Indian agriculture calls for big bang reforms

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New Delhi | Published: May 31, 2019 3:14:51 AM

We have to modernise the sector, develop agricultural markets, promote exports of agricultural and processed commodities, consolidate small and marginal farmers, and expand the scope and amount of PM-KISAN

Agriculture sector, agriculture industry, indian agricultureIllustration: rohnit phore

The new NDA government at the Centre is set to develop its governance agenda for the next five years. During the last five years, the agriculture sector and farmers were at the centre stage. In fact, in the just-concluded general elections, all the political parties raised issues on farmers’ conditions and agrarian distress. However, none was able to provide a long-term remedy to overcome the plight of the farming community. At the same time, much was done during the last five years by the NDA-2 government to improve the condition of the agriculture sector and raise farmers’ incomes. These steps included programmes and schemes to increase agricultural production, improve sustainability and resilience, and raise farmers’ incomes. The agriculture sector must receive high priority as it contributes to the national food security and provides employment opportunities to more than half of the country’s population. One must also keep in mind that incomes in the agriculture sector must increase for the overall growth of the economy, as this increased income creates demand for industrial and services sectors.

Despite the substantially increased investment in agriculture and the launch of several new programmes, there has been a general feeling of farmer distress across the county. The question one must ask is: When and where did things go wrong? It appears that agriculture is excessively supported by the government, and almost everything in this sector is controlled by the government. For example: (1) growing subsidies in production (fertiliser, power, irrigation, machines, seeds, credit); (2) raising minimum support prices; and (3) increasing funds’ allocation to new schemes such as soil health cards, agricultural insurance, National Food Security Mission, agricultural insurance, etc.

In addition, several research studies reveal that (1) agricultural subsidies are overcrowding investments; (2) incentives continue to traditional crops and production systems (rice and wheat); and (3) there are no incentives to demand-driven agricultural commodities.

The fact is that farmers are not given incentives to produce efficiently, compete in the global markets, and carry out agriculture as agribusiness. Unless the agriculture sector is liberalised and the government control is minimised, it will continue to suffer. The new government may consider the following to improve the agriculture sector and subsequently farmers’ welfare:

* First, modernise the sector: Globally, the next 20 years will witness a remarkable change in agriculture and agricultural practices. The focus will be on increasing production from a declining resource base, especially land and water. Labour will be replaced by machines and drones. Therefore, Indian agriculture must keep pace with the changing scenario and respond to the dwindling resource base, unfolding demand for agricultural commodities at national and global level, and the rising climate change threats. Modern technologies need to be promoted to make agriculture more efficient, competitive, sustainable, resilient and environment friendly. This will require investment in agricultural research, and in developing linkages between research and industry and service centres for disseminating modern technologies. Equally important is to reform the agricultural research system with more decentralisation to undertake target-oriented research.

* Second, develop agricultural markets: Volatile prices of agricultural commodities are a major source of agrarian distress. Prices steeply fall immediately after a crop harvest, when a majority of farmers sell their produce. However, consumers continue to pay higher prices. It means that (1) consumers are ready to pay higher prices, and (2) demand is there to absorb supply. The huge margins between what farmers receive and what consumers pay is due to inefficient, unorganised and fragmented markets of agricultural commodities. Despite the rising agricultural production of almost all commodities, appropriate markets have not been developed at the same pace. In the past, excessive efforts have been made to increase agricultural production (which is good), but without giving due attention to developing new markets. Therefore, developing and liberalising markets should receive high priority as the volume of produce from different parts of the country has increase manifold. The government should gradually withdraw in fixing agricultural prices and their procurement. Instead, the organised private sector must be attracted to develop agricultural markets—let the market decide prices and the government may compensate farmers in case there is a steep fall in prices of key agricultural commodities.

* Third, promote exports of agricultural and processed commodities: Indian agriculture has already achieved food self-sufficiency, and now it needs to leapfrog from the food security syndrome to market-oriented agriculture. This will require a stable and proactive trade policy. Exports of many agricultural commodities are increasing, but imports are rising faster than exports. India has a huge potential to export several of its agricultural commodities to Africa, Central Asia, South East Asia and West Asia, besides to its neighbouring countries in South Asia. India can take advantage of the ongoing trade war between China and the US to develop its own market. It requires identification of niche commodities to different markets depending upon their taste, preferences and requirements. However, success will depend upon how quality and food safety issues are ensured.

* Fourth, consolidate small and marginal farmers: Indian agriculture is dominated by small and marginal farmers—more than 86% holdings have land less than two hectares. This group has tiny marketable surplus; they have high transaction costs and low bargaining power. Small and marginal farmers and their produce may be consolidated through (1) incentives to form farmer producer organisations, self-help groups and/or cooperatives; (2) promote contract farming and develop vertical integration; and (3) incentivise states to implement the already developed model land lease Act. There is a misperception that (2) and (3) will lead to corporate farming. What is wrong if corporate sector brings in new technologies, best practices, more investment, and gives higher returns to farmers? Care may be taken that the corporate sector does not exploit farmers.

n Fifth, expand the scope and amount of PM-KISAN: In this year’s Interim Budget, the government announced an income support scheme to the farmers, called the Pradhan Mantri Kisan Samman Nidhi Yojana (PM-KISAN). Farmers must be supported as a majority of them are small and marginal. It is proposed that the amount of Rs 6,000 per farmer is increased. This can be done by ceasing many of the old and existing schemes that are not making any impact on farmers’ welfare and have become redundant with time.
The success of agriculture reforms will depend on a strong political will. The new government may consider constituting an Agricultural Council on the pattern of GST Council for having consensus on issues related to model market Act, model land lease Act, subsidies, investment and strengthening agricultural research and extension.
It is also an opportune time that a new agricultural policy may be drafted to prepare a medium- and long-term roadmap for various reforms in the agriculture sector.

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