Overall Strategy for Development of Agriculture
1. The target of 4 per cent per annum growth in GDP from Agriculture and Allied Sectors is not only necessary to achieve a higher overall GDP growth target of around 9 per cent per annum without undue inflation, it is an important element of ‘inclusiveness’. The strong growth recovery of agriculture after 2004-05, has reversed a prolonged deceleration since mid-1990s. However, agricultural growth fell to 1.6 per cent in 2008-09; and a severe drought in 2009 (the worst in 37 years) caused major losses in kharif output leading to food price inflation to rise to unacceptable levels. Longer-term growth trends in Indian agriculture based on moving averages show that there has been no five year spell involving more than 4 per cent growth of Agriculture GDP at constant prices. The growth performance during the 11th Plan period appears to have returned to the previous best range of 3 – 3.5 per cent observed during 1992-98. Further, declining year-to-year variation in annual growth rates of output and GDP reflects not only better public-sector response to the 2009-10 droughts but also an improvement in ability to adapt to the adverse climate trends.
2. The Eleventh plan strategy for agriculture had aimed to improve access of farmers to technology that both increases production and ensures sustainability of natural resources; enhance the quantum and efficiency of public investments; increase systems support while rationalising subsidies; encourage diversification towards higher value crops and livestock while at the same time protecting against food security concerns; and achieve inclusiveness through a more decentralised decision-making that focuses on solving specific local problems and also fosters a group approach by which the poor get better access to land, credit, skills and scale. It was assumed that the large gap between attainable level of productivity achieved in frontline demonstration plots and actual productivity at farm level offers a ready option to raise productivity and production by pushing use of quality seed, fertiliser, and water (irrigation). The Mid Term Appraisal of the 11th Plan found that not all aspects of the strategy are doing equally well and that much more needs to be done on the supply side.
Technology Generation and Delivery
3. India currently spends about 0.6 per cent of agri-GDP on agri-R&D, while it is widely believed by experts that India needs to raise this to at least 1 per cent of agri-GDP, which is an average of the developing countries, if it has to raise productivity in a sustained manner. Therefore, there is a need to raise public expenditure on agri-R&D to 1 per cent of agri-GDP, re-energize the public institutions (especially SAUs) with adequate funding while ensuring there are commensurate institutional reforms to incentivize the research system, including ICAR institutions.
4. The success of Bt cotton and hybrid maize in the last 6-7 years, primarily driven by the private sector, encourages to create greater space for the private sector in technology generation and diffusion. Leading agri-companies (domestic and foreign) should be invited to establish a top notch Centre of Excellence for agri-technology, extension and agri-business management, of international standards to tap the potential of the country in new technologies (especially bio-technology, including transgenics), to be developed and released under the Regulatory Authority System of the country, ensuring and adhering to bio-safety norms. The objective should be to make India as a regional hub for technology generation and diffusion. Innovative models of PPP in extension and seed multiplication should be scaled up fast with due government support.
5. The public sector extension system which is the responsibility of state governments is the weakest link in the chain for transfer of technology. There is an urgent need to develop innovative extension models built on public-private partnership (PPP) mode, that specifically integrate the needs of the many farm households that are found to be run today by women, give the farmers the latest information about an array of technologies, and let them choose the best.
6. Efforts to increase Seed Replacement Rate (SRR), with greater involvement of private sector in multiplication of breeder seeds, need to be redoubled as this is the foundation for accelerating productivity. There is also urgent need to check the supply of spurious seeds by many companies by improving governance of regulatory bodies, and also keep an eye on the monopoly practices of seed companies.
Fertilizers
7. In many areas excessive and imbalanced use of chemical fertilizers has led to degradation of natural resources such as land and water. On the other hand, still one-fourth of the districts use less than 50 kg/ha of fertilizers, which is much lower than the recommended level. Therefore, there is a need to monitor districts with high intensity of consumption and take corrective actions to reduce environmental degradation and on the other hand to promote fertilizer consumption in low-use districts to improve crop productivity. The recently introduced nutrient-based subsidy regime is likely to provide price incentive for balanced use of fertilizers, this need to be supplemented by extension effort. In order to raise resources for investments in agri-R&D and irrigation etc, and to promote efficiency, rationalize and contain the subsidy regime. Fertilizer subsidy, if possible, should be given directly to farmers. The fertilizer industry should be freed from price controls.
Irrigation
8. Higher investment is required in irrigation of all types, from check dams and watersheds to drips and groundwater “banking” (recharging) to medium and large scale storages and irrigation schemes. The current allocations are much lower than the need of more than 300 major and medium irrigation projects waiting for completion; but investments must be transparent and accountable to scrutiny, ensuring commensurate outcomes in terms of increase in irrigated area.
9. There is a need to incentivize states to carry out institutional and pricing reforms in water and energy to promote efficiency in their usage. This can be done by innovating a scheme of “water and power credits” to states for reforming their water and power sectors showing clear savings.
10. An export tax of say 5-10 per cent should be imposed on exports of sugar and common rice to discourage exports of “virtual water”; while their imports could be kept open at low tariffs, say 0-10 per cent.
Watershed Development
11. Given path-breaking initiatives in the Eleventh Plan period including massive increase in outlay, the performance in respect of watershed development so far has been most disappointing. No watershed projects under the new IWMP had been sanctioned till very recently. This calls for steps to expedite implementation of watershed development projects to actualize the potential inherent in the new guidelines. Emphasis has to be given on building partnerships with the organisations who can play a crucial role in the capacity building for the watershed programme, empanelment of credible institutions from academia and the voluntary sector for monitoring, evaluation and social audit, facilitating partnerships with government and NGOs for livelihood orientation. The Common Guidelines need to remove unnecessary restrictions on the choice of the Project Implementing Agency (PIA).
Investment
12. Increasing investment in agriculture was a vital component of the strategy for agriculture development during 11th Plan. The share of investment in agriculture (in terms of gross capital formation in agriculture sector) has increased from 11.2% of agricultural GDP in 1999-2000 to 15% in 2008-09 with large increase in the share of public investment in agriculture sector. The total projected GBS, at current prices, for the Eleventh Five Year Plan for the Ministry of Agriculture is Rs. 61,979 crore envisaged almost 200% increase the utilization by the Ministry of Agriculture, so far, i.e. in first 4 years (including provision made in Budget in 2010-11) is likely to be around 61 per cent. There is need for restructuring of the schemes, providing flexibility to the States in selection of activities according to their felt needs with a decentralized sanctioning procedure, like in the case of Rashtriya Krishi Vikas Yojana, to expedite expenditure which should be supported by a step–up in allocation of funds to the Departments of the Ministry of Agriculture. The Rashtriya Krishi Vikas Yojana (RKVY) which has an additional allocation of Rs. 25000 crore has been well received, especially for its flexibility in giving States the power to choose interventions and set their own targets. The States need to formulate District Agriculture Plans with participatory bottom-up approach to reflect the local needs and aspirations.
Future sources of growth in agriculture and augmenting farmers’ incomes
13. There is no doubt that food security at the national level remains a paramount concern of the government. Therefore growth in foodgrains production would be a central focus from the policy point of view, as is the need for adequate stock management. The covered storage capacity in the country, however, is not more than 27 million tonnes, exposing much of these accumulated stocks to rains and sun, which adversely affects their quality. Modern and ample storage for grains requires urgent action, and so does the priority of boosting grain production in eastern India. After ensuring a stable growth rate of 2.0–2.5 per cent per annum in foodgrains, and building up adequate stocks the focus should be on diversification to high value sector to augment farmers’ income and to accelerate growth.
Diversification to high value agriculture and farm incomes
14. The growth of the high value segment (horticulture, livestock and fishery) has to be demand led, from plate to plough, and very closely coordinated between input suppliers, farmers (especially small holders by “clustering” them into groups), logistics players (including cold storages and warehouses), large scale modern processers and organized retailers in an integrated value chain of the modern agri-system. The major players driving this change will come from the private sector. The role of government policy is to create an enabling environment for private entrepreneurs to enter this agri-system, coordinate the sourcing of their supplies from millions of farmers, and deliver them to consumers in processed or fresh forms. This requires high degree of coordination all along the value chain, and only then the risks are minimized and benefits accrue to farmers, which incentivizes them to produce more.
Work on reforming the three “I”s: Investments, Incentives and Institutions
15. While public investment in agriculture is critical and important, in reality it forms only less than one-third of the total investment in agriculture, two-thirds coming from the private sector including as farm investment. The private sector depends critically on the incentive structures in agriculture. Thus, reforming the incentives in agriculture is as important, if not more, as public investments in agriculture, to spur private investments that can transform agriculture.
Reforming Incentives
16. Price and Marketing Policy: The main government intervention in agricultural markets currently comes through its policy of minimum support prices (MSP) for 24 crops. Over time, this MSP has become de-facto an incentive price discouraging farmers to diversify into high value crops. To make the system more market oriented, it is critical to de-link the support price from procurement price, where the latter can be changed (up or down) depending upon market conditions and in full competition with private trade within the same marketing year. This calls for abolition of all levies (on rice or sugar), free movement of goods across the country (one unified national market), abolition of stocking limits, of export bans, of bans on future markets, etc. on private trade.
Reforming Institutions
17. Marketing and Warehouse Facilities Improving marketing conditions and encouraging private sector participation require reforming the Agricultural Produce Marketing Committee (APMC) Act and abolishing the Essential Commodities Act (ECA) can trigger private sector investment in developing regularized markets, logistics and warehouse receipt system, futures markets, and in infrastructure (such as cold storage, grades and standards, quality certification, etc.) for large domestic markets as well as imports and exports.
18. These steps are particularly relevant for the high value segment that is currently hostage to high post harvest losses and weak farm-firm linkages. The introduction of the Model APMC Act in 2003 was directed towards allowing private market yards, direct buying and selling and also to promote and regulate contract farming in high value agriculture. However, the manner of implementation in most states reveals serious weaknesses which discourage the entrance of new players. The States should be incentivised to take marketing reforms to their logical conclusion.
19. Reforming Land and Credit Markets: Legalize lease markets to allay the fears of a farmer from possible alienation from his own land on leasing out land. It will protect the interests of the retailer/processor also and enable him to undertake larger investments. In this context, it may be helpful to ensure registration of land deeds and computerize land records for bringing about greater transparency and reliability.
20. The land and credit markets are intricately linked and improving the land markets will enhance farmers’ access to institutional credit that requires pledging of collaterals. One of the most cost effective ways of reaching credit or insurance services to the farmers is through the cluster approach for which the banks need to design appropriate strategies and institutions. The DoLR should promote a model land lease act to free up the lease market. NABARD should be encouraged to re-finance SHGs at 7 per cent interest rate with a condition they will not charge more than 11 per cent from farmers. All the States have still not implemented in full the short-term credit cooperative reforms suggested by the Vaidyanathan Committee which need to be pursued.
21. For the agri-system to be demand led there is a need to encourage organized logistics players, processors and modern retailers (both domestic and foreign) by freeing them from any restrictions, and supporting them to link directly with clusters of farmers;
22. There are several taxes and commissions that are imposed on fresh agri-produce and they become even bigger as the produce is processed. These taxes need to be cut down drastically replacing them with tax on value addition, and commissions and purchase taxes on fresh produce need to be brought to less than 1 per cent, to give a major boost to this high value segment. Private sector should be encouraged to set up its own mandis to attract commission and tax free transactions.
Land
23. The National Land Records Modernization Programme (NLRMP) was launched in 2008 to move decisively in the direction of a Torrens System of land records to cover all the districts in the country by the end of the Twelfth Plan. The States need to expedite action so that the country could move into a Torrens System during the Thirteenth Five Year Plan. Expediting distribution of ceiling surplus land, providing homestead sites to the poor can go a long way to fulfill their need for shelter and avail benefits under various government housing schemes. Action should be taken to safeguard women’s rights to agricultural land, Mitakshara joint family property, parental dwelling house and certain widow rights. The effective implementation of the Forest Rights Act is required for the holistic development of the tribal people themselves. Fair rehabilitation and resettlement polices are of the utmost importance, given the growing disenchantment with the state, especially in the remote hinterlands of tribal India, Maoism poses a stern challenge to Indian democracy.
