The latest WPI inflation data show primary articles inflation in double digit, driven mainly by food inflation which remains stubbornly high at over 9 per cent.
The high food prices are the result of structural factors with shortages getting aggravated as demand continues to outstrip supply. So, even as the RBI continues to focus on demand management, what will ultimately help control inflation is sustained increase in agricultural supplies.
The issue assumes added urgency as the crisis in agriculture is already on our plate. Foodgrains production has remained stagnant at around 220-230 million tonnes and the per capita availability of foodgrains today is actually less than it was 20 years ago. There are indications that India, the world's largest producer of milk, may have to import milk in the next five years, along with higher import of pulses, oilseeds, coarse grains and even foodgrains. Africa's experience is a lesson we cannot ignore: it moved from a net exporter to a net importer of foodgrains in the 1980s; its food trade deficit is now around $20 billion.
Stagnant agriculture, combined with rising demand, is causing food inflation. Between FY1950 and FY2000, the Indian economy grew at an annual average rate of 4.4 per cent with agriculture growing at 2.3 per cent that is around half the economic growth. Between FY2001 and FY2010, the economy grew at an average 7.2 per cent and agriculture at 2.4 per cent, that is around one-third the economic growth. So even as manufacturing and service sectors recorded robust growth, agriculture remained stagnant.
According to the Planning Commission, demand for foodgrains is projected to touch 256 million tonnes by 2020 comprising 113 million tonnes of rice, 82 million tonnes of wheat, 39 million tonnes of coarse grains and 22 million tonnes of pulses. Hence, there is urgent need to step up agricultural productivity and production to match the rising demand requirements.
More public investment
Increasing productivity calls for stepping up the share of public investment in agriculture which declined from 4.37 per cent of the total expenditure in the 9th Plan to 3.86 per cent in the 10th Plan and further to 1.83 per cent in the 11th Plan. But even the existing resources remain underutilised. For instance, in the last 15 years, total irrigation potential of around Rs 11.04 lakh crore has been created, but actual utilisation has been only Rs 9.25 lakh crore as lack of repair and renovation has led to many irrigation canals becoming blocked with silt, garbage and sewage. Thus, around Rs 1.79 lakh crore of the irrigation potential, or around 3 per cent of GDP, remains unutilised.
Other measures, as pointed out by several experts, include stepping up investment in rural infrastructure, harnessing organic farming, improving soil quality, advisory and extension and research and development among others. These measures will help enhance the effectiveness of bank credit.
Since the number of small and marginal farmers with land holding below five hectares has increased from 62 per cent in 1960 to over 82 per cent at present, this segment needs to be harnessed perhaps by replicating the co-operative Amul model in milk production and bringing within the supply chain the large number of small and marginal farmers producing fruits, vegetables, pulses and coarse grains. The success registered by corporates sourcing tomatoes and potatoes from a large number of small farmers is a case in point: farmers were given seeds, advice and guided to grow and market their produce leading to sharp jump in yields and incomes.
Boost to innovation
Innovation is the key catalyst particularly at the small farm level and by identifying and mainstreaming the several innovations taking place at the grass root level and replicating these widely we can give a big push to agriculture. Already, India has declared the next 10 years as the Decade of Innovation, so this is a good time to take stock of the several initiatives being tried in pockets across the country.
For instance, check dams pioneered by Bhanjibhai Mathukiya, a farmer in Kalawad village in Junagadh, Gujarat, have proved to be a boon for farmers in drought-prone areas and several check dams have now been built in Gujarat and Rajasthan.
Costing less than traditional dams, the total cost works out to just Rs 10,000 including labour cost, against Rs 1 lakh in the case of traditional dams and its unique design and structural strength helps it to even resist very high water pressure and force. These check dams can be constructed easily by individuals or co-operatives without waiting for Government help.
A low-cost windmill has been developed by Mehtar Hussain in Assam for irrigating small fields. Mansukh Prajapati, a potter from Gujarat has devised Mitti Cool, an ingenious refrigerator made entirely from terracotta (clay) that keeps water cool and fruits, vegetables and milk fresh for days without electricity. N. Sakthimainthan, a paddy farmer from Tiruvarur, Tamil Nadu, has developed a simple hand-operated water-lifting device which is helpful to small farmers facing irregular power for irrigation.
The device is portable, has zero installation and maintenance cost and requires just one person to run the equipment. Punjab Agricultural University has developed a tractor-driven machine to systematically implement direct seeding of rice, an eco-friendly technique that can reduce water use in rice paddies by 30 per cent.
The Honeybee Network, part of the National Innovation Foundation which supports grassroots innovations in India, has compiled a database of over 10,000 inventions pioneered by rural entrepreneurs and several of these have been exported globally. Under ‘Samarth Bharat Abhiyan' initiated by the University of Pune, all colleges under the university are required to adopt at least one village and conduct programmes for creating awareness of key improved technology and related business opportunities; other organisations and universities can also take up similar initiatives.
A recent report by ESCAP in its latest Economic and Social Survey of Asia and the Pacific has projected that an additional 42 million people may stay in poverty in the Asia Pacific region in 2011 in addition to the 19 million already affected in 2010 owing to rising food and oil prices. Many developing countries, including India, could be majorly affected and given the large numbers, as the crisis could potentially reverse the gains made so far and lead to social unrest. Thus, India has a huge stake in ensuring food security.
To control inflation and ensure long-term economic growth, India needs to harness the creativity of the large number of its farmers and entrepreneurs, especially in rural areas. For a second green revolution, therefore, practical and cost-effective innovations emanating from grass root level need to be upscaled and backed by low-cost business models, technology, along with appropriate incentives and policies. A hundred small steps will build synergy and help sustain the growth needed to tackle the crisis on our plate.
(The writer is GM and Head (Economic Reserach), State Bank of India. The views expressed are personal)