1. From irrigation to roads, government does most things right, but open export markets are critical too

From irrigation to roads, government does most things right, but open export markets are critical too

From irrigation to roads to procurement, govt does most things right, but open export markets are just as critical.

By: | Published: May 3, 2017 5:55 AM
agriculture, agriculture in Gujarat, modern services, annual agriculture growth, government procurement, FCI, FDI in retail From irrigation to roads to procurement, govt does most things right, but open export markets are just as critical. (Source: PTI)

When over half the country’s workforce is employed in agriculture—70% in Madhya Pradesh (MP)—the most sensible policy is one that focuses on making agriculture more viable. Growth of manufacturing and modern services obviously is critical for a big boost in per capita income—states that have higher per capita incomes have either more industry or modern services—but developing either takes time and there is a limit to just how many jobs these can provide. In a predominantly agrarian economy, as far as the work force is concerned, there are few solutions better than making agriculture more viable.

While most talk of the Gujarat miracle—10%-plus annual agriculture growth for 10 years in a row—an Icrier paper by Ashok Gulati, Pallavi Rajkhowa and Pravesh Sharma—shows MP has entered this hallowed circle. Between FY06-FY15, MP’s agriculture grew 9.7%—in the last five years, it grew at 14.2%. The paper enumerates various firsts, such as the e-Uparjan, which allowed the government to ensure farmers who wanted to sell their wheat were informed about where to bring it by SMS; of a zero-interest farm credit where the Nabard subvention was augmented by the state, as a result of which crop loans rose from Rs 33.3 billion in FY07 to Rs 112.1 billion in FY14; of a surge in warehousing capacity, thanks to matching of the Centre’s VGF for this, and removing of fruits and vegetables from the APMC monopoly way back in 2012.

But, as the paper points out, the biggest reason was more roads, irrigation and government procurement—at one go, the government fixed supply- and demand-side problems. From 24% in FY01, the state’s irrigation ratio rose to 42.8% in FY15, road density from 526.8 km per thousand sq km in FY01 to 742.3 in FY13. From producing 8% of India’s wheat in the early 2000s, MP’s share is around 16% today; and from 13th place in FY11, it is the fourth-largest vegetable producer in the country.

If MP followed the Gujarat model of feeder separation to ensure farmers got regular electricity supplies, Uttar Pradesh is trying to raise wheat procurement—MP-style—to ensure farmers get a better deal. None of what MP did is easy, and you just have to look at Maharashtra’s record in irrigation to realise this—it spent Rs 81,206 crore in the 2000s to increase irrigation from 3.9 million hectares to just 4.1 million hectares, while Gujarat spent Rs 39,369 crore to increase increase irrigation from 3.3 million hectares to 5.6 million hectare.

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But if MP’s productivity is to rise from its current poor levels, this will lower prices as more supplies hit the market, and if every state is to procure more, this will bankrupt the already stretched FCI. This is why it is important to note the paper’s econometric analysis shows that while a 1% growth in irrigation ratio and road length increased agriculture growth by 0.98% and 0.94%, respectively, a 1% improvement in terms of trade increased agriculture growth by 1.7%.

This is where a stable export policy is critical since this, theoretically, pushes the demand curve outwards almost infinitely. Each state has its work cut out when it comes to raising agriculture productivity and creating a food processing industry, but unless there is a sensible central policy on exports or cash subventions to farmers (in place of MSP-based procurement) or FDI in retail (including food retail) is allowed, much of this can come to naught.

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