Small is ugly

Fragmentation of holdings has been a bane of Indian agriculture, with shrinking farm sizes undermining efficiency gains to be reaped from mechanisation and economies of scale. There are two reasons for fragmentation taking place. The first is, of course, population growth that leads to a ‘natural’ sub-division of landholdings over succeeding generations. The second has to do with the non-farm economy not expanding sufficiently enough to generate alternative employment avenues for weaning people off the land, so that the ones remaining are induced to invest in its productivity and take up agriculture as a specialised vocation. When this does not happen, the result is greater fragmentation and the agricultural economy not benefiting from the processes of specialisation and division of labour that Adam Smith waxed so eloquently about in his classic work, The Wealth of Nations .

It is in this context that the findings of the latest Agriculture Census for 2010-11 hold relevance. The data from it shows that the average size of operational holdings in India has fallen from 1.23 hectares in 2005-06 to 1.16 hectares in 2010-11. True, this only represents the continuation of a long-term trend, wherein the average areas cultivated by Indian farmers has steadily shrunk to almost half of what it was in 1970-71. The latest decline is, nevertheless, significant because it coincides with a period where the Indian economy grew by over 8.5 per cent a year. This ordinarily should have created enough non-farm jobs to reduce demographic pressures on land and bring about much-needed consolidation. Instead, the number of holdings has gone up from 129 million to 138 million between 2005-06 and 2010-11, and today there are nearly twice as many farms as four decades ago. While it is odious to draw comparisons, the fact that a country like the US has just 2.2 million farms – a third of the pre-World War II levels – which still produce three to five times more wheat or corn has valuable lessons to offer.

It is nobody’s case that farm sizes in India should increase to the US average of 175 hectares-plus. But there are certain limits, below which holdings become unviable. That level has been breached in most parts of the country, which highlights the importance of growth strategies that promote non-farm rural employment. Equally, it is time to rethink the policy of land ceilings, which had its relevance in the old days of oppressive feudal zamindars . Why should farmers be barred from acquiring any amount of land, so long as it is used exclusively for agriculture? Today, forget acquisition, most States do not officially permit even leasing of land. If landowners with small uneconomic holdings can legally lease these out to those wanting to farm larger plots – with assured resumption of possession at the end of the stated tenancy period – it would be a win-win for all.

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