|
Business
Making agriculture a vibrant growth engine
THE CURRENT state of Indian agriculture provides a contrasting picture of low growth amid plenty. Undoubtedly food security is no longer a serious concern as current foodgrain stocks at 60 million tonnes are at unprecedented and unsustainable levels. But, low key agriculture growth with low value addition and falling profitability is definitely a matter of concern. It is estimated that profitability in agriculture has fallen by 15 per cent in the 1990s.
That agriculture needs conducive policies to break away from this conundrum is generally well understood. What is overlooked is the need for convergence of reforms in other strategic sectors such as finance and trade in order to promote rapid diversification and increase in profits in this sector. And on its part, faster growing agriculture would provide succour to all other industries.
A faster growing agriculture sector can help the economy in many ways. One, it will help in increasing exports. Second, by generating surplus, it can promote various agro-processing industries and thus favourably impact personal disposable incomes in rural areas. Third, by opening up localized employment avenues, it can help slow down rural-urban migration and thus ease the pressure on the urban infrastructure. Fourth, it can create domestic demand for industrial goods and services and thus save them from the pressure of finding new export outlets. That is, it will help in sustaining the growth of the industry and services sectors and thus provide a shield against external shocks to the economy. Most of all, it would create a market for a number of industries and help them achieve economies of scale and thus become more competitive in the international market.
Sadly, agriculture has not attracted sufficient attention from Indian policy makers, especially as an important tool to strengthen the economy. The growth strategy in the post-liberalisation period has so far focused on trade and industry.
As a result, the agriculture sector, which accounts for more than a quarter of total GDP and employs two-thirds of the country's labour force, has failed to explore opportunities for more trade and growth when the economy opened up. Despite it s significant impact on the overall economy, continuous neglect by the policy planners has seen capital formation and public investment in agriculture slow down throughout the Eighties and Nineties. It is generally believed that a consistent agriculture growth of at least 5 per cent would be vital.
According to the National Sample Survey, the proportion of household expenditure on items other than food has been increasing. Conversely, it implies that household expenditure on food as a proportion of total expenditure has fallen from 60 per cent in 1977-78 to about 48 per cent in 1999-2000 in urban areas and from 64.3 per cent to 59.4 per cent in rural areas. With rising incomes, people's diets are becoming more diversified. Correspondingly, substantial increases have taken place in the share of other foods such as fruits, vegetables, meat, eggs, fish and milk in food expenditure..
The changing dietary composition has rendered the accent on increasing foodgrain production irrelevant for food security and calls for a shift in focus to accelerating growth of non-cereal food products and non-food agricultural products. Increasing incomes and urbanisation are also providing the demand stimulus for processed foods. However, the process of diversification in agriculture away from grain to non-grain, non-crop activities came to a virtual halt by the mid-Nineties. Moreover, even the small diversification was largely demand driven and not the result of any deliberate policies.
Anti-diversification strategy
On the other hand, the lop-sided growth strategy has resulted in input prices rising much faster than output prices and that too during the period of liberalisation involving lower tariffs for inputs. Lack of harmonisation of tariffs on various products at the time when the economy is being opened up for international trade does more harm than benefit. In fact, lack or no coordination between the Tariff Commission and the Agriculture Ministry and Departments has been responsible for lack of harmonisation and thus diversification. Experts have found today's regime less friendly to the diversification of agriculture.
It is important to understand that imports cannot be wished away in an opened economy. Therefore, an unstructured view and lack of harmonisation needs to be corrected. Remnants of control within the domestic economy at a time when trade is opened up creates many difficulties. The global pressure is going to catch up much faster and the trade environment will become tougher unless policy makers wake up to the need for conducive policies in agriculture. Financial sector reforms along with other supportive reforms are urgently needed to encourage private investment as public investment has totally collapsed. And private investment cannot come unless profitability increases and credit is made available at reasonable cost.
The potential for higher income realisation through value addition in non-crop activities like food processing is considerably high. But the agricultural sector has continued to be constrained by a number of controls and regulations that impose limits on storage and restrict free movement of agricultural products.
Lack of a single market across the country has proved detrimental not only to agriculture but also to industry. Restrictive regulations and varied tax structure among the states coupled with inadequate infrastructure facilities have constrained growth of the domestic market. To develop the rural market and agro-processing industries, all controls and restrictions on storage and movement of agricultural products would need to be removed and private trade given a larger role for which State governments would have to be prime movers in undertaking reforms. The Central Government's recent focus on removing these hurdles through necessary reforms such as review of the Essential Commodities Act and road development activities such as the Golden Quadrilatral are welcome steps. But the action needs to be speeded up. It is indeed ironical that at a time when the whole world is moving towards one big borderless global market and all the European countries could form one uniform market despite differences in culture and currencies, India still continues to be fragmented.
The falling public investment in agriculture has been a cause for concern because it is crucial for the development of infrastructure like irrigation, electricity, agriculture research, roads, markets and communications. Investment in agriculture declined from 1.6 per cent of GDP in 1993-94 to 1.3 per cent in 1998-99. It has remained constant at this level since then. Also, public expenditure in agriculture has exhibited some substitution from investment to consumption expenditure in the form of increasing subsidies and in various transfer payments made through a variety of poverty alleviation programmes. This has not added to creation of productive capacity in the sector. The private sector has not been able to help much either as the land holding pattern across the country does not make it economical and viable to use mechanisation on a larger scale.
Land reform legislation in India was designed to address issues of poverty and landlessness and not generation of surplus output either for exports or for agro-processing. In the decades following independence, most Indian States passed land reform laws aimed at broadening the access to rural land. However, the experience suggests that in most States, such laws have had marginal impact on broadening the access to land and the problem of rural landlessness remains substantial.
Role for private sector
The numerous laws and regulations have kept the private sector at bay from the agriculture sector. The private sector investment need not be looked at as a substitute of public investment, but rather as a supplement of it. Corporatisation of agriculture would have been one such method to attract private investment on a larger scale. Existence of a large number of benami holdings has also acted as a deterrent. In contrast to India, countries like the former Soviet Union and China used collectivisation of land and agriculture production as a means to increase production for consumption as well as to generate exportable surplus. Some sort of ban on migration from rural areas to urban areas in China also helped in the growth of food processing industries in rural areas in order to generate employment. Collectivisation may be an extreme step and may not be viable here due to a different political and social set up. But the point made here is that some kind of deliberate strategy to improve production and quality needs to be adopted.
To sum up, agriculture needs urgent attention and policy action to generate additional income and employment. The time has come to drastically shift the focus of many policies related to agriculture. Some suggested measures for immediate action include increasing public investment in irrigation capacity, water management and rural roads as a first priority. To generate resources for this, the expenditure on subsidies should be curtailed. A comprehensive land use policy laying out the contours of the ownership and institutional framework that encourages productive utilisation of such lands should be evolved. Distribution of larger homestead or garden plots to rural poors can be experimented as is done in many other countries in order to provide additional sources of producing food for family needs. And most importantly, sufficient financial support by way of adequate and timely credit needs to be provided to farmers and agri-entrepreneurs. The biggest support and reforms are needed in the area of marketisation of agri and non-agri products. The Government should provide marketing intelligence and specialised agencies that undertake marketing of rural products.
J. Mehra
Printer friendly
page
Send this article to Friends by
E-Mail
Business
|
