Poor funding, irrigation behind farm sector slowdown: RBI

Stagnating public investment for almost a quarter of a century, along with slowing irrigation expansion since 1991, are one among the many factors responsible for a slowdown in India?s agriculture growth since 1991, a study done by the Reserve Bank of India showed on Friday.

Cautioning against the oft-repeated notion that greater spending alone is the solution to the current impasse in Indian agriculture, the RBI study showed that steady growth of real expenditure since 1991 has actually coincided with a slowing rate of expansion of the percentage area irrigated.

?This indicates a declining efficiency of public investment and suggests that governance is as much an issue as greater allocation of funds,? the RBI said.

India?s farm sector growth has averaged a meagre 2.6% over the last one decade mainly due to stagnating per hectare yield and low public investment.

As a consequence of which many agriculturists and scientists warn that if immediate steps are not taken, then the country might slip into a net importer of many farm products and loose its self-sufficiency in many others.

The RBI study showed that agricultural output grew at a compound annual growth rate (CAGR) of 1.3% in the period between 1991/92 and 2006/07. The area under all crops grew a mere 0.1% CAGR, while CAGR for area under food grains fell 0.1%.

The yield growth was only 1.2%, according to the report prepared by development research group of the bank.

?To sum-up then, there is an across the-board slowing of output and yield growth since 1991 for the two main groups in Indian crop agriculture. For ?All Crops? there is slowing of growth in area, production and yield. The period since 1991 now emerges as a kind of watershed in time when growth in Indian agriculture, resurgent from the middle sixties, was arrested,? the study said.

On price movement being the determining factor for agriculture growth, the study does not find evidence to the contention that relative price movement might have played a determining factor in explaining slow growth of agriculture since 1991.

?The profile of relative prices over the past 15 years indicates too mild a shift, if at all, to consider relative price movements as central to understanding the slowing of agricultural growth since 1991. The role of import liberalisation in determining this price movement appears to be marginal too, except perhaps for some crops in some periods,? the RBI said.

Prices are only one element in the producer?s calculation. Yield can play the role of mitigating negative price movements. And yield continues to grow in the nineties, though slower of course, the study added.

The RBI study also found out that smaller farm holding-size, by making it more difficult for the majority of Indian farms to access new technology and adopt more efficient forms of farm production organisation, may have adversely affected agricultural growth.

As per official statistics, the average size of land holding in India is around 1.6 acres per person, while the world standard is a whopping 12-13 acres per person. Another interesting observation that the RBI study revealed was that even though import penetration is very low currently for most crops, it hasn?t have a significant impact on output.

?Two conclusions may be drawn from an inspection of the coefficients. First, for the overwhelming majority of crops, price volatility in India is substantially lower than in the global market, implying that the integration is less than full.

The latter in any case, is also what is implied by the figures for import-production ratios presented by us earlier. Secondly, comparing data across periods for India and the world separately, we find volatility reduced for most crops in the Indian market, but not so in the global, implying that as the world market has got more volatile the Indian one has become less so,? the study said.

Suggesting the need for expansion of publicly provided research and extension to support farming, the RBI study called for need for expansion of publicly-provided research and extension to support farming under a changed environment.