2[1]. Strengthening Indian Agriculture Surabhi ICRIER

7/28/2019 2[1]. Strengthening Indian Agriculture Surabhi ICRIER

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Strengthening Indian Agriculture- Need for Reforms

Surabhi Mittal1

Introduction

In the past few decades India has seen a sustainable growth in food production and

incomes along with growing diversification both in consumption and production. Food

security and sustainability our major goals to keep agriculture sector out of a danger zone

seems to be have been fulfilled. But this feel good factor seems to be a myth as we see

new and bigger challenges emerging in this most vulnerable sector. Share of agriculture

in countrys GDP has declined from 48.7% in 1950 to 24.4 % in 1996-97 and further

18.7% in 2007. Agriculture sector is the backbone of countrys development and lifeline

for 65 per cent of the population based in rural areas and approximately more than 58

percent of the population still dependent on agriculture for their livelihood. Besides this

to achieve an ambitious rate of growth for the country of as high as 9-10% in the eleventh

five year plan, the country needs a strong pull-up support to agriculture sector which

should grow at least at the rate of 4 per cent per annum, all the more since in 2005-06 the

growth in agriculture was merely 2.2% which is expected to go even negative next year.

Besides basic food grain production, other agricultural activities like livestock, fisheries,

horticulture, organic farming commercial crops, agro processing are the new avenues in

the agricultural sector which will lead us in the next phase of agricultural development.

Along with this what is needed most important is to efficiently use the existing

agriculture setup and upgrade it to reap the best results. The prevailing policy instruments

need to be re-looked, re-defined, re-written and efficiently implemented to take care of

the prevailing loopholes. One such important factor is the linking of the markets-

domestic and international through efficient supply chain. The must need for today is the

public private partnership, not only in investment but also in the research, extension and

policy implementation. Agriculture sector reforms should be initiated at war-footing, to

1 Fellow, Indian Council for Research on International Economic Relations (ICRIER), New Delhi, India

Contact: [email protected]

Paper prepared for presentation at the Seminar on US-India Agricultural Knowledge Initiative organizedby ICRIER and Ministry of External Affairs, Government of India on 30, April, 2007 held at India Habitat

Centre, New Delhi.


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bring together all the best thats available and make agriculture an organised unit to give

farmers the maximum benefits. Turning agriculture into an organised business with the

farmer as the entrepreneur should be the key to the second green revolution and for the

much desired evergreen revolution in India. Farming should be taken up with the motive

of profit making rather than just making a subsistence living. With huge diversity in the

number and variety of crops that we produce, variations in agro-climatic conditions, soil

type, prevailing inequalities in the state growth levels, it is utter most essential to

implements the plans through micro level initiatives and proper coordination between all

the stake holders. These issues need to be considered to meet the targets laid out in the

eleventh plan strategy to raise agricultural output. The strategy paper have laid out the

targets of doubling the rate of growth of irrigated area, improving rain water harvesting

and watershed development, bridging the knowledge gap through effective extension,

diversifying to high value output, along with ensured food security, access to affordable

credit, improving incentive structure and functioning of markets and refocus on the land

reform issues and promote animal husbandry and fisheries, to meet out next five year

plan targets.

Issues and Challenges

Since the first green revolution in 1960s the foodgrain production has increased

significantly from 82 million tonnes in 1960-61 to 129 million tonnes in 1980-81 and 213

million tonnes in 2003-04, to meet out food security and attain self sufficiency specially

in the production of our stable food rice and wheat. Green revolution introduced use of

improved inputs- fertilisers, pesticides, seeds and irrigation facility. But the impact of

green revolution was mostly evident in areas with irrigation facilities. In late 1980s the

country saw another set of reforms initiated by broad trade liberalisation and depreciation

of exchange rate which made the terms of trade in favour of agriculture. Reforms focused

on liberalisation of export trade mainly due to some surpluses created in rice and wheat.

But overall in recent years economy has seen a decline in the rate of growth of

agricultural sector and also its share in GDP. At 1999-2000 prices (Table 1) the share of

agricultural sector in GDP has declined from 26.2 per cent in 2000-01 to 21.7 Per cent in

2005-06. The rate of growth of the sector has also been fluctuating from 0% in 2000-01


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to -5.9 per cent in 2002-03 and as high as 9.3 per cent in 2003-04 which again dipped to

0.6 per cent in next year. This is primarily because of shift in area and declining yields,

thus resulting in slow down in production. Table 2 show that area under rice, wheat,

coarse cereals has been declining. The decline in production is even of a higher tune than

the area decline, and this is due to low yields. Whereas we see area shift towards pulses,

oilseeds, cotton and other non foodgrains.

Table 1: Annual growth rate and share of agriculture and allied sector in GDP at

1999-2000 prices.

(Unit: In per cent)

Year Annual Growth rate Share in GDP

2000-01 0.0 26.2

2001-02 5.9 26.2

2002-03 -5.9 23.82003-04 9.3 23.9

2004-05 0.6 22.4

2005-06 (quick estimates) 5.8 21.7

Source: Economic Survey, 2006-07

Table 2: Growth rate of area and production of principal crops in India.

(Unit: In Per cent)

Area Production

Crop 2000-01 2004-05 2000-01 2004-05

Rice -1.00 -0.89 -5.25 -3.37

Wheat -6.39 -0.33 -8.76 -0.15

Coarse Cereals 3.13 -5.58 2.48 -11.71

Total Cereals -1.26 -2.19 -5.57 -3.52

Total Pulses -3.64 16.79 -18.20 -3.13

Total Foodgrains -1.67 0.87 -7.16 -3.47

Total Oilseeds -4.69 14.10 -7.99 3.31

Cotton -2.01 16.91 -17.40 22.61

Sugarcane 2.28 0.00 -1.13 0.00

Non-Foodgrains -2.74 8.06 -4.53 3.68

Base: TE 1993-94

Source: Agricultural Statistics at a Glance, 2005

In this backdrop the various issues and challenges identified, that Indian agriculture face

are declining productivity, poor irrigation and water management, declining agricultural

research and extension activities, distorting markets due to government intervention,

declining public and private investment, unorganized agricultural credit and insurance,


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poor infrastructure development, inefficient supply chain and marketing strategies, slow

development of agro-processing units. These issues are linked to each other, and are

discussed in details in the subsequent sections. The paper highlights the present status of

Indian Agriculture, and presents some initiatives that are required to strengthen the

agriculture sector in India. The paper intends not only bring forward the issues that are

most crucial for Indian agriculture but also lay out the plan for revival of agriculture

sector in India.

Productivity

Agriculture being constrained by availability of land, the productivity remains the most

crucial factor based on which is the future of Indias food security. Long term food

security goal can only be attained if there is sustainable agriculture. At the farmers level,

sustainability concerns are being expressed that the input levels have to be continuously

increased in order to maintain the yield at the old level. This poses a threat to the

economic viability and sustainability of crop production. A sustainable farming system is

a system in which natural resources are managed so that potential yield and the stock of

natural resources do not decline over time (Kumar and Mittal, 2006).

Table 3: Annual growth rate (%) in input, output, TFP of crops grown in India,

1971-2000

Crop Period Input Output TFP Share of TFP in

output

Paddy (rice) 1971-86 1.82 2.46 0.64 25.87

1986-00 1.88 2.96 1.08 36.43

Wheat 1971-86 2.64 3.93 1.28 32.64

1986-00 2.91 3.59 0.68 18.98

Coarse cereals 1971-86 2.14 3.49 1.36 38.82

1986-00 -0.09 0.03 0.12 440.58

Pulses 1971-86 1.96 2.47 0.52 20.83 1986-00 1.65 1.25 -0.39 Negative

Oilseeds 1971-86 4.5 4.64 0.14 2.98

1986-00 5.22 5.55 0.33 5.9

Fibres 1971-86 3.38 4.41 1.03 23.3

1986-00 3.09 3.04 -0.05 Negative

Sugarcane 1971-86 1.24 2.02 0.79 38.92

1986-00 4.36 4.26 -0.1 Negative


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Vegetables 1971-86 0.97 3.56 2.59 72.7

1986-00 6.64 6.45 -0.19 Negative

Source: Kumar and Mittal (2006)

Examining the total factor productive (TFP) growth of major crops in India it is seen thatthe technological gains of early years of green revolution have exhausted their potential.

The changes in output, input and in TFP for major crops based on micro-farm level data

covering 1971-72 to 1999-002

period is presented in table 3. Agriculture has been

experiencing diminishing returns to input use and a significant proportion of the gross

cropped area has been facing stagnation or negative growth in TFP. The table show the

decline in productivity between the two time periods in almost all the major crops and

some have even negative TFP growth. The share of TFP in total output has also been

declining and negative in some cases, which implies that the growth in output is more

because of the increased use of inputs rather than the technology factor. This has

concerns for the sustainability issue.

Even at state level the states with positive and accelerating TFP growth in 1971-1986 has

shown a stagnant or decelerating rate of growth in TFP in the period of 1987-2000

(Kumar and Mittal, 2006). Research, extension, literacy and infrastructure have been

identified as the most important sources of growth in TFP. Development of markets

improves input-output market interface and it is of crucial importance for growth in

productivity. Human resource development is central to adoption of technology and

promotion of sustainable development. In agriculture, education creates conditions that

enable farmers to acquire and use knowledge for decision making regarding allocative

and technical matters effectively. A study (Mittal and Kumar, 2000) show that the

improvement in standards of rural literacy, leads to growth in adoption of technology, use

of modern inputs like machine, fertilisers, and yield. In case of rice and wheat in India,

literacy is found to have a positive and significant relation with crop productivity and a

strong link with farm modernisation. Rural education contribute to improvement in

adoption of high yield variety seeds by about 25-47 percent, fertilizer use by 18-22 per

2 1999-2000 was the latest data available at the time of analysis. Only one more year information is added

at present.


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cent, about 6-8 per cent in modernisation and 5-8 per cent to improvement in yields for

rice and wheat.

Along with productivity is the concern of increasing yield gaps. Table 4 show that,

existing huge gap between the average yield achieved in India at TE 2003-04 and the

yield that have been achieved by other countries in the World. This can be an indicator

of the yield potential that is achievable through technological enhancement (Mittal,

2006a). If we strive to achieve these potential yield levels, then the increasing demand

requirements of the country can be met in future.

Table 4: Average yield and yield potential at TE 2003-04

(Unit: tonnes per hectare)

Food Items

Yield

(India)

Potential Yield

(Highest in World)

Rice 3.03 9.71

(Egypt)Wheat 2.69 8.89

(Namibia)

Total Cereals 2.39 10.41

(Ireland)Pulses 0.60 5.14

(Barbados)Edible Oilseed 0.25 4.29(Peru)

Sugarcane 60.70 122.70

(Malaysia)Source: Mittal, 2006a. Computed from FAO Statistics. http://faostat.fao.org/

Countries in parenthesis are the ones which have the highest yield for the specified food item

The foodgrain productivity is on a decline even in among the major foodgrain surplus

states. Decomposition of the impact of various factors on TFP growth show that

extension accounted for about 45 per cent of the TFP growth, followed by public research

(36 per cent), literacy (10 per cent), infrastructure (8 per cent), and urbanization (1.5 per

cent) (Kumar and Mittal, 2006). Similar results are also observed by several other studies

for India (Kumar and Rosegrant, 1994; Evenson et al., 1999; Fan, et al; 1999; Mittal and

Kumar, 2000). Modern Biotechnology tools, genetic engineering as well as conventional

breeding methods will also play an effective role in improving yields (Singh, 2002).


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Collaborations with the domestic and international research institutes and private research

centres will help in reducing knowledge and yield gaps. More than half of the required

growth in yield to meet the target of demand must be achieved from research efforts by

developing location-specific and low input-use technologies with emphasis on the

region/sub-regions/districts where the current yields are below the potential national

average yield (Kumar and Mittal, 2006).

The sharp fall in the total investment, more so in the public sector investment, in

agriculture has been the main cause for the deceleration of agricultural growth and

development (Kumar 2001). Moreover, the ratio of amount spent on extension to that on

research has been falling. A vast untapped yield potential still exists. This coupled with

the second-generation technologies and heterogeneity in production environment

warrants much more intensive extension efforts. The slowing-down of emphasis on

extension will further widen the gap in the adoption of technology. Extension services

need to be strengthened by scaling-up investment levels and improving the quality of

extension. The first step in this direction should be to increase the availability of

operating funds. This will result in accelerating TFP growth, improving the sustainability

of the crop sector and in minimising the yield gap in the region. Yield growth and TFP

growth together would help in increasing production along with emphasis on

development of factors that help in achieving this goal.

Water Management, Irrigation and Dry land farming

The next most contagious issue that the agricultural system in India is development of

irrigation facility and water management with special emphasis on development of dry

land farming techniques. During the green revolution era, large investments were made

on research and development for irrigated agriculture. The promotion of High yielding

variety (HYV) seed, fertilizer, and irrigation technology had a high pay-off and rapid

strides of progress were made in food production. But still Indian agriculture is largely

dependent on monsoon, the conventional ponds and tanks are not longer in use, the

increased demand of water for non agricultural purposes, over exploitation of the

groundwater has resulted in lowering of the water table. The irrigation potential of the


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country is 140 million hectares of which only 70 per cent has been exploited (Braun et.al,

2005). The slow pace of exploitation of irrigation potential is due to lack of resources in

state government and the tendency to spread available resources over few projects

(Ahluwalia, 2005). Efficiency in water use is as important as increasing the cultivable

area under irrigation. The problems of water logging and soil salinity may develop sooner

or later in many irrigation project areas due to over-irrigation and deep percolation and

seepage losses in the absence of suitable drainage. The problem is likely to aggravate

further in future if proper soil management practices including provision of suitable field

irrigation channels and drainage system are not undertaken. Due to degradation problems,

growth in TFP has not made headway across a substantial area of the country for major

food crops (Singh et al, 2000).

Many programmes have been initiated by the government which requires less investment

for water management- rain water harvesting, waters shed programmes. But the irony is

that the large scale canal irrigation systems are in poor condition, the cost of new

schemes are huge and lot of backlog of incomplete schemes are adding to the problems of

our irrigation system (Gulati et.al. 2005). The actual performance of the irrigation system

in India is much below the required level. Besides propagating the wide use of sprinklers

and drip irrigation, the most crucial need is irrigation management. Government agencies

and farmers need to work together in this direction. Gulati et.al. (2005) propose incentive

based irrigation management system along with pricing of water based on actual

consumption to keep the costs low. Low water charges encourage highly water-intensive

crops at upper end of the canal network leaving the tail end portions starved of water

(Ahluwalia, 2005). Efficient irrigation supply through an autonomous body can be

initiated as part of the reforms. Along with structural changes, it is necessary to achieve

adequate reforms that will be the key for long term sustainability of the irrigation system

(Gulati et.al, 2005).

Dryland area is nearly 70 per cent of the total cultivable land. Special programmes for the

dry land farming in the arid and semi arid regions of the country are essential. Crop

cultivation should be planned according to water needs. Increased research initiatives for


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dry land farming will also help to ease the pressure on the increased demand for water

and irrigation facilities. Pulses a most important dry land crop, needs the utter most

attention. Huge public and private investment is required to meet the cost of treating

rainfed area to ensure optimal use of water.

Public and Private Investment in Agriculture

Another major hurdle that the Indian agricultural sector is lack of investment.

Agricultural investment is needed to meet the expenses on irrigation, research and

extension and building up rural infrastructure-roads and electricity, to further increase the

productivity and strengthening the agricultural sector in India. Since mid 1990s the share

of private investments has been declining and that of public investment is stagnant. As

seen in the table 5 the share of investment in agriculture by the public sector was about

82 per cent in 1999-00 which declined to 76 per cent in next 6-7 years. On the other hand

the public investment share in total agricultural investment is stagnant around 17-20 per

cent only.

Table 5: Gross capital formation in Agriculture at 1999-00 prices

Investment in Agriculture

(Rs. Crores)

Year

Public Private Total

Investment in

Agriculture as per

cent of GDP

1999-00 7716(17.7)

35757(82.3)

43473 2.2

2000-01 7155

(18.5)

31580

(81.5)

38735 1.9

2001-02 8746

(18.6)

38297

(81.4)

47043 2.2

2002-03 7962

(17.0)

38861

(83.0)

46823 2.1

2003-04 9376(20.8)

35756(79.2)

45132 1.9

2004-05 10267

(21.1)

38309

(78.9)

48576 1.9

2005-06* 13219

(24.2)

41320

(75.8)

54539 1.9

Source: Economic Survey, 2006-07; *: Quick estimatesFigures in parenthesis are per cent share in agriculture gross investment


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There is a need to motivate more private investment into the agriculture sector and

incentives like tax concessions or benefits can be proposed to them. There is also a strong

need of private public partnership, not only to start new projects but also to support and

maintain the existing public structure. This initiative is quite relevant for development of

agricultural research and extension system. A huge research and development

infrastructure is in place by government of India in the form of institutions of Indian

Council of Agricultural Research (ICAR), State Agricultural Universities (SAUs) and

Krishi Vigyan Kendras (KVKs). The role of this setup in research and extension

activity is of great importance for the agricultural system. The products produced in the

research centres can be marketed commercially to generate additional earnings. In this

area the private sector research centres can collaborate for the benefit of farmers and the

country. Besides this programmes of farmers participation in respect of using the

traditional technical knowledge and innovative and experimental capability of the farmer

for laboratory and field experimental farms need to be taken up. On farm research

benefits should be given to such farmers.

Agricultural Credit and Insurance

The cost of production of agricultural commodities is increasing with the increasing risk

of climate change and diversification to high value commodities. This further invokes the

need to strengthen our credit and insurance policies for the farmers and most importantly

for the small and marginal farmers. Their have been incidences of increase in farm debts,

primarily due to lack of availability of credit in time and lack of an organised credit

structure. The small farmers are still largely dependent on the informal credit supplies,

which usually make them pay a higher rate of interest. A problem is that the organised

credit structure through commercial banks has not been able to reach to the most needy

farmers and landless poor. Lot of studies have emphasised that it is the lack of credit

availability that adoption of improved seeds, fertilisers and modernisation could not be

taken up by the farmers, which has a long term impact on out agricultural production and

food security. This even further necessitates the demand of an efficient and organised

credit system.


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Rate of interest on the credits to the farmers should be reduced to 4%. Special provisions

should be given if loans are taken and there are crop failures. In this case agricultural

insurance can act as a cover on their losses. These policies should be implemented

uniformly across the country and especially for small and marginal farmers in the initial

phase. The agricultural insurance schemes need to be effectively implemented across the

country. It scope of the schemes should be widened and based on practical problems

faced by the farmers in a particular region. Since the agriculture is still largely dependent

on monsoon the weather as a parameter to insurance facility need to be strongly

considered. The prevailing crop insurance covers only 5 per cent of the farmers and thus

the schemes on insurance need to be expanded.

Horticulture and Agro-processing

The demand for cereals, pulses and high-value commodities is increasing due to

population growth, changing tastes and consumption patterns. Changes in cropping

patterns are responsive to the change in the demand. The agriculture sector is shifting

from a supply driven economy to a demand driven economy. The agricultural sector has

outgrown the policies that contributed to the past success and is facing the new pressure

as consumers incomes are rising and pattern of expenditure in consumers budget is

shifting to more of non cereals (Landes, 2004; Mittal, 2006b). Transition from traditional

foodgrain production to high value horticulture leads to increase in cost of production and

risk involved. Farmers allocate their land among alternative crops in order to maximize

their expected return. Regional pattern in crop specialisation is increasing. Small farms

practise multi-diversified farming and grow a number of crops even on fragmented plots,

involving allocation of area under seasonal fruits, vegetables and dairy etc. for

maximising their household income and employment in almost all regions of the country

(Kumar and Mittal, 2003). Thus for the small and marginal farmers who are opting for

diversification, provision for availability of credit and insurance can be provide. This

initiative will motivate the farmers to diversify with a low risk. Government policies

should also be motivated towards helping in the exports of the surplus production or even

producing for exports from these farm units. At present some of the exports initiates are


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also taken up by big corporate houses, private exporters and some small farmers

cooperatives. For example in grapes MAHA Grapes, Fresh fruits and vegetables-

Namdhari.

From production to processing the economy has been seeing a wide technology gap.

Inspite of increase in production in pulses, oilseeds and fruits and vegetables, the net

produce is less due to huge losses and inefficiency in the production units. Thus

investments in setting up of the agro processing units near the production places are the

need of the hour. The agro processing units need to be made in the rural areas, near to the

farming area so that the cost of transportation is minimised. Tax benefits to small agro

processing units should be applicable. Farmers should be encouraged to own and run

some of such small units to help them to improve their income levels. This will also help

them to move out of the farm directly, thus increasing their productivity levels, rather

than being under employed and create rural non farm employment. The food processing

industries need to have government policies to have a single window entry and

simplifying the registration process to enter into the business. The requirement of the

trained manpower to be supervisors in these units can be met from the educated youths

still employed in the farm sector, due to lack of job opportunities or might be migrating

to the urban sector otherwise.

New Models in Marketing and Supply Chain Management

Improvement in the agriculture sector needs an improvement and strengthening at all the

levels of the supply chain- inputs delivery, credit, irrigation facility, farmers diversifying,

improve procurement, minimising post harvest loses, cold storage chains, better and

efficient processing and marketing techniques, efficient storage, ware houses and also

efficient and competitive retailing. Timely availability of inputs is the one the key factor

to efficient farming system. The development of organised input market and

infrastructure for its storage and distribution will add to the productivity of the

agricultural sector. Development of cold chain network will help in particular with the

perishable commodities and reduce their post harvest losses. Improving the post harvest

management means an overall improvement in the per unit productivity.


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In last one decade various marketing models have been initiated, Mother Dairy

cooperatives in fresh fruits and vegetables under the name of SAFAL, further their

alternative whole sale market- SAFAL Market. The traditional Indian markets have a

non-existent infrastructure of packing, grading, sorting and cold storages. The

commission agents and traders dominate the supply chain and are the major price setters,

thus most of the times farmers are dependent on them for credit. Farmers are not aware of

the price setting mechanisms as the system is not transparent and thus dont have any

incentive to produce efficiently. In this direction SAFAL market in Bangalore has tried to

remove these constrains and build up an efficient supply chain with strong backward

linkages with the farmers and forward linkages with wholesale purchasers. ITC- with its

e chaupal, mahagrapes farmers co-operative and many other private initiative in this

direction are trying to remove the inefficiencies in the existing supply chains and reduce

post harvest losses, increasing the incentive to the farmer that motivate them to produce

efficiently. Post harvest loses generally range from 5-10% for the non-perishable

commodities and about 30% for the perishable commodities (Singh, 2002). Thus there is

a need to invest in post harvest management, efficient post-harvest handling,

development of infrastructure, ware houses to prevent huge losses due to inefficiency. A

cost effective in this area is must to make our agricultural produce affordable. The

reforms in this direction have been initiated by private bodies with support from state

government in some states. This process needs to be further strengthened by a common

central policy in this direction. Since in India on an average operational land holding is

less than 2 hectares, thus the new farming models like contract farming which is highly

successful in mobilising small farmers bringing them for commercial production, mainly

of high value commodities.

Setting up of the futures market is another step in the direction of stabilising prices and

creating a continuous supply of agricultural produce. Through the futures trading the

farmers can become a part of the trading system getting maximum benefits from trading

directly and creating further awareness among his community. This also encourage

creating a single market for agricultural produce. Market integration is most relevant for


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the policy of price stabilization. In the food market local seasonality may affect the price

of agricultural commodities. Spatial integration of markets will ensure price stability

between food deficit and food surplus markets (Virmani and Mittal, 2006). To have the

whole country as a single unrestricted market there is a need to abolish octroi3

and all

sorts of other indirect taxes and levies on food articles. Indias National Agricultural

Policy also aims at dismantling restrictions on movement of agricultural commodities

across the country and reviewing the structure of taxes on food grains and other

commercial crops. Revival of agricultural commodity futures market in India in early

2000 after the ban in 1960s has helped in integrating the food grains and other

agricultural goods markets through price discovery and price risk management. Under the

National Agricultural Policy, Government of India aims at enlarging the coverage of

futures markets to minimize wide fluctuations in commodity prices as also for hedging

risks.

The freight carried by road transport is increasing at a rapid pace. Good roads and lower

transportation cost help in reducing the cost of transfer of products from the market

where the product is produced to other markets. This will help in integration of product

markets. Development of better and cheaper railway network for freight will help in

integrating markets. The most important policy distortion is the skewed tariff policy

which overcharges freight movement in order to subsidize passenger traffic. Thus there is

need to re-balance the rail tariff to improve the fare freight ratio (Virmani and Mittal,

2006). Foreign direct investment in retailing could lead to lowering of prices and

movement towards market integration. Food retailers would be free to sell other agro-

based and rural industrial products. Through competition, economies of scale and

improved efficiency in the supply chain, product prices would lower, especially in food

and grocery sector (Mukherjee and Patel 2005). There is a need for tariff rationalization

in the power sector. The policy initiatives should focus on to provide universal access of

commercial fuel at affordable prices. This will help in bring down the transportation cost.

Real estate prices affect the price structure in retail market. Rentals are a major cost to

retailers and thus play a major role in determining the retail margins. Thus, even

3 Octroi tax is a tax on entry of goods for use or consumption within areas of the local bodies.


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competitive real estate prices would help in market integration and strengthen the

agriculture structure.

Government Intervention Policies- Need to be reformed

Government intervenes into the markets to stabilise food prices, for public distribution

programmes, dealing with the issues of food security etc. Government role in providing

infrastructure, credit and investment ahs also been discussed earlier in this paper. But

there is a need to bring reforms in some of the government interventions to make the

agricultural sector grow effectively in the light of changing structure of production,

consumption and marketing but with definitely keeping in view the food security of the

most vulnerable group of the society. Lot of reforms have been initiated in the agriculture

sector, which further requires continuous support of the state and central government,

farmers, consumers and private players in strengthening it further.

Minimum Support Price

Government announce the minimum support price (MSP) for 24 major crops keeping in

view the interest of the farmers and this price support policy act as an insurance to

farmers against any sharp fall in the farm prices (Table 6). The MSP is determined based

on the recommendations given by the commission on cost and pricing (CACP) that

recommends the price annually taking into account factors like cost of production,

Table 6: Minimum support price/ Procurement price

(Unit: Rs./quintal)

Crop 1990-91 2000-01 2006-07

Paddy 205 510 580

Wheat 225 620 750

Coarse Cereals 180 445 540

Sugarcane 23 59.5 80.25

Cotton 620 1625 1770Groundnut 580 1220 1520

Rapeseed/

Mustard

810 1200 1715

Note: Statutory Minimum price for sugarcane.

Source: Economic Survey, 2006-07


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change in inputs prices, trends in market prices, demand and supply situation etc. MSP is

done for the objective of procurement of these basic agricultural food and non food

products for the public distribution scheme (PDS).

Issues with this price support system is first the determination of the MSP through the

method of cost evaluation need to be revised also taking into account the profit margin

that the farmer should get to move away from just a subsistence earning to an earning of

profit. The evaluation criterion needs to be more detrimental. To preserve the interest of

the consumers whose food requirements are subsidised through PDS, the farmers face

lower MSP in the time of bumper harvest and given marginally better price in times of

shortage. Higher procurement price in late 1990s lead to increase government

procurement and created surplus stocks and initiating exports. In this case the private

procurement agencies exploit the farmers buying their surplus produce at even lower

prices during surplus production and in time of shortage even hoard the produce adding

to the crisis situation. Food Corporation of India (FCI), act as a body procuring only for

the food security concerns of the underprivileged, who are supplied rice, wheat, sugar and

few other commodities at subsidised prices through the public distribution system. At

present when diversification in production away from foodgrains is evident and many

farmers are even quitting agriculture, there is a need to motivate incentive to produce,

thus FCI should procure the minimum possible and not the maximum available, and

should act as competitor to the private procuring agencies. This will help in getting the

farmers the best price for their produce. State food corporations should be allowed and

encouraged to operate in all states. States should be free to set up public or joint venture

companies for food procurement, transport and distribution if it is commercially viable

(Virmani 2004). The role of private agencies in food procurement activities should be

gradually enhanced.

Agricultural Produce Marketing Committees (APMC)

APMC act prohibits transaction outside the regulated mandis, do not allow direct

marketing and direct procurement of agricultural produce from farmers fields. This act is

coming in the way of new private initiatives in the modern retailing and upgrading of the


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17

supply chain especially in the field of fruits and vegetables. In the case of SAFAL market

set up in Bangalore, Karnataka government had amended its APMC act in favour of both

farmers and consumers. Thus initiatives should also be taken up by other state

governments and adopt the model APMC act which proposes to remove the controls on

the movement, storage and marketing of agricultural commodities, and enables setting up

of commodity exchanges to enable futures trading. This will provide farmers with the

freedom to sell their produce where its more profitable to them rather than in the existing

market administered by the APMCs. This will also strengthen the contract farming that

will create the provision for direct sales of farm produce through contract farming.

Essential Commodities Act, 19554

is another such intervention by Government of India

to guard the interests of the poor against the vagaries of the market. Some notifications

under this act restrict the movement of certain essential goods5

from the surplus states to

deficit states. In order to facilitate free trade and movement of foodgrains, government

issued a control order in 2002, which allows flexibility to dealers. The states have to

procure prior permission from centres, before issuing any regulations on storage,

transport and distribution. But still some products in certain states are being practiced

under the Essential Commodities Act. A combination of policies reforms will be of

benefit to both farmers and consumers. This Act should be amended for enforcement only

as an emergency provision. A central act should be made to ban control on movement

within and between states.

Agricultural Trade Liberalisation

After the Indian economy liberalisation was initiated in 1990s, the terms of trade was

moved in favour of agriculture by real devaluation of rupee. An agricultural trade surplus

would have seen the upliftment of the agricultural sector with a positive impact on the

economic conditions of the farmers dependent on this sector. Under the policy of trade

liberalisation and complying the WTO rules by 2001, all quantitative restrictions to

imports of agricultural produce was reduced in India. Tariffs were also reduced for

4 This act is being implemented by the state governments and gives them powers to control production,

supply and distribution of essential commodities for maintaining or increasing supplies and for securingtheir equitable distribution and availability at fair prices.

5 Food grains, edible oils, pulses, kerosene and sugar are some of these essential commodities.


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18

number of commodities like edible oil, pulses and cotton (Landes, 2004). The imports of

pulses and edible oil was huge in India, which was not only because of reduction in

tariffs but also because of increased domestic demand and inability to meet it due to low

productivity in these two commodities and also poor performance of processing units,

due to which there are huge post harvest losses too. The liberalisation of agricultural

exports also led to an increase in exports in initial period of liberalisation but in recent

years the export performance of the agricultural sector has not been that good. For wheat

and rice fluctuating in exports and in recent past even imports of wheat has created an

uncertainty in the agricultural trade position of India. On the other hand for fresh and

processed fruits and vegetables high tariffs are been imposed thus protecting the domestic

sector from imports (Mattoo et.al, 2007). Fall in the world agricultural prices further

made some of our agricultural exports non-competitive. The per cent share of agricultural

exports to national exports has declined from 18.5 per cent in 1990-91 to 11.2 per cent in

2004-05 whereas the import share has increased from 2.8 per cent in 1990-91 to 4.6 per

cent in 2004-05.

On the domestic policy front we need to have steps to protect the small farmers against

undue fall in prices as a result of imports but should also initiate policies that create

positive environment for producers to export. Agricultural trade liberalisation can bring

in gains for Indian farmers through an aggressive trade policy that takes into account our

production pattern, marketed surplus and reforming the constraints that we have in our

domestic economy (As discussed in detail above). Irregular exports and untimely ban of

exports due to crisis in domestic economy affects our credibility in the world market.

Large scale export oriented production activity in identified competitive commodities

will help to increase out trade volumes as well as add to the incomes of the farmers

engaged in such activities. Domestic reforms and initiatives motivating small farmers to

become a part of continuous supply chain for exports will be a step in this direction. In

future much of the gains from the Doha commitments may not come across to Indian

farmers due to lack of domestic reforms, which lowers down our ability to compete in the

world trade through exports and competition


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Conclusion

Strengthening of agriculture will help in upliftment of the farmers but also benefit the

larger section of the rural poor who are directly engaged in agriculture or indirectly

linked with agriculture as consumers. Efficient way of production, stabilized prices,

higher income from agriculture would create a more conjugative environment in the

country for the development of the economy as a whole and of rural population in

particular. One of the most important component of the much needed reforms is not only

implementation of the policy in time but also simultaneous review and evaluations of the

impact of the policies and taking immediate steps to rectify the negative impacts if caused

by any of the policies. Inter sectoral linkages and organisation of the agricultural sector

needs to be taken up. Sustainability is another key issue. In the present context

sustainability with natural resource management has become more relevant. The visible

institutional changes with new models of marketing and cultivation should be supported

by government policies too. Priority investment areas identified need to be worked on

without loss of time. Risk management and incentive based system will motivate farmers

to efficient agriculture. Empowerment of the small and marginal farmers through

education, reforms and development will ensure a better, efficient and strengthened

Indian agriculture. Motivation new models in production and marketing along with

creating awareness and imparting education to small farmers will help in development of

the sector and more importantly improving the economic status of poor farmers. The

action plan to strengthen agriculture in India needs to be on domestic reforms through

reduction of government intervention in the market economy but playing major role as

evaluator and implementation of the policies, increased investment and prioritising the

area to invest, parallel action plans in this direction are needed in research to increase

productivity and irrigation and water management.

References

Ahluwalia, Montek S. (2005). Reducing Poverty and Hunger in India: The Role of

Agriculture. IFPRI 2004-2005 Annual Report Essay.

Braun, Joachim von, Ashok Gulati, Peter Hazell, Mark W. Rosegrant and Marie Ruel

(2005). Indian Agriculture and Rural Development- Strategic Issues and Reform

Options. IFPRI. http://www.ifpri.org/pubs/ib/ib35.pdf


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Evenson, R.E.; Pray, C. and M.W. Rosegrant. (1999), Agricultural Research andproductivity Growth in India. Research Report No 109. International Food Policy

Research Institute, Washington, D.C

Fan, S., Hazell, P.B.R. and S. Thorat. (1999), Linkages between Government Spending,Growth, and Poverty in Rural India. Research Report No 110. International Food

Policy Research Institute, Washington, D.C.

Gulati, Ashok, Ruth Meinzen-Dick, and K.V. Raju (2005) Institutional Reforms in Indian

Irrigation, Sage Publication.

Kumar, Praduman and Surabhi Mittal (2006). Agricultural Productivity Trends in India:

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Landes, R. Maurice (2004). The Elephant is Jogging: New Pressures for agriculturalreforms in India. Article in Amber Waves February, 2004.

www.ers.usda.gov/amberwaves/february04/features/elephantjogs.htm

Mattoo, Aaditya, Deepak Mishra and Ashish Narain (2007). From competition at home to

competition abroad- A case study of Indias horticulture. World Bank and Oxford

University Press.

Mittal, Surabhi (2006a). Past Trend and Projections of Demand and Supply for Major

Food Crops in India. Background paper prepared for Planning Commission,Government of India. June, 2006.

Mittal, Surabhi (2006b). Structural Shift in Demand for Food: projections for 2020.ICRIER Working Paper No 184. August 2006.

Mittal, Surabhi and Praduman Kumar, (2000). Literacy, Technology Adoption, FactorDemand and Productivity: An Econometric Analysis. Indian Journal of Agricultural

Economics. Vol. 55 No. 3: Pp: 490-499.

Mukherjee, Arpita and Nitisha Patel, (2005). FDI in Retail Sector: India. ICRIER andDepartment of Consumer Affairs, GOI. Published by Academic Foundation, New

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Singh, Panjab (2002), Agricultural Policy-Vision 2020. Planning Commission.http://planningcommission.nic.in/reports/genrep/bkpap2020/24_bg2020.pdf

Virmani, Arvind, (2004). Accelerating growth and Poverty Reduction: A Policy

Framework for Indias Development. Academic Foundation, New Delhi.

Virmani Arvind and Surabhi Mittal (2006). Domestic Market Integration". ICRIER

Working Paper No. 183, July 2006.

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