Ashoka University.
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DISCLAIMER: The views expressed in this insight piece are those of the author and do not necessarily reflect the official policy or position of the IndraStra Global.
