AGRICULTURE

Browny Facts / Funde

1. GDP growth originating in agriculture is at least twice as effective in poverty
reduction as GDP growth originating in other sectors ( China - 2.5, Brazil 3.5 ) World Bank World Development Report 2008
2. Land is limited so to achieve 4% target of growth in agri could only be met by
increase in productivity through capital formation, technology generation, R&D

Status of Indian Agriculture at time of Independence

1. High rents extracted from farmers (Rack-renting)
o Zamindari system - where a zamindar acts as a link between British and
cultivators. He pays a fixed rent to British and extracted higher rents from the
cultivators
o Ryotwari - British Rulers directly extracted rents from the cultivators
2. Growth of landlordism
3. extreme indebtness among the cultivators
4. low productivity due to low investment which was a result of zero incentives due to high
rents (60-75%)
5. All this led to shortage of grains to feed the population of India.
6. India's import bill was half of the total capital investment during 1st FYP
Trends in Agriculture

Why agriculture growth is important

How is India's model different from China's?
Agriculture Policy
1. Ensure inexpensive food for consumers
2. protect farmers' incomes from price fluctuations
3. keep balance of payments in check
Green Revolution Need for implementation of / innovation in new technology

Inefficiency of land reforms to achieve self-sufficiency in food grains

Sacrifice of rural invesstments by channeling resources to meet defence needs (1962 &
1965 wars)

Two consecutive drought years ( 1965-66 )

Hand-twisting by two superpowers for meeting food needs of the country

Three phases of Green Revolution

1. 1966-1972
2. 1973-1980
3. 1931-1990
First Phase 1966-1972

headed by C Subramaniam and MSS

Policies during the initial phase

1. Setting up Minimum Support Price - Agriculture Commission set up to decide the prices
2. FCI took up charge of procuring major agricultural commodities
3. Allowing introduction of new HYV (High Yield Varieties) of wheat from Mexico
4. Support of HYV seeds with public investment in fertilisers, power, irrigation and credit
Opposition to the import of HYV seeds
1. could perpetuate inequality
2. lower gluten content
3. less than optimal baking qualities
4. dependence on foreign countries for the seeds
Achievement of self-sufficiency (1966-67 74 mt to 1971-72 105 mt of foodgrains)
Consequences of the agricultural policy

dynamic research institutions indigenised the new HYV

availability of inputs acquired strategic importance - late 60s

o over dependence on subsidies

o role of credit

Impact on Poverty alleviation 1966-1972

trickle down of the growth led to rise in farmer income

increase in output led to decline in real food grain prices

Poverty 64(1967) - 56(1973)

Second Phase 1972-1980 (Debacle and extension to wheat)

Nationalisation of Banks

Nationalisation of wholesale trade in wheat. The traders were blamed for the fluctuations
in prices because of their speculative motives.

o Proved a disaster and was abandoned

Debacle and falling back on dependency track

Two consecutive droughts in 1972-73 led to less production

Oil Shocks in 70s

India imported average 4mt foodgrains from USA 1973-1976

Growth of subsidies after the oil shocks

increase in fertiliser subsidies to prevent decrease in consumption

retention price scheme for urea

o Retention price was fixed by Govt. and the difference between MRP and retention
price was paid by Govt. as subsidy (1977-2003)

Increase of fiscal expenditure as food grain subsidies other than fertilisers (4% of agri
GDP 1980 up from 0.5% in 73)

Increase in groundwater exploitation and thus increase in electricity subsidies for

electricity based pumps

Extension of HYV from rice to wheat and growth of foodgrain production in other parts
of country aided by tubewell

Poverty declined from 56% - 50%

Third Phase 1981-1990

Consolidation of status of self-sufficiency

o Had 25 mt grain stock for the 'worst drought of country' in 1987

Spread of HYV technology in WB and BH

Other parts the GR stagnated by 1985

The increase of production by HYV was exhausted, to keep the food production growth
high the fertiliser subsidies were increased

Input subsidies -7.2/1991 -- 4.4/1980 of Agri GDP

adverse terms of trade for agri

less profitability of primary sector relative to industry due to protectionism to industry

Liberalisation 1991
Liberlisation of trade, flexible exchange rates
Effects on Agriculture

Liberlisation led to higher growth in per capita income led to diversification of food
demand - non-food products like meat, pulses, poultry

lowering of industrial protection led to better domestic ToT between agricultural and
industrial price

o this led to private investments mainly focused towards non food grain section

Agri growth 3/80s --- 4.1/91-96 but did not translated in decrease in poverty %

o fiscal contraction imposed by stabilisation

o concentration of growth in off-farm activities

Increase in inequality

o liberalisation was unequally applied in financial and investment policies thus

made it difficult for poor sections to switch from farm to non-farm activities

Ninth Plan Period

Decrease in agriculture growth rate

decrease across horticulture, livestock and fisheries

Variability in production

Measure of system to cope with the inevitable forces of nature

Decrease in variabiilty in last two decades

Earlier there used to be a bad year with negative growth in agri. in every 5 years. No
negative growth year since 2002-03

increase in irrigated land, mainly through groundwater,

But given the decrease in groundwater, variable rainfall and climate change the decrease
in variability is commendable

1. Improved dissemination of information

2. diversified agriculture
3. investment in on-farm and watershed development

Analysis of Indian Agriculture since Independence

1. Country became net exporter ($21bn 2012-13) from a food insecure nation
2. Increase in produce of food grains, milk, fish, eggs, fruits and vegetables
3. STill the agri have grown on an average of 3 % since 1997-2014, So there is untapped
potential
.
Major Factors affecting the growth Potential
1. Lack of long-term policy perspective

Anti-agricultural bias in the heavy industry focused policy since 2 FYP

No Agricultural Policy till 60 years from Independence

Little emphasis on agri exports as a means to stimulate domestic production

excessive price based focus than the non-price factors like water, infra, R&D, extension
services

2. Public investment and subsidies

Factors determining the agriculture growth
1. capital-output ratio
2. public and private capital formation
3. incentives to agri-products (ToT w.r.t. to industry Prices of agri products / prices of
industrial goods)
4. Rainfall

Public and Private investments in Agri

Decline in public investments in real terms from 6 to 10th FYP.

Increased in 10th and 11th FYP

more than 85% of investment is by private sector

Major increase in Gross Capital Formation is in labour saving machines, irrigation and
water saving equipment

Bulky subsidies in planned expenditure of agri. rather than channeling it into investments

o Investments will spur growth of capital formation -> high and sustained growth
o no political incentives to decrease the subsidy bill

Availability of credit cpurs private investment

o SHGs, Micro Finance Institutes, Priority Sector Lending

Increase in public investment since tenth five year plan
Gross Capital Formation as proportion of Value added by Agri in GDP - 13.5%/2004-05 -----21.2%/2012-13

DEBATE - Role and complementarity of Public and private investment for Capital Formation
in Agri
Complementarity and substitutability of private and public investment is debated
Public investment induces private investment (inducement effect) [established]
Arguments against substitutability
Public investment creates 1. public goods and do 2. core investment (infra development) so
are not substitutable by private
Private investments leads to inequity

Facets - Own view point

A. Both the investments are complementary and should work together

Public Sector Investment - physical capital - irrigation, roads, markets, storage

facilities, rural electrification and R&D and human capital - education, health and
training

Private Sector Investment - short-term asset building - mechanisation, groundleveling, private irrigation

o augmenting productivity through exploiting natural resources

o supplement the farmer's income
B.

Decrease in Agri growth Rate since mid 90s is attributed to (and other problems like
low productivity, low employment opportunity, high intensity of poverty and
inadequate infrastructure are also attributed to )

o decrease in public investment to support, develop and create physical and

human capital
o growth of non-farm sector
C. Govt. should invest in agriculture irrespective of its inducement effect given its outcome is
creation of public goods
Supporters

Pangariya - Proposed development of Roads connecting to major roads , rural

electrification and major and medium irrigation projects -> will spur enterpreneurship
activity of farmers

UNWFP - recomends more public investmment in agri -> stop the fall of agro .

productivity

3. Lagging R&D efforts and misplaced focus in technology generation

1. R&D mainly focused on creating HYV seeds to efficiently exploit the inputs
2. Efforts towards technology generation to sustainable use of soil nutrients

Indian Council of Agricultural Research (ICAR)

"Yield Reservoir" - low yield of the land should be treated as yield reservoir and should
be treated as asset for future development

4. Soil Degradation and Overexploitation of Groundwater

Governmental roadmap for agri development through enhanced capital formation (10th five year
plan)

agri diversification with focus on horticulture, floriculture, animal husbandry and

fisheries

strengthening agri marketing infra

focus on repair, renovation and restoration of water bodies

focus on micro-irrigation, micro finance, micro-insurance and rural credit

knowledge center in every village

National Fund for strategic agri research