Agriculture will make or break India

The major economic problem of India is that agriculture and allied activities account for only 15 per cent of GDP while 70 per cent of the country's population lives in rural areas. With a growth of agriculture at a rate significantly lower than that of GDP, the trend is an inexorable reduction of the share of agriculture in GDP.

One wonders why the rural poor migrate to urban areas, particularly metropolitan cities, to live in pathetic slums. The fact is that the extent of rural poverty is far more than is generally perceived and what the authorities are willing to admit.

Misplaced belief

From time to time, earnest efforts are made to break through the barrier of rural poverty and faith is put in various programmes — the Intensive Package Programme of the 1960s, the Integrated Rural Development Programme of the 1970s, the Service Area approach of the 1980s.

Today's mantra is financial inclusion and the Mahatma Gandhi National Rural Employment Guarantee Act scheme. The excessive reliance on financial inclusion as a panacea is misplaced. Financial inclusion, without the generation of real activity, is bound to fail.

There is an erroneous belief that the rural sector is pampered — exemption from income tax, huge subsidies, irregular use of electricity and water and a host of other facilities.

What is often not recognised is that while these concessions add up to a very large amount, the benefits flow largely to the well-off segments in the rural areas.

While there is no magic wand which will cure all the ills of the rural economy, a few immediate measures could at least alleviate the situation.

Excess stocks

The most pressing problem faced by the government at the present time, relates to the unprecedentedly high public sector stocks of foodgrains of 75 million tonnes (essentially rice and wheat).

It is unfortunate that, of these stocks, 25 million tonnes are in open storage which would be subject to severe damage in the next few months.

Free distribution of the excess stocks to areas where there is acute starvation is the logical solution over rotting stocks being fed to rats.

Erudite analysis would caution us about leakages which would result from grains not reaching the intended beneficiaries and anticipations would develop of free distribution becoming the norm.

Another alternative would be to export as much as possible at international prices, which may be lower than domestic prices, but would obviate a total loss of the excess stocks.

Unless the excess stocks are reduced speedily, there would be a loss of about 10 million tonnes from the public sector stocks by end-2012.

On balance, a humane decision would be to rapidly undertake a free distribution of the excess stocks and face up to the medium-term problem of this becoming a bad precedent.

It does not need great erudition to alter incentives to discourage production of commodities in excess supply and to encourage output of commodities in short supply. It is unconscionable that the per capita daily availability of pulses has fallen from 69 gms in 1961 to 31.6 gms in 2010.

Pulses problem

It is to India's shame that vast tracts of population are bereft of protein. This problem has not surfaced only in the recent period but has been observed over the past five decades and, while token efforts have been made to deal with this, the pulses situation continues to deteriorate. While pulses output rose sharply to 18 million tonnes in 2010-11, indications are that output will soon fall back to the trend of earlier years of around 15 million tonnes.

Again, there is a chronic shortage of vegetable oils and large imports have become entrenched in the system.

It is time to expeditiously undertake effective measures. First, if the present foodgrains subsidy of Rs 73,000 crore per annum is reduced by 10 per cent and Rs 7,300 crore is channelled to pulses and oilseeds, there would be a clear enhancement of national welfare.

Secondly, foodgrains producers could be provided subsidies for keeping land fallow or if they switch over to pulses and oilseeds.

Limited corporatisation

Thirdly, pulses are grown essentially by marginal farmers in arid areas. While there are apprehensions of a political fall-out of corporatisation of agriculture, serious consideration should be given to leasing it to corporates for long periods, for producing pulses on uncultivated government land. Today's technology enables the desert to bloom and limited corporatisation specifically for pulses could be considered.

The government needs to give freedom to commodity producers to choose between selling in the domestic market and exports. The government's policy of flip flop on banning and allowing exports needs to be reconsidered. ( Business Line ‘Export Control Raj', May 5, 2012 presents a perceptive analysis of this issue).

There is an imperative need to free agriculture from the shackles of subsidising the urban sector. Herein lies the solution to alleviate rural poverty. Ultimately, it is agriculture which will make or break India.

(The author is an economist. blfeedback@thehindu.co.in )

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