Root causes of farm distress

With the Indian economy striving hard to accelerate its momentum, the continuing slow pace of growth in the crucial agriculture sector is increasingly becoming a matter of concern.

When India became independent, the contribution of agriculture to the economy was 50 per cent; now, it is less than 14 per cent. Employment in the agro sector was to the extent of 88 per cent; now, it is 66 per cent. This is because of the faulty policies of the Government of the day.

Twenty lakh hectares of cultivable land are understood to have been acquired for non-agricultural purposes. Further 42 per cent of farmers are ready to quit agriculture, even as 70 crore of our population is dependent on agriculture, against 35 crore at the time of Independence.

SLIPPING SECTOR

The average annual growth rate of agriculture and allied sectors during the Ninth Plan (1997-2002) and Tenth Plan (2002- 2007) remained at a low of 2.5 per cent and 2.4 per cent respectively. Even as Indian economy is bracing up to emerge as a global economic prowess in the coming years, it still sets a low growth rate target of 4 per cent in the Twelfth Plan (2012-17).

The target of 4 per cent growth is being seen by the Government of the day as important for ensuring food and nutritional security, inclusive growth and bridging the rural-urban divide. But considering India’s continuing rise in population, rapid shift in food consumption pattern with rising demand for more nutritious food with higher protein content, the mindset to keep the agro growth rate at low rate of 4 per cent is perplexing.         

Besides, India continues to adopt stereotyped policies without factoring in rapidly changing domestic and global factors. A study conducted by the National Council of Applied Economic Research (NCAER) has alarmingly projected that agriculture’s share in the aggregate GDP may decline to less than 10 per cent by 2019-20.    

The declining share of agriculture in the overall economy is a consequence of higher rate of growth of the non-agricultural sectors. However, it is the duty of policy makers to ensure that the declining contribution of agriculture to GDP is halted. Agriculture’s significance in sustaining India’s growth momentum is expected to remain unchanged.

Farm size

Giventhat India has the largest number of poor and malnourished people in the world, increasing food supply is paramount to achieving inclusive growth. Since agriculture forms the resource base for a number of agro-based industries and agro-services, agriculture should not be viewed only as farming activity but part of a wider value chain, which includes farming, wholesaling, warehousing including logistics, processing and retailing. One of the major challenges in the Indian agro sector is the phenomenon of decline in farm holding size. As a study by the NCAER shows, average farm holding size is declining, at 1.6 hectares in 2010-11 compared to 1.23 ha in 2005-06 and 2.26 ha in 1970-71. The number of marginal and small holdings (2 ha and less) shows a continuous increase, whereas medium and large holdings (4 ha and above) show a steady downtrend.

The total number of farm holdings has almost doubled from 71 million in 1970-71 to 137.8 million in 2010-11. If this trend continues, farm holdings in 2020-21 would number around 154 million with the small and marginal holdings accounting for almost 85 per cent of the total holdings and average holding size projected to decline to just one ha, the study projects. Although the increasing number of small and marginal holdings does not directly imply a negative impact on agricultural productivity, it will have significant implications on the economy. For instance, farm population per hectare of operated area will increase and per capita farm income will decline.

The key to offset the disadvantages of declining farm size would be higher productivity per hectare of crop area operated by the farms.

Rampant urbanisation

The decline in land available for agriculture and its diversion for non-agricultural use is primarily due to mindless urbanisation, the setting up of large industries and promotion of Special Economic Zones (SEZs).

Since the mid 90s, Indian and foreign companies, governments, trusts, and others have been rapidly building businesses — colleges, factories, flats, offices, plants — on land purchased primarily from poor farmers. Consequently, farm land in India is vanishing at an alarming rate.

While the expansion of urbanisation, growing industrialisation and setting up of dedicated economic zones are bound to take place, a balance has to be struck to ensure that the primary character of the crucial agricultural sector is not disturbed.

Besides, delivering agricultural credit to an increasing number of small and marginal farmers will pose a challenge. Farm mechanisation will become difficult, unless there is pooling of farm land or joint use of machinery across farms. Marketable surplus of agricultural products will decline with continued increase in on-farm consumption.

The other major challenge facing the Indian agro sector is agricultural production being constrained by limited land area that can be brought under cultivation. The net sown area under crops is now almost stagnant or declining as other demands for land are rising.

As the latest official data show, the net sown area in 2000-01 was 141.3 million ha. It was 141.9 million ha in 2008-09 and down again to 140 million ha in 2009-10. The increase in crop area is achieved by increasing cropping intensity. The cropping intensity of gross cropped area to net sown area has increased from 1.31 in 2001-01 to 1.37 in 2009-10. The increase in cropping intensity has been possible because of expansion in irrigation, availability of suitable crop varieties and mechanisation. However, further increase in intensity is constrained by the extent to which irrigated area can be increased.

Input costs

Another challenge facing Indian agro sector is the fast changing policy environment. While prices of inputs such as fertiliser, diesel, electricity and pesticides rose at relatively moderate rates in the last 5-6 years, with the reduction in input subsides on fuel and fertilisers, input prices are likely to increase at higher rates.

Wage rates increased at double digit rates per year in the last five years. Diversification of the economy is giving new opportunities for labour. The only way to offset the adverse impact of rise in wage rates is by intensely enhancing productivity by taking the benefits of mechanisation.

Optimum utilisation of Minimum Support Price (MSP) mechanism to boost productivity as well as addressing the core issue of food security is a major challenge. The MSP and procurement of grains by the government has provided incentives for raising production of rice and wheat. However, the government has not been able to distribute all the grain it has procured at MSP leading to large stocks. The expansion of subsidised foodgrain access on the one hand and likely reduction of input subsidies on the other, heighten the importance of raising productivity.

However, growing fiscal pressure is increasingly making input subsidies difficult to sustain, especially in the context of the likely expansion of food subsidy. Thus, the need for improvement in productivity will remain key for achieving adequate supply response.

(The author is Lok Sabha MP and Chairman, Parliamentary Standing Committee on Urban Development.)

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