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For at least four decades now, economic policy making globally has dogmatically adhered to the notion that a progressively reduced role of the state would automatically deliver greater economic growth and welfare to the people. There are very specific characteristics of agriculture, as also crucial elements of the socio-historical context, which imply that the Indian state must continue to intervene in multiple markets, and make critical investments, to ensure the welfare of both farmers and consumers.


GS-III: Agriculture, GS-III: Indian Economy (Economic Growth and Development, Planning usage and Mobilisation of resources, Inclusive growth and issues therein)

Mains Questions:

The distinct characteristics of India’s agriculture require that a reformed state must ensure farmer and consumer welfare. Discuss. (15 marks)

Dimensions of the Article:

  1. The Current status of Indian Agriculture:
  2. Specificities of agriculture
  3. Balance of power when it comes to traders
  4. Issues with Indian Agriculture
  5. Way Forward

The Current status of Indian Agriculture:

  • As a source of livelihood, agriculture (including forestry and fishing) remains the largest sector of Indian Economy. While its output share fell from 28.3% in 1993-94 to 14.4% in 2011- 12, employment share declined from 64.8% to 48.9% over the same period.
  • Therefore, almost half of the workforce in India still remains dependent on agriculture. Given the low share of this workforce in the GDP, on average, it earns much lower income poorer than its counterpart in industry and services.
  • Crop production in the country is dominated by cultivation of paddy in Kharif and wheat in Rabi seasons. These two crops cover about 38 per cent of gross cropped area in the country. Cereals including coarse cereals occupy more than half of the total land under cultivation.
  • Yields and the proportion of area irrigated vary widely across states. Predictably, there is a strong correlation between these two variables. Punjab ranks the first and Haryana the second in terms of both variables.
  • India exhibits low yields in rice when compared to other countries but not in wheat. Rice yield in India is just 55% of rice yield in China. Average yield of rice in India is much lower than other major rice producing countries like Bangladesh, Indonesia and Vietnam.
  • India is fairly placed in terms of contribution to global production of potato and banana but there also the level of productivity is less as compared to many countries. In potato the productivity of India is less than half of the productivity of USA, Germany and Netherlands while yield of banana in Indonesia is 1.5 times higher than that of India.

Specificities of agriculture

  • Due to a variety of limiting factors, from uncertainties of the weather to soil fertility and water availability, increasing returns to scale are very difficult to achieve in farming.
  • Economies of scale allow producers in industry to make profits by cutting unit costs, employees / labour charges etc., however, in agriculture, members of the family can be drafted to work on the family’s farm. This phenomenon is quite widespread in India 4 crore rural families out of the 9 crore rural families who draw their main income from unskilled manual labour, are small and marginal farmers.
  • Production processes in agriculture cannot be organised in an assembly line; they need to begin at the appropriate phase of the climatic annual cycle and this means that all farmers harvest their crop at the very same time.
  • 86% of India’s farmers are ‘small and marginal’, too poor to afford warehousing facilities and are, therefore, compelled to bring their harvest to the market at around the same time that they harvest.
  • Since demand for food crops is typically price inelastic, during a bumper crop, while prices fall, the resulting rise in demand is not enough to salvage farmer incomes. Correspondingly, for poor consumers, unregulated markets for foodgrains mean that during a drought they either starve or get pauperised, being forced to buy very expensive commodities, conveniently hoarded up by traders.

Balance of power when it comes to traders

  • The traders double up as moneylenders and the operation of a deeply exploitative grid of interlocked markets afflicts most farmers.
  • In the credit market, insane interest rates (often as high as 60%-120% per annum) create a debt trap from which it is virtually impossible to escape.
  • This works in tandem with the oppressive caste system, with the poorer, ‘lower’ caste farmers, facing a cumulative and cascading spiral of expropriation.

Issues with Indian Agriculture

Growing Water-intensive crops

  • There is growing evidence of a steady decline in water tables and water quality. The yield response to application of increasingly expensive chemical inputs is falling, which has meant higher costs of cultivation, without a corresponding rise in output.
  • Around 90% of India’s water is consumed in farming, and of this, 80% is used up by rice, wheat and sugarcane.
  • Farmers continue to grow these water-intensive crops even in water-short regions primarily because of an assured market — for rice and wheat in the form of public procurement, which still covers only a very low proportion of India’s crops, regions and farmers.

Agricultural Productivity

  1. Low average productivity at the national level: The average productivity in rice is low relative to most of the major rice producing counties. India does better in wheat but the scope for improvement exists in this crop as well. The same goes for other crops including oilseeds, fruits and vegetables as well as activities such as animal husbandry, fisheries and poultry.
  2. High variation in productivity regionally: The second broad productivity concern relates to regional variation. It is also evident that while Punjab and Haryana exhibit high productivity nationally, states such as Madhya Pradesh, Rajasthan, Maharashtra, Chhattisgarh, Odisha, and Karnataka suffer from quite low yields per hectare. The scope for improved productivity in these latter regions is substantial.

Remunerative prices for farmers

  1. Minimum Support Price (MSP):  It effectively applies to a specified set of commodities, predominantly rice, wheat and cotton, and is available only in a subset of producer states. In the states in which no procurement is done by the public agencies at the MSP, farmers lack the guarantee offered by the MSP. Moreover, subsidized sales of cereals under the public distribution system (PDS) divert part of the demand thereby artificially lowering the price at which they must sell their produce. Likewise, for commodities such as fruits and vegetables, which are not subject to any procurement by official agencies, sometimes the market price can be excessively low due to perishability and localized nature of markets for them.
  2. Remunerative prices for farmers: The continued presence of regulations flowing from the Agricultural Produce Marketing Committees (APMC) Acts in most commodities in most states has meant that the farmer is compelled to sell her produce in the government-controlled marketing yards. These controls restrict transactions to the handful of local players and easy manipulations. The APMC market yards are subject to vast technical as well as marketing inefficiencies that undermine the prices that farmers receive.

Land policy

  • Land leasing laws in India have taken forms that discourage formal leasing contracts between the owner and the tenant.
  • Field studies have shown that most of tenancy in the country is concealed and, thus, unofficial. This fact has the implication that tenants are often not identified as actual cultivators in the records.
  • The lack of identification of tenants as actual farmers has very serious implications for the conduct of public policy.
  • Benefits intended for the tenant farmer such as disaster relief or direct benefit transfers risk being disbursed to the owner of the land who appears as the cultivator in the official records.
  • Over the generations, as families have grown, land holdings have come to be divided and fragmented into small economically unviable parcels and plots.

Agrarian Distress

  • Farmers are frequently affected by natural disasters such as droughts, floods, cyclones, storms, landslides, hails and earthquakes. Because most farmers lead subsistence existence, such disasters can lead to extreme distress and hardship.
  • Though some crop insurance schemes have been tried in the past, they have not worked effectively.
  • One critical problem is that these programs predominantly cover only farmers with outstanding bank loans. Because the poorest farmers are unable to access the banking system in the first place, they are rarely covered by the insurance.
  • There is acute need to rectify this situation by providing for at least minimum quick relief to marginal and small farmers in case of natural calamities that destroy a large proportion of the crop.

Eastern States

Given fertile land and abundant water resources, the Eastern states of India have a high potential in agriculture. Yet, their productivity in various crops lags behind the national average. Despite favourable climatic conditions and water availability crop intensity in the region is low.

Way Forward

  • We need to greatly expand the basket of public procurement to include more crops, more regions and more farmers. If done right, this single reform would secure multiple win-wins: higher and more sustainable farmer incomes, greater water security and better consumer health.
  • Procurement must be local and follow the logic of regional agro-ecology.
  • Huge volumes of water could be saved if cropping patterns are diversified to include a variety of millets (rightly called ‘nutri-cereals’ now), pulses and oilseeds.
  • To increase productivity, progress is required along three dimensions:
  1. Quality and judicious use of inputs such as water, seeds, fertilizer and pesticides;
  2. Judicious and safe exploitation of modern technology including genetically modified (GM) seeds;
  3. Shift into high value commodities such as fruits, vegetables, flowers, fisheries, animal husbandry and poultry.
  • In the longer run, productivity enhancement requires research toward discovery of robust seed varieties and other inputs, appropriate crops and input usage for a given soil type and effective extension practices.
  • The locally procured crops should then be incorporated into anganwadi supplementary nutrition and school mid-day meal programmes. This would mean a large and steady market for farmers, while also making a huge contribution to tackling India’s twin syndemic of malnutrition and diabetes, since these crops have a much lower glycemic index, while providing higher content of dietary fibre, vitamins, minerals, protein and antioxidants.
  • The United Nations estimates that in the year 2050, around 800 million people will continue to live in rural India, and given this unique Indian demographic transition, agriculture will need to be greatly strengthened, especially bearing in mind the complete nightmare our urban metropolises are, for current and future migrants.

-Source: The Hindu

December 2023