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Special Article
Indian Farmer
Torn apart by loan sharks and globalisation-II
Agriculture needs long term remedies
By Dr. A.P. Sharma
The declining contribution of yields to crop income growth should be viewed seriously. If yield growth were steady, the declining relative importance of yield growth to crop income growth would be less of a concern. However, the yield growth of major agricultural commodities has declined.
Unfortunately, in the euphoria generated by the debt waiver, the real issues of agricultural revival have taken a back seat. The most important issue that still plagues Indian agriculture is the decline in public investment, which has been continuing for almost two decades now.
The finance minister may take credit for improving the rate of capital formation from 10.2 per cent (2003-04) to 12.5 per cent (2007-08); this is not so much due to increasing investment in agriculture (Rs 12,000 crore since 2001-2002, 4.7 per cent per annum in nominal prices, negligible in real prices) as much as it is due to the low growth of agricultural gross domestic product. As a proportion of total capital formation, the capital formation in agriculture has declined from an average of 8 per cent during the previous years to less than 6 per cent at present. As far as the government?s claim of doubling credit growth during the past 3-4 years is concerned, R. Ramkumar clearly observed that a large part of this was accounted for by changing definitional categories.
Moreover, almost one-third of this growth was accounted for by indirect finance to agriculture. Ramkumar?s study clearly rejects any misconception that the growth of agricultural credit has benefited marginal, small and medium farmers. Finally, a major reason for farmers falling into debt trap is declining profitability, primarily due to increasing input costs. There has been no genuine effort to address this in the Budget. If the farm sector is showing signs of revival, it is not due to the government?s efforts but due to various factors. The results of the research study confirms that at the national level, technology (higher yield) was the main source of crop income growth during 1980s, while rising prices and diversification emerged as the dominant sources of growth in agriculture during 1990s. Diversification towards higher value crops such as fruits and vegetables accounted for about 27 per cent of crop income growth in the 1980s and 31 per cent in the 1990s. However, these national averages hide substantial regional variation. In the grain-dominated northern and eastern regions, price increases were the most important source of growth during 1990s, while in the southern and western regions crop income growth was led by diversification into higher-value crops. The results reflect the slowing growth of wheat and rice yields in India, as well as the growing importance of diversification into higher-value crops.
Restoring the growth in grain yields will require investment in agricultural research and development, while facilitating further diversification involves institutional development to better link small farmers with growing markets for high-value commodities.
At the national level, the crop sector is dominated by rice, wheat, fruits and vegetables, and oilseeds. These crops together accounted for about 71 per cent of the total value of crop output in TE* 1999-2000. Over time, the production-mix changed to meet the market demand and also availability of new technology. For example, the share of fruits and vegetables in total value of crop output increased significantly from 14 per cent in TE 1981-82 to 21 percent in TE 1999-2000. On the other hand, the shares of rice, pulses and oilseeds declined somewhat during this period.
As mentioned earlier, drawing policy implications from these trends is not always obvious and requires additional assumptions about the likely return from investments in strengthening each source of growth. In view of above fact, attention is needed for the following facts:
First, the declining contribution of yields to crop income growth should be viewed seriously. If yield growth were steady, the declining relative importance of yield growth to crop income growth would be less of a concern. However, the yield growth of major agricultural commodities has declined. Though the emphasis have been given to investment in agricultural research and development, but still there are underinvestment in this area. This implies the need to (i) improve the efficiency of investment in agricultural research and development, and (ii) revisit the agenda for agricultural research and development keeping in view the opportunities and challenges in agriculture across different regions in India.
Second, the increasing contribution of diversification to agriculture growth indicates that greater attention must be devoted to this avenue for rural income growth. In particular, crop diversification offers an opportunity to augment income and employment especially in the rain fed areas that were somewhat neglected during the Green Revolution period. Studies have reported that diversification towards high-value a commodity augments income, generates employment opportunities, empowers women farmers and conserves natural resources (Pingali and Rosegrant 1995, Chand 1996 and Ryan and Spencer 2001).
Crop diversification towards more remunerative commodities, thus, can serve as an effective tool to alleviate poverty, generate rural employment and conserve natural resources. This would require greater investment in extension services for high value crops, market information systems, technology to address the perish ability of many high-value crops, and facilitation of the institutional arrangement to enhance vertical coordination in these markets. Fruits and vegetables are an important component of the high-value agricultural sector, but not the only one.
Third, growth in output prices has served as an important source of agricultural growth. Some of this growth in output prices is related to higher government-set prices, particularly rice and wheat, but this is not sustainable in the long run. The higher prices for fruits and vegetables is largely caused by rising demand and higher quality (including some horticultural exports). Policy reforms and infrastructure improvements can also continue to contribute to higher farm-gate prices and, hence, rural income growth. On the other hand, these two factors can cut both ways?in some cases, market reform and improved infrastructure will introduce greater competition from agricultural commodities from outside the state or outside the country, benefiting consumers but not necessarily farmers. Also the price-led growth benefits the farmers in proportion to their marketable surplus. The smallholders generally gain less than medium and large-scale farmers from higher prices. Such a phenomenon may lead to growth but could widen the disparities between small and large farmers.
Fourth, area expansion may not continue to contribute to crop income growth in land-scarce regions. The sustainable and equitable agricultural growth in such regions would only arise through agricultural diversification towards more remunerative commodities and technological breakthroughs. It is pertinent to target these growth sources to achieve sustainable and equitable growth in agriculture.
Concluding Remarks- Loan waiver is good for short term measure but should be followed with other long term measures to ensure the farmer gets remunerative prices. Along with a numerous accomplishments in Indian Agriculture owing to Green Revolution, White Revolution, Blue Revolution, Yellow Revolution and Golden Revolution, there has been significance resource degradation, culminating in number of other constraints. To address these challenges, it becomes essential to produce crops with judicious input use efficiency, improvement in nutritional quality and stability of storage with market infrastructure facility. While pursuing for higher productivity levels, there is need to redesign the crop-mix and added value to the farm produce so as to make agriculture more rewarding to the farmers. Therefore, to meet twin challenges of second generation problems, globalisation and economic reforms, there is an urgent need for revamping Indian Agriculture by introducing commerce in it more effectively.
References-
Shahu, Gagan Bihari (2007) ?Supply analysis of Institutional credit to Agriculture for major states in India?. Indian Journal of Agricultural Economics.2007, Vol. 62 (4). Himanshu (2008) ?Loan Waiver; Treating the farmer as voter?. Economy and politics. Delhi. Roy, Subir (2008) ?How to make farm loan waiver work? Financial Times, New Delhi, March 19, 2008. Ram Kumar, R. (2008) ?Agricultural loan in India? Economic & Political Weekly. Vibha Sharma (2008) ?Farmers loan waiver eye wash Sidhu?. Tribune Delhi, March 5, 2008. Joshi, P.K. et al ?Sources of agricultural growth in India: Role of Diversification towards high value crop?. Memeograph. Bellclive (1990) ?Interaction between institutional and informal credit agencies in Rural India?. The World Bank Economic Review Vol. 4, No. 3. Shivamaggi, H.B. (2000) ?Reforms in Rural Banking: Need for bolder approach?. Economic & Political Weekly Vol. 35 No. 20.
(Concluded)
(The writer is Vice-Chancellor, G.B. Pant University of Agriculture and Technology Pantnagar, Uttarakhand.)
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