By Anand Rathi
India had a predominantly agrarian and rural economy at the time of Independence. Since then, both industry and services have overtaken agriculture. Yet, agriculture and allied activities retain the position of the largest employer. With the vast majority still living in villages, India remains predominantly a rural economy. Globally, India ranks fifth in terms of the size of industry and seventh in terms of the size of the services sector. Indian agriculture has overtaken that of the US and stands second only to China. Thus, rural India has a large role to play in India’s economic growth. Without substantial improvement in livelihood and the living conditions of the rural population, India cannot become truly developed.
The pace of urbanisation in India has been slower compared to its peers. India, accounting for 2% of the global landmass but 18% of the population, has a high population density with overstretched infrastructure, civic amenities, and other facilities in urban areas. To contain migration, policymakers are increasingly providing urban amenities in rural areas, thus envisioning significant growth impulses coming from rural India. The government needs to remove the impediments constraining rural India from becoming a major growth engine. More than half of rural income originates outside agriculture. Yet, with little alternative opportunities, two-thirds of the rural workforce is in agriculture and allied activities, making the sector crucial for rural India.
The root cause of the rural distress in India is abysmally low agricultural productivity growth, mainly due to low investment, further compounded by inequitable land holding—less than 15% of the population hold nearly 85% of agricultural land. The predominance of small farm-size makes modern cultivation difficult due to technology and funding issues. The volatility of agricultural input and product prices create further complications. Efforts at cooperative and collective farming in the past and more recent initiatives on contract and corporate farming to overcome the problem of small farm size have largely been unsuccessful. While the elaborate system of input subsidies and public procurement of food grains helped a relatively small segment, these measures have failed to usher in rural growth and prosperity. The lack of political consensus on rural reforms has thwarted the transformation of the sector. Stop-gap solutions and populist measures brought in temporary reliefs for some, but did not foster productivity improving structural changes. Inconsistent policies led to inappropriate land use, lopsided cropping patterns, the depletion of groundwater levels, high harmful chemical content in farm products, and the persistence of subsistence rather than market-oriented farming.
The idea of national food security has been interpreted in India as the domestic production of individual food crops matching domestic demand rather than capacity creation to meet the national food bill. In the process, India has missed out on being a major exporter of high-value farm products, including cash crops with high global demand. Strict administrative and regulatory control on the farm trade and supply chain management kept agricultural markets fragmented. The lack of investment in cold-chain capacity, transportation, storage, and food processing results in almost 30% spoilage of agricultural products. While creating an adequate social safety net and risk-sharing mechanism for the farming community, India needs to allow market forces to decide the cropping pattern, input use, and the marketing and processing of farm products.
In the early 1970s, economic reforms in China started with the withdrawal of state control over land holding, cropping pattern, input use and agricultural trade. The better alignment of Chinese agriculture with national and international demand boosted agricultural income. The surplus was deployed in non-agricultural rural activities leading to the emergence of a new class of non-agricultural rural entrepreneurs. They focused on production of manufactured products to meet global demand. Rapid productivity gain by the rural non-agricultural enterprises compelled state-owned enterprises to undertake productivity-enhancing reforms and the China growth story took shape.
Until 1983, India was ahead of China on per capita income. Agrarian reforms unleashed far-reaching structural changes, making China the fastest-growing economy until 2014. India needs to take hints from the Chinese playbook. A major part of non-agricultural rural income in India gets generated by village and cottage industries and MSMEs. Unlike their Chinese counterparts, the Indian MSME sector caters mainly to the local demand. In the absence of an agricultural surplus to be deployed in non-agricultural activities and limited access to funding at reasonable costs, the MSME sector could not adopt new technologies or leverage economies of scale. A lot of these are now changing. The recent revolutions in information communication technology (ICT), network connectivity, and digitalisation have opened up new opportunities to improve both farm and non-farm productivity, better mitigate business risks, and access funding by harnessing new technologies.
Many such changes are being implemented at the grassroots level. As a part of Aatmanirbhar Bharat, the government has committed large investments in supply chain infrastructure for agriculture and allied activities. There is an urgent need for various regulatory and administrative overhauls to foster the emergence of a new rural India. The growth of rural India through agriculture, cottage industries, and other rural industries is necessary for the faster growth of the economy. It hence needs special attention from the central and state governments.
The writer is founder and chairman, Anand Rathi Group