FARMS AND FARMERS

The Problems

1. Too many of India’s workers are still engaged in agriculture – and, altogether, they make too little money. Agricultural productivity has to improve if farmers are to earn a decent livelihood.

2. In some parts of India irrigation is yet to reach the farmer; in other parts, tube wells and water-intensive crops have depleted the water table and are causing an environmental crisis.

3. Farmers get too small a share of the eventual price of what they produce – too much is swallowed up by middlemen. Also, they cannot access international or even nationwide markets easily.

4. Food prices are no longer increasing as fast as they used to – but that means farmers’ incomes are stagnating, since higher prices meant that they earned more. This is increasing rural distress. Any government would be under political pressure to respond – but how?

Agricultural Reforms

Neelkanth Mishra

The importance of agriculture

As far back as 1880, the first Indian Famine Commission had observed that India had too many people cultivating too little land. And yet, the census shows that workers in agriculture increased from 100 million in 1951 to 260 million in 2011 (Mishra 2017). Recent employment surveys show a drop in the numbers, but more than 40 per cent of India’s workforce is still deployed in agriculture – and generate only a sixth of the national income. No economic reform agenda can be complete without addressing agriculture: it may create more impact than most social welfare schemes on improving the lives of the poor.

The ‘paradox of plenty’

The problem has become much more acute in recent years due to the paradox of plenty (Mishra 2016). Food demand cannot grow rapidly, particularly given that population growth is decelerating and that Indians want to consume fewer calories per head as their lifestyles change. Alongside this, however, a substantial improvement in rural infrastructure (roads, phones, electricity) is driving rapid output growth.

Supply is outpacing demand, and so India now has surpluses in most food categories. As surpluses bring down food price inflation, a large channel of income transfer from the (mostly rich) food consumers to the (mostly poor) food producers has stalled. Till recently, this food price inflation channel moderated the effect of slow agricultural growth. Since 1960, annualized real growth in agricultural GDP has been just 2.5 per cent, when the agricultural workforce grew 1.6 per cent. But prices growing at 7.5 per cent, and annual nominal income growth of 10 per cent prevented extreme stresses.

Complicating matters further, despite this surplus of food, India continues to suffer from very high, and indeed embarrassing, levels of malnutrition and stunting in children, implying that several categories are still scarce or not cheap enough. Government policies have been too focused on cereals.

Options: Government policies are still geared towards increasing the volume of output – specifically of cereals, which are only about a fifth of total agricultural production. This policy priority is a legacy of the era in which India sought self-sufficiency in food. To cope with the new challenges the government must now focus on encouraging value-addition, crop substitution, exports and disintermediation to ensure that farmers’ incomes get the much-needed boost. Agriculture being a state subject, the Central government must creatively use incentives to change/influence state-level policies.

Agricultural Reforms

No.	Suggestion	Type*	Description/Explanation
^{Immediate action}
^1.	^{Target monopolies in the supply chain}	^Markets	^{Improving the farmer’s share in the supply chain would be difficult without removing monopolies. The Essential Commodities Act and Agricultural Produce Market Committees (APMCs) allow for the formation of monopolies and cartels that make super-normal profits and correspondingly reduce farmers’ revenues. So far the political will to reform these, so that monopolies are broken up, has been lacking.}
^2.	^{Direct benefits transfer to supplement income; transition to DBT in fertilizers, linkage to soil health cards (SHCs)}	^Inputs	^{Given its enormous scope and unprecedented scale, the recently launched income trasfer scheme should be calibrated on breadth (how many beneficiaries), depth (how much) and frequency (would monthly transfers be better?). Over time, key subsidies must be rolled into it: the transition to Aadhaar-authenticated sales of subsidized fertilizers has moved rapidly, e.g. Linking to SHCs is also important in weeding out large buyers. While subsidies are distortionary, simply directing them well initially is an important first step.}
^3.	^{Improvements to the Pradhan Mantri Fasal Bima Yojana}	^Inputs	^{Insurance cover is well short of the target, 50 per cent of farmers, in 2018–19. A team of experts at the Centre can work with states continuously to track and re-negotiate premium rates which sometimes reach 40 per cent for some crops. The premium subsidy should be paid in time. Technology use (satellites, drones) is picking up, but can go up significantly higher.}
^{Medium- or long-term changes}
^4.	^{Standardize mandi-level infrastructure}	^Markets	^{To get a national agricultural market going, standard assaying, sorting and grading facilities are vital. This would also help in implementing price-difference schemes that are necessary to ensure that all small farmers can access the minimum support prices that governments set.}
^5.	^{Limit commissions/fees}	^Markets	^{These should not exceed 2 per cent of the value of produce.}
^6.	^{Expand electronic national agricultural market (e-NAM)}	^Markets	^{e-NAM volumes are only 2 per cent of India’s total agricultural output. Once processes and fees are standardized and APMC monopolies are unwound, e-NAM must be expanded so that farmers can access the best prices for their produce nationwide. A dispute resolution mechanism is also necessary to protect buyers.}
^7.	^{Experiment with income transfers to farmers}	^Inputs	^{The Rythu Bandhu (RB) scheme of Telangana should provide data thatcan help fine-tune such transfers.RB-type schemes need reliable land records, but only a few states have them (see Maitreesh Ghatak’s note on land reforms in this volume).It is crucial that transfers notdistort acreage allocation choicesby farmers.}
^8.	^{Increase formalization of tenancy}	^Inputs	^{The model tenancy act must belegislated (with amendments). Thecurrent system, in which tenantfarmers have no formal connection to the land they till, createsinefficiencies in government policy, artificially separating landownersfrom tenant farmers and small-scale farmers.}
^9.	^{Encourage agricultural exports}	^Markets	^{Surplus agricultural production must be exported to maximize farmer income. For this the government needs to develop specialist clusters that have processing facilities modern enough to meet export norms (as well as the strict regulations required by many export markets). Trade policy should be stable and predictable, with no sudden tariffs or restrictions. Agriculture being a heavily protected sector globally (Swiss subsidy is 90 per cent of their agri-GDP), trade negotiations can have a big impact on Indian agri-exports.}
^10.	^{Encourage crop substitution}	^Water	^{The production mix needs to change. First, more of the agri-products demanded by export markets need to be in the mix. Second, the cultivation of water-guzzling crops like sugar cane and rice needs to move from increasingly dry Maharashtra and Punjab to water-surplus states.}
^11.	^{Improve technology adoption}	^Inputs	^{The adoption of GM cotton dramatically raised production. But since then controversies have prevented progress: a clear policy on GM trials and adoption is necessary. Not just to improve output, but also for needs like bio-fortified foods that can augment nutritional security.}
^12.	^{Agricultural research & education}	^Inputs	^{India’s agricultural research has seen some notable successes, but requires significant expansion in scale and in providing these inputs to farmers. Outreach must be a priority.}
^13.	^{Intellectual property rights (IPR) regime}	^Inputs	^{Instead of an ad hoc issue-by-issue approach, which is costly, controversial and tends to be erratic, there should be a clear policy that helps Indian farmers access the best technologies at affordable prices.}
^14.	^{Address gaps in public irrigation system}	^Water	^{Large irrigation schemes with canals are costly, time-consuming, prone to corruption and harder to maintain. Water pipelines can reduce evaporation/leakage and are also faster to put into place.}

* Markets = agricultural marketing policies and facilities; Inputs = inputs, including investing in agricultural R&D; Water = water

References

Neelkanth Mishra, 2016, ‘Paradox of Plenty’, Indian Express, 22 August 2016.

Neelkanth Mishra, 2017, ‘Beyond the Farm’, Indian Express, 30 March 2017.

The Solutions

1. The government will have to open up markets for farmers. Cartels, middlemen and monopolies at local wholesale markets will have to be broken up through legal reforms; a national market for agri-produce will have to be created; and agri-exports will have to be prioritized.

2. Water must be a focus of the long-term strategy. Crops that require a lot of water, such as paddy, must shift from semi-desert regions to those which have excess water. Meanwhile, irrigation projects can be speeded up by focusing on water pipelines instead of grandiose canals.

3. Various forms of cash payments to farmers will need technological intervention to work – whether fertilizer subsidies, or a minimum income guarantee, or quicker insurance payouts.

4. Farming must move up the technology ladder; the government must set out a clear and progressive policy on GM crops and on IPR for such things as new seeds.

<< | >>

↑

Source: Banerjee A., Rajan R.G. et al.. What the Economy Needs Now. Penguin Press,2019. — 400 p.. 2019

More economic literature on Economics.Studio

FARMS AND FARMERS

More on the topic FARMS AND FARMERS: