States must move from a production-centric approach to a value-chain approach with FPOs at its centre. Larger Govt investment in infrastructure Is essential, too
By Shweta Saini & Ashok Gulati
The centrality of agriculture in India goes much beyond its immediate employment contribution, where it employs close to 42% of India’s workforce. The sector not only feeds the large and growing Indian population, but also, with its close interlinkage with poverty, is best positioned to alleviate problems of malnutrition and hunger. In addition, it supplies inputs for other industries and is critical for triggering a multiplier effect in the economy, where a financially-empowered farming community triggers demand-led growth. There is no doubt that the sector needs to grow not just for those employed in it, but also for the economy as a whole.
But “how” is the question? More particularly, one seeks a growth process that is not just more efficient and inclusive of India’s small and marginal, but is also sustainable—both financially and environmentally—and augments farmer incomes. But, then comes the question about the diversity between Indian states, where they differ as much on endowments of factors of production like land, water, etc, as they do on access to market opportunities. They even differ in their vulnerabilities towards climate and weather changes. Can a generic, all-India agricultural strategy guide each state? Should the roadmap not be customised to the needs, vulnerabilities, and resource-base of each state?
In a recent Springer Nature publication, Revitalizing Indian Agriculture and Boosting Farmer Incomes, edited by Ashok Gulati, Ranjana Roy and Shweta Saini, we present a state-specific strategy for six Indian states (Punjab, Madhya Pradesh, Gujarat, Uttar Pradesh, Bihar and Odisha). We studied each of these states to identify factors that contributed to their growth and issues constraining it. The aim was to propose customised solutions and identify best-practices for replication in other Indian states.
The study found that, in the six states, three factors explained most of the agrarian growth: (i) access to infrastructure (mainly irrigation and roads), (ii) diversification to high-value agricultural products like fruit & vegetables (F&V), and allied activities like dairy and poultry, and (iii) price incentives or favourable terms of trade.
Bringing markets closer to farmers and increasing the efficiency of the value-chains emerged as an important factor that explained agricultural growth in Gujarat (mainly cotton, groundnut, livestock), Madhya Pradesh (wheat, soybean, pulses), Odisha (livestock and F&V), and Bihar (maize and livestock).
Access to irrigation emerged as a critical factor of growth. Ensuring timely access to sufficient irrigation explains the high performances of states such as Gujarat, Punjab. The role of uninterrupted power too emerged as important.
Diversification of the agricultural basket of a state was found to strengthen a state’s agri-performance (see graphic).
For the period between 2000-01 to 2015-16, we found that, among the six states, the gross value of output (GVO) in agriculture grew the fastest in Gujarat, at 9.1%. About a quarter of this came from growth in livestock, followed by cotton and F&V sectors that each made about an equal contribution of 17%. MP, with an average GVO growth of 8%, grew second-fastest. Again, it was F&V and livestock that together explained about 39% of this growth. The lowest growth was observed in Punjab, about 35% of this came from livestock sector and about 30% from cereals. Oilseeds contributed largest to growth in Gujarat (16.9%) and MP (12.5%). Pulses made a substantial contribution only in the case of MP (11.6%), and sugar emerged an important growth driver in UP (11.6%).
In order to grow faster, the requirement to undertake policy reforms, mainly related to marketing, emerged a key driver and predictor of future growth. We mapped (see graphic) the historical agricultural growth rate averages of Indian states against the state-wise ranks on NITI’s Agricultural Markets and Farmer Friendly Reforms Index (AMFFRI). (This index evaluates Indian states on the extent to which each of them undertook required agri-reforms; low AMFFRI rank implies the state is undertaking desired reforms. The lower the rank, the better.) It was found that th states that undertook reforms (and were ranked low on the AMFFRI) witnessed a relatively faster agri-GDP growth rate (blue box in graphic), and those that didn’t undertake reforms (ranked high on the AMFFRI) witnessed relatively lower agri-GDP growth rates (red box).
There were some exceptions: Karnataka, Haryana and Maharashtra. These states undertook reforms (and thus had low AMFFRI ranks) but witnessed a low agri-GDP growth rate. This is likely to be attributed to the delayed effect of reforms on the agri-performance.
As part of the roadmap and reforms, the book makes a case for states to move beyond the production-centric approach to a value-chain approach with FPOs at its centre. It highlights the importance and requirement of growing public investment in basic infrastructure, like roads, markets, power supplies, and agri-R&D. And finally, in the longer run, rationalising subsidies (both input and output) via direct income transfer is suggested, since that will not only empower farmer s but will also give them the right signals on efficient use of the resources. This will help put agriculture on a higher-growth trajectory, augment farmers’ incomes, and promote sustainable development of agriculture.
If the Modi government follows this path of investing in infrastructure, ensuring a more diversified agriculture and linking small-holder FPOs with markets, it will pay rich dividends not only to the farming community but also the entire economy.
Saini is senior (visiting) fellow, and Gulati is Infosys chair professor, ICRIER