Three points about the Indian Agricultural Sector

The recent predictions of IMD (Indian Meteorological Department) have had a ‘butterfly effect’ on India’s socio-economic policy landscape. The capital markets have tumbled primarily due to a cautioned 25 basis point reduction in the repo rate by the Reserve Bank of India (RBI). The move by RBI considered many factors among which the announcement by the IMD that India is heading for the second consecutive year of deficient rainfall had an influence. The fear of food inflation lead the Finance Minister to comment on June 4, 2015 that the impact of deficient rains may not have a significant bearing on food grain production. He clarified this was due to the geographical distribution of the coming monsoon. The broader issue remains that Indian agriculture is still dependent heavily on monsoons for agriculture. Three points merit attention with respect to the agriculture sector in India.

First, Indian agriculture remains labour intensive (thus providing employment to roughly half the population) and with a lack of appropriate infrastructure strategy. Often the interventions made in rivers/ for irrigation are knee jerk reactions to local developmental needs in contrast to a national strategy required for irrigational development across India. More often than not there are delays in infrastructure development, and it severely undermines the pace of not only agricultural growth but means of sustenance to farmers. It means that the farmers at most times are left to the mercy of rain gods rather than appropriate water harvesting and storage techniques for his/her agricultural produce. It drastically increases the risks of crop failure. Innovative schemes for canals/water harvesting like the solar farm mounted on the top of a canal in Gujarat could bring dual benefits of water preservation as well as electricity critical for the agricultural sector.

Second, moving down in the agricultural value chain one observes there is a lack of formal market access, formal means of finance and inhibition to technology utilization that has driven farmers to suicides. Farmers are often left to borrow from informal sources like moneylenders who lend at exorbitant rates that often leads to a debt trap for farmers. Inhibition to technology usage (with respect to farming methods as well as seeds is prevalent in some parts. One observes it even in the government storage facilities under its Food Corporation of India (FCI). An estimated 40% of the India’s agricultural output by value is left to rot due to lack of adequate storage facilities. On the one hand, India suffers from chronic malnutrition (roughly one out of every four children is undernourished) and fares poorly (55th in 2014) on Global Hunger Index. On the other hand it continues to let the foodgrains rot in the government-owned storage facilities. A solution to the problem could be more competition in the food storage sector leading to better outcomes for all the stakeholders.

Third, there is an imperative need for reallocation of human resources to higher productivity activities. It means that choice must be given to farmers who want to move to other sectors of the economy for their livelihood. 50% of the population still in a relatively non-productive sector does merit serious scrutiny and action by policymakers. It also means that the government should look at a cluster-oriented approach to agro-industrial development. Corporations make huge profits out of agricultural value added products even when some of them are unhealthy for consumers. The government should foster newer business models (Like Amul, Lijjat Papad), which can provide employment as well as create value for farmer communities across India. It has tried to do it in this budget with the establishment of the MUDRA bank that aims to provide credit to small business units. However, credit is only a part of a much bigger malaise. The problem of farmer suicides and Indian agricultural output can be solved only when there is a multipronged structural approach to solving the issues. It includes reducing farmer's dependence on rain, providing better market access to agricultural produce, bettering infrastructure for storage, a greater choice to farmers for livelihood and value addition to agricultural produce by farmer communities.

(Amit Kapoor is Chair, Institute for Competitiveness & Editor of Thinkers. The views expressed are personal. Amit can be reached at amit.kapoor@competitiveness.in and tweets @kautiliya. The article is co-authored with Sankalp Sharma, Senior Researcher at the Institute for Competitiveness, India.)

Image: thinkstock