1. For rural transformation, here’s what India must focus on

For rural transformation, here’s what India must focus on

The IFAD’s Rural Development Report 2016 shows price incentives for agriculture can catalyse poverty elimination

By: | Updated: October 10, 2016 7:38 AM
The RDR is one of the most comprehensive documents in understanding the role of rural transformation in eradicating poverty and securing food and nutritional security within the overall context of the economy-wide structural transformation unfolding in several countries. (PTI)

The RDR is one of the most comprehensive documents in understanding the role of rural transformation in eradicating poverty and securing food and nutritional security within the overall context of the economy-wide structural transformation unfolding in several countries. (PTI)

Eradicating poverty from this planet was the top-most goal in a set of 17 such goals adopted by the United Nations last September as part of its Sustainable Development Agenda. Nations across the globe, including India, endorsed it. But the strategy to achieve this goal is left open to the countries, which differ in their geographies, cultures and initial conditions. It is in this context that the flagship Rural Development Report 2016 (RDR) of the International Fund for Agricultural Development (IFAD) comes very handy.

The ‘Asia and Pacific Region’ release of the RDR 2016 will take place in India on October 17. The RDR is one of the most comprehensive documents in understanding the role of rural transformation in eradicating poverty and securing food and nutritional security within the overall context of the economy-wide structural transformation unfolding in several countries. The report is based on robust empirical analysis of 60 countries drawn from various regions: nine from Asia and the Pacific (APR), comprising Bangladesh, Cambodia, China, India, Indonesia, Lao People’s Democratic Republic, Pakistan, Philippines, and Vietnam. The APR region is the most populous region and has the largest number of poor in the planet. There are 16 countries from Latin America and the Caribbean; 7 from Near East, North Africa, Europe and Central Asia; 15 from East and Southern Africa; and 13 from West and Central Africa (WCA).

It may be worth distilling the main findings of this RDR 2016, and what lessons it holds for a country like India in its pursuit of poverty elimination and food and nutritional security. The first and foremost lesson of the RDR 2016 is the conceptual framework under which development takes place. The report notes that almost all the 60 countries covered are under some sort of economy-wide structural transformation; some are moving fast while many others moving at a moderate pace, and the rest, at a very slow pace. Structural transformation is both a cause and effect of economic growth. It is reflected in rising productivity in agriculture and the urban economy; changing composition of the economy, from a preponderance of agriculture to that of industry and services; greater integration with global trade and investments; and growing urbanisation and rural-to-urban migration.
The second lesson is that rural areas cannot remain insulated from this economy-wide transformation. They also transform. They transform with rising productivity in agriculture, increasing commercialisation and marketable surpluses, and diversification towards high-value agriculture and also towards off-farm employment through the development of agri value-chains.
The third, and the most important, lesson—especially for policy-makers—is that rural transformation, on its own, may not be as effective in reducing poverty unless it is made inclusive. It is this challenge of inclusiveness that is at the heart of the report, as only then poverty can be eliminated. And agriculture development is the key part of this inclusiveness within the overall rural transformation, as a majority of the working force in most of the countries at low/moderate levels of rural transformation are still engaged in agriculture.

What can India learn from this, given that Indian agriculture still engages half of work force, and about 85% of our farms are small and marginal (less than two hectares)? But in terms of overall economy-wide structural transformation, agriculture accounts for less than 18% of GDP (at market prices). Compared to some other major countries of APR, say China and Vietnam, which experienced fast structural transformation and also fast rural transformation, India’s story is of slow structural and slow rural transformation, and as a result, poverty reduction in India has been at a much slower pace during 1988-2014, compared to that in China or Vietnam. What the RDR 2016 tells us is that India’s poverty reduction was much slower during 1988-2005, but during 2005-12, it got accelerated dramatically—almost three times faster than during 1988-2005.What was so special that India did during this period of 2005-12 for its agri-development, which is at the heart of inclusiveness? Research from other quarters reveals that the relative price scenario changed significantly (by more than 50%) in favour of agriculture in the wake of rising global prices, which boosted private investments in agriculture (by more than 50%), thus raising the agri-GDP growth to 4.1% during 2007-12, as against only 2.4% during 2002-07. This period also saw historic agri-trade from India, with net surplus touching $25 billion in FY14 and real farm wages rising by 7% per annum. All these led to unprecedented fall in Indian poverty.

What all this implies is that a good price incentive can trigger investments in agriculture, leading to productivity gains, increases in real farm wages, and thus fall in poverty. As India moves forward, with the overall GDP likely to grow at 7-8% per annum till 2030, the share of agriculture in GDP will fall further. But to keep the rural transformation more inclusive for faster poverty elimination, India will have to not only focus on raising productivity in agriculture through higher R&D (seeds) and irrigation, but also move fast to build value-chains for high-value agri-products like livestock and horticulture, which account for more than half of value of agriculture (cereals account for less than 20%). It is in the building of these value-chains, by mainstream small-holders through, say, Farmer Producer Companies (FPOs), that India can create large off-farm rural employment and augment incomes of farmers and the others living in rural areas. This would require large investments both by the private and public sector, in infrastructure and in institutions to create scale in aggregating produce from small-holders, grading and packaging, cold storages, food processing and organised retailing. Also, in health and education to have inclusive rural transformation. If India can do it, and do it efficiently and in a participatory mode, it can certainly hope to eliminate not just poverty, but also malnutrition by 2030. For more details on RDR 2016, stay tuned till October 17.

Ashok Gulati

The author is Infosys chair professor for agriculture at ICRIER

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