Agriculture and Sustainable Dev

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YOJANA January 2011 1

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Janar 2011 Vo 55

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C O N T E N T S

CHALLENGES OF A RURAL URBAN CONTINUUM ................5

Yoginder K Alagh

HARNESSING THE DEMOGRAPHIC DIVIDEND

FOR AGRICULTURAL REJUVENATION ..................... ..............12

M S SwaminathanCLIMATE CHANGE AND INDIAN AGRICULTURE ................16

K V Thomas

STRENGTHENING SMALL FARM SECTOR.............................18

V S Vyas

THREE IDEAS TO GET AGRICULTURE GOING ....................22

Ashok Gulati, Kavery Ganguly

FINANCING AGRICULTURE : SOME ISSUES ...................... ..26

K G Karmakar

REVITALIzING AGRICULTURE

THROUGH IMPROVED TECHNOLOGY ..................... ..............31

S Ayyappan, Ramesh Chand

RAINFED AGRICULTURE CONCERNS,

OPPORTUNITIES AND STRATEGIES ..................... ..................37

B Venkateswarlu, CA Rama Rao

DO YOu KNOw? Genetically Modied Foods.........................41

MAJOR ISSUES IN AGRIBUSINESS :

A SMALLHOLDER PERSPECTIVE ............................................44

Sukhpal Singh

HORTICULTURE IN INDIA:

STATUS AND PROSPECTS ..................... ........................ .............49Bijay Kumar

J&K wINDOw ...........................................................................53

VALUE CHAIN SYSTEM IN

AGRICULTURAL FINANCING ...................... ........................ .....54

B B Sahoo

PULSES : INCREASING AVAILABILITY ...................... .............58

Prasoon Verma

NORTH EAST DIARY ...............................................................61

CONTRACT FARMING IN INDIA...............................................62

Shailendra Bhushan Sharma

SHODH YATRA

BAMBOO PROCESSING MACHINE ..........................................66ORGANIC FARMING : PROBLEMS AND PROSPECTS ..........68

Kuldeep Sharma, Sudhir Pradhan

BEST PRACTICES

AUGMENTING FARM INCOME ....................... ........................ ..71

Sandip Das


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2 YOJANA January 2011

YE-1/11/9


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F

or the past decade as Indian industry went places, recording a hearty rate

of growth, the story of Indian agriculture remained an also ran. Successive

governments have put in plenty of effort but the results were still weak. Thisis surprising as in the same period except for 2008, the monsoon went through one of

the longest periods of regular annual rainfall pattern. Despite this favourable initial

condition, the rate of growth of the agriculture sector has been low.The one spoilsport

in the agriculture story was of course the stagnant rate of public investment. The state,

hamstrung by vastly competitive demands on its resources, initially and also by the

realisation that public investments in irrigation and others were not yielding quick

results, moved the money elsewhere.

But now, in the aftermath of the global meltdown, the consensus of informed opinion has switched to the

view that consumption demand from rural India has been the great stabilier for industry. The impetus for thatrural consumption demand has to come from rising productivity in agriculture. In turn rising productivity can

only come if adequate investment is made at all stages of agricultural operation. Not surprisingly the push for

these improvements has come from one of the longest spells of rise in prices of food productsthe persisting

ination in food that has just begun to soften. So we have a fortuitous combination of circumstances that, if

harvested, can create huge value upgradation for the Indian agriculture sector and in turn for the entire economy.

The components of these improvements are well known like seed technology, better management of post harvest

operations like preservation of produce in warehouses and of agricultural marketing.

So even though it may seem oft repeated, the time for an agricultural revolution is here. Probably the most

important element of that will be the plans for a second green revolution. The government has already indicated

that it is very keen to start it off in the dryland areas of the south and in the rich but weakly tapped soils of the

eastern Indian states. A debate is already raging in the country, if such a rise in productivity will also necessarily

entail a movement towards genetically modied crops . The need of adequate grains to feed a vastly rising

population is immediate and so the decision has to be made carefully, as the government has indicated. The

associated issues are of infrastructure to run the crops from the farm gates to the market. Most of the states

have a poorly developed set of roads and even less carriers to undertake the task. In this context the need for

refrigerated trucks and cold storage chains across the country is an immense investment possibility as well as

the need of the hour. The government has to also make changes in the law to allow for the trading of warehouse

receipts and that of the agricultural produce marketing act that makes transport of most agricultural produce

across state boundaries, a crime. The list is large, the need is to start moving right now.q


Abot the Isse


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YE-1/11/7


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H I S A R T I C L E

discusses demand for

Indian agriculture and

the spread of markets.

Indian agriculture

should be seen as a rural urban

continuum and opportunities

perceived accordingly. Urbaniation

and structural change in the labor

force is taking place at a faster

pace than usually argued. This has

also been borne out recently by the

Labour Bureau

Demand

The underlying long term trends

are in terms of growth of agricultural

demand and diversication of the

demand basket with non foodgrains

growing faster than grains andnon crop based agriculture like

animal husbandry growing even

faster. Within crops, demand for

tree crops grows faster. These

trends are driven by the growth

of the economy, urbaniation,

income distribution and of course

population growth. It is to these

factors that we now turn.

The major factors inuencing

the level of demand of a good are:

(1) population: its sie, distribution

by age, rural/urban mix, etc.

(2) income and its distribution,

(3) prices and availability of other

commodities and services

(4) tastes and preferences.

These factors are sometimes

called determinants of demand

(See Tomek and Robinson, 1972,

p.14).

Population

UN projections given by the

UNU/IAS have been used here.(Table 1). FAO in their latest

food demand projections for

India in 2008, which estimate

that a population of 1.0 billion in

2000 will go up to 1.2 billion in

2015 (FAO, 2003,2008; also see

N.Alexandratos, 1995).

Challenges of a Rural Urban Continuum

AgRiCulTuRE

Yoginder K Alagh

ANAlySiS

T

A moreproductive

mindset would beto orient policyto concentric

circles of

prosperity arounddiversifyingagricultural

bases and growthcentres

The author is Chairman, Institute of Rural Management, Anand; Chancellor, Nagaland University and Vice-Chairman,

Sardar Patel Institute of Economics & Social Research. He was Former Minister for Power, Planning and Science and

Technology, GOI


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Table 1 uN Poplation

Projections

Year Poplation

(million)

(1) (2)

2000 1012.66

2005 1087.462010 1152.16

2015 1211.67

2020 1271.17

Source: Mukherji, et.al, 2001;also see

(FAO, 2003,2008 and N.Alexandratos,

1995)

The Eleventh Plans population

numbers are close to these trends.

The Plan does not have a separate

population projection exercise but

in one of its sections the numbers

given are 1208 million for 2011-12

and 1283 million for 2016-17.

Demand Behaviour

Table 2 gives estimates for

the urban rich and rural poor in

the seventies in India and some

estimates of income (expenditure)

elasticities from Complete Demand

Systems for the Nineties.

Income Growth

India will grow between 6 to

8% annually and will become

the third or fth largest economyof the world in this period. The

investment rate and productivity

growth will be the drivers. For

example around a third of Indias

GDP growth in 97/03 is technology

driven. Trade will also matter and

Table 2Income Elasticities in India for Agro Prodcts Strctre and Changes

Sl No Commodity Engel Crve

Specication1

Estimate for Seventies EstimateforNineties2

0 1 2 3 4

a. urban

non poor

b. Rral

poor

a. urban non

poor

b. Rral

poor

1 Paddy 0.18 0.18

2 Wheat 3b.Semi Log 0.15 1.82

3 Jowar _0.97 0.51

4 Bajra 3b.Semi Log _1.26 0.92

5 Other cereals _0.14 0.01 0.14 0.463

6 Pulses 3a. Semi Log 3bLinear 1.48 0.06 0.33 1.40

7 Vegetables 3b. Linear 0.79 0.058 Fruits 1.62 1.21 0.88 1.044

9 Spices 0.40 0.79

10 Milk and Products 3a. Linear 0.10 3.06 0.97 2.36

11 Meat and eggs 3a. Linear 0.02 1.55 0.69 1.39

12 Sugar 0.79 2.07 0.73 1.47

13 Gur 3a. Semi Log 0.17 1.80

14 Vanaspati 1.03 neg

15 Edible oil 0.70 1.33 0.64 1.13

16 Tea 3a. Linear 0.03 1.3717 Coffee 1.55 1.74

Note: 1.Unlessotherwisespeciedtheestimatesareelasticitiesfromdouble-logfunctions.Inothercasestheestimates

areslopecoefcientsofthespeciedfunctions.

2. TheestimatesarefromCompleteDemandSystems.TheRuralPoorarethecategorymoderatelypoorand

theUrbanNon-Poor,similarlysointhenon-poor.

3. referstoallcereals

4. referstofruitsandvegetables

Source: MunishAlagh,2006,p.59(FortheSeventiestheestimatesarederivedfromNSSmonthlyhouseholdconsumption

datafromthe28thround1973/74.SeeGovernmentofIndia,PPD,PlanningCommission,1979.FortheNineties,

theestimatesarefromC.Ravi2001).


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Indias trade will become around

4% of world trade.

The Drivers will be Investment,

Technology and Productivity:

K n o w l e d g e , T r a d e a n dCompetition

Productivity growth analysis

scenarios indicate that in order

to sustain a high growth of the

economy of the order of 8 to 9

per cent as given in the so called

Scenario C, the TFP has to grow

by 5 per cent or more. Trade and

Competition will give the edge.

Some estimates suggest that trade

shares of around 4% of world

trade will be needed. Frugality

needs investment rates going up.

These economic preconditions will

have to be fullled if the positive

projections are to be achieved. (See

D.Nachane, 2006))

Demand

The estimate is prepared using

the best tting Engel curves given

in Table 2. above. This is done

separately for rural and urban areas.

Given the population projections

and these behavioural estimates

the requirements for human

consumption is worked out. To

that, seed feed and wastage gures

are added and total demand is

worked out. The Projections are as

presented in Table 4.

Growth of cereal demand

between 2020 and 2030 is 13%

over the decade. On the other

hand growth of demand of fruits

and vegetables, eggs, chicken and

milk is much higher. The decadal

growth figures for potatoes is

twenty four percent, thirty percent

for vegetables, forty percent for

milk, two hundred percent for eggsand two hundred and fty percent

for chicken. Demand for beef,

mutton and pork also goes up but

given religious reasons the absolute

gures are low. The low growth of

cereal demand is compensated by

very high demand growth of non

cereal based and non crop based

agricultural goods.

Rral urban Perspectives

A big artefact which is not

wholly correct is that urbanisation

in India is low and not growing

fast. It must, however, be noted that

the urbaniation pattern in India is

decentralied. While very small

urban settlements are not growing,

the share of smaller Class1 townsis high. (100.000+). P. Krugman,

getting the Nobel prie for work

on international trade has also

worked on regional growth patterns

and urbaniation. He explains

urbaniation as the outcome of

both centrifugal and centripetal

forces. While the urban growth

rate in the 1980s went down from

3.8 per cent to 3.12 per cent, that

Table 3

Groth of Otpt, Factors of Prodction and TFP in India: 1970-2000

(Percentage)

Period GDP Capital Labor TFP

1970-80 2.60 3.59 1.98 0.49

1980-90 5.67 4.41 1.13 4.21

1990-00 5.73 5.97 1.82 3.68

2000-10 7.54 4.97 2.69 4.62

2010-20 9.24 4.04 3.49 5.69

Source:Y.K.Alagh,UNU,2000andY.K.Alagh,2006a.

Table 4 Demand Projections (in Million Tonnes)

Food grop 1999-2001 2015 2030

Cereals 159 199 225

(13.1%)

Potatoes etc 25 37 46

(24.3%)

Fruits & Vegetables 108 160 208

(30.0%)

Vegetable oil 11 18 23Sugar 29 40 47

Eggs 2 3 6

(200%)

Chicken 1 4 10

(250%)

Milk 66 104 146

(40.4%)

Beef, mutton & pork 4 5 7

Figuresinbracketsare2030/2020X100

Source: F.A.O., 2008


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of Class I towns went up from 6.39

per cent to 8.39 per cent in India.

In our futures study we postulated

that these trends will continue (Y.K.

Alagh, UNU, 2000, 2006). In other

words, the fast growth of Class I

towns since the 1980s-the period

when the Indian economy grew at

a rapid rate will continue.

There is no reason to believe that

the elasticity of urban settlements

with a minimum sie (1,00,000 +)

w.r.t. per capita income will decline.

Krugman denotes this elasticity

as b. In fact, it will determine the

growth of such towns in the future,

but the population share of smallertowns will shrink. This feature has

been modelled (Alagh, et al., UNU,

2000).

This model uses the following

assumptions;

i. growth of Class 1 cities will

be as in the eighties of the last

century

ii. the increase in the share ofthe Class 1 cities of the urban

population will be as in the

eighties

The first assumption will

increase projected urban growth

and the second will dampen

it. Small towns will not grow

and areas around large cities

will merge with them. It may

be noted that the data from the

nineties cannot be used since it

underestimates these trends as we

will see below. Areas in million

plus cities will grow in clusters

of habitations growing to one

lakh and above. This model can

be stated as follows;

1. U1t

= A(Yt)b

2. Upt = U1t / K+U10

U1= Population in Class 1 towns

Up= Urban Population

Y = Per capita income in constant

prices

U1=Share of Population in Class1

towns in urban population

K= the constant U1t U10

And

b= elas ticity of Class1 towns

population growth w.r.t Y.

Urban Population will now be

forecast from:

Upt

= A(Yt)b /K + U

10

Assume a growth of 6.6% annual

in per capita income then the rateof growth of Class 1 cities will be

4% for the period 1991 to 2020,

since b is 0.6. The share of urban

population will be 42% in 2020 as

compared to the ofcial gure of

32% ( See GOI, Technical Group,

2006).

Urban population growth in this

model varies positively with thegrowth in per capita income and

negatively with the share variable.

My friend, the late P.Visaria, who

was an urban pessimist, noted that

migration to big cities is hampered

by workers living in smaller

communities, who commute for

work. We had argued in our Futures

study that his model is consistent

with the pattern of urbaniationwith clusters of settlements coming

up around large conglomerations.

With the growth of per capita

income being around 4 per cent

annually and b as estimated in the

1980s, urban population in 2020

can be projected to be around 530

million. Our main purpose here is

to argue that policy should not be

concentrated only on rural non-

farm output and employment. In

fact, in a dynamic economy of the

Indian type, the distinction between

the village and the small urban

settlement can be very counter-

productive and lead to all kinds ofprotectionist distortions. A more

productive mindset would be to

orient policy to concentric circles

of prosperity around diversifying

agricultural bases and growth

centres. The numerical framework

suggested above shows that such

possibil it ies are very real and

substantial in India.

Transportation, land use,

marketing infrastructure and

technology dispersal policies can all

be oriented towards the fulllment

of this objective. In fact, it will be

more sustainable. Slum populations

are 25 to 40 per cent lower in

smaller Class 1 towns as compared

to million plus cities. The details of

these policies are contained in theUNU Sustainable Development

Study for 2020 (Y.K.Alagh, 2000,

2006)

More recently UN studies have

established through international

comparisons the point we have

made in earlier Indian studies

reported above to the effect that

India is urbanied more than whatit says and its non farm employment

growth is globally comparable.

The FAO bring this out in a global

comparison and analysis. FAO

and World Bank distinguish three

categories of countries: agriculture-

based, transforming and urbanied.

India is found in the transforming

country category, with a clear


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historical trajectory of moving from

being agricultural-based (FAO,

2008, p.4)

The FAO note that according

to popular statistics India is less

urbanied, but they point out

that:

On the other hand, what

constitutes rural is in fact

somewhat subjective and what is

considered urban or rural varies

considerably among countries.

The Brazilian denition, which is

currently a political controversy,

is partly based on administrative

divisions, and shows a ruralpopulation of 19 percent. The

OECD on the other hand, uses

a simple measure of population

density of over 150 people per

square kilometre, which, for Brail

would give a gure of 25 percent.

If we apply this to India, where

only a small proportion people

live in areas below this density, it

would give a rural population of

only nine percentquite a contrast

to the normal Indian view of

being 70 percent rural. Although

as we have seen, Brail is much

more urbanised, 20 percent of

the population lives in areas with

fewer than 50 inhabitants persquare kilometre; in India less

than one percent do. (FAO, 2008,

p.5)

The FAO go on to add:

This is particularly important,

discussed in more detail below,

when we look at the village-level

economies. If we measure how

isolated the rural population is interms of market access, using a

denition of more than ve hours

of travel time to reach a market

town of more than 5,000 people,

only ve percent of South Asians

live in remote areas whereas

more than 30 percent of Africans

are in this situation. Similar

mcharacteristics hold true for the

percent of the population living in

higher potential agricultural areas,.

(FAO, 2008,p.4)

Our argument therefore is

that urbaniation is proceeding

much faster than earlier estimates

of scholars like A.Kundu, who

worked with the low urbaniationgrowth rates of the Census

1991/2001 period. For example

for Gujarat, Yoginder.K.Alagh

and P.H.Thakkar worked out that

a number of habitations which

met the Census 2001 criteria of

urbanization were still classied

as villages. According to the

Population Census-2001, Census

Towns are non-statutory towns and

are actually rural areas, but satisfy

the following criteria:

(A) Minimum population of

5,000

(B) Density of population of at

least 400 persons per sq. km.

(C) 75 per cent of the male working

population engaged in non-agricultural activity.

It was found that in the decade

1991-2001, in Gujarat, rural non

agriculture main workers increased

more than urban non-agriculture

main workers. As per the 2001

Population Census, there were 122

big villages in Gujarat, each of them

satisfying the three Census criteriaof non statutory towns. These

villages had a total population of

11.21 lakhs. If this is taken as a

correction factor, then the revised

estimate of degree of urbaniation

of Gujarat for the period 1991-2001

will be nearly 39.57 per cent (earlier

estimate being 37.36 per cent and

the correction factor being 2.21

per cent).

The following picture illustrates this


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The level of urbaniation in

Gujarat has therefore not increased

by 2.87 % points, but 5.06% points,

which is close to double the earlier

estimated change and makes a big

difference in policy and forecasting

work.

Increasingly in global work and

expert studies higher estimates of

urbaniation are being projected

as compared t o t he u rban

pessimist projections. Thus theInternational Water Management

Institutes Strategic Analysis of the

National River Linking Project

has a demographic projection

by A.Mahmood and A. Kundu

(Amarasinghe, Shah and Malik,

2008, Paper,6).However they

examine sensitivities to higher

urbaniation rates in the three

volume study on water futuresas compared to official figures.

According to them

According to others, this is even

a conservative estimate of population

growth in India (Y.K.Alagh cited by

Amarasinghe and Sharma,2008)

(U.Amarasinghe, T.Shah and

P.S.Malik,. ed., 2008,p.12) The

IWMI studies quote a higher gure

of urbaniation of 45% by 2025

as compared to a lower gure of

37% for that year (S.Verma and

S.Phansalkar,2008, in Amarasinghe,

Shah and Malik,2008,ed.,p.29 and

also discuss the 21st century as an

urban century, p.40).

The United Nations has also

recently reproduced the Alagh

version of the Krugman model of

urbaniation as estimated for India.

(See United Nations., 2008). Toconclude therefore for this study

we project that the rural population

share will go down to 58% in 2020

and 55% in 2025. This compares

with the ofcial projection of 68%

in 2020 and 64% in 2025(GOI,

2006, Table 10, p.56).

Rural Population in 2020 will

therefore be 738 million out of the

total population of 1273 million

projected above. The Eleventh

Plan has projected the rural labor

force as 45.7% by 2016/17, the

last year for which they have given

projections (GOI, 2008, Vol.1, p.75,

Table 14A). An earlier projection

by G.S.Bhalla and P.Haell (Bhalla

and Haell,2003, p.3478) using

age specific participation rates

separately for rural areas was

46.9%. We assume a participation

rate of 46% and get a gure of 340

million as the labor force. This is

much lower than the gure of 404

million estimated by Bhalla and

Haell on account of a much lower

estimate of urbaniation.

We have separately developed a

small model to provide a framework

for such discussions (Y.K.Alagh,

2010, forthcoming). Its main

contours are as follows;

A benign process will be in the

following larger frame work :

India 2020Total Population

(million) 1273

Rural Population

(million) 738

Labour participation

rate % 46

Labour Force (million) 340

GDP growth (% annual) 8.5

GDP agricultural growth(% annual) 4%

Employment

elasticity w.r..t.. -0.3%

Agricultural growth (Low)

Employment elasticity w.r.t.

Agricultural growth

(High) -0.1%

Land augmentation through

Increase in croppingintensity (High) 0.5%

Increase in cropping

intensity 0.0 to 0.2%

In a benign framework of

development, agriculture will grow

at 4% annual, technological change

and diversication will be high so

the shift away from agricultural on

this account will be 20% over the

Table 5

Level and Groth of urbaniation in Gjarat

Year

Nmber of

Tons

Poplation (in Million)

urbaniation

(in %)Entire State urban Areas

1 2 3 4 5

1961 181 20.63 5.32 25.771971 216 26.70 7.50 28.08

1981 255 34.09 10.60 31.10

1991 264 41.30 14.25 34.49

2001 242 50.67 18.93 37.36

2001 Revd 364 39.46 30.14 39.57

Source:Yoginder.K.AlaghandP.H.Thakkar,2006a.


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decade 2010-2020. (Elasticity of -0.3%). This will

mean a corresponding increase in real wages of the

agricultural labour force.

If the shift does not take place on account of

poor agricultural productivity increase, with an

employment elasticity of minus 0.1, and a growth

rate of these per cent annual, the shift will be 4%and an insignificant increase in real wages of

the agricultural sector. The need for programme

like NREGA will be intense with the present

trends of wages of the labour force worsening.

This will be a very cruel process of economic

transformation.

The only other factor which will affect outcomes

in this logical framework is the augmentation of

the land base of Indian agriculture. This aspect isdiscussed in the context of the Land and Water

questions. If land augmentation emerges again

with success of the interrelated issues of land and

water management, cropping intensity rises by

0.5% annual and in the decade 2010 /2020, real

wages would rise by 7% additional or 27% in the

total and rural-urban inequality would go down.

There are apart from the two big question marks

about non renewable resources, particularly land

and water

Conclsion

We must believe and work for the fact that in

the next decade, Indian agriculture will meet the

requirements of food security and rapidly diversify

itself. It will function in a rural urban continuum,

with rapid developments of markets and shifting

of working populations from villages to linked

small towns and also from crop production to

value added activities. Employment growth will

be high in these activities, chasing a high rate

of economic growth. All this will happen if the

institutional structure gives the appropriate signals

in term of technology and organiational support

and the necessary economic support in terms of

pricing and infrastructure support. Otherwise there

will be rising food prices chasing few goods and

immiserisation. q

(E-mail:[email protected]) YE-1/11/8


12/72


URING HIS recent

visit, President Barak

Obama pointed out

that India is fortunate

to have a youthful

population with over half of the

total population of 1.2 billion being

under the age of 30. Out of the 600

million young persons, over 60%

live in villages. Most of them are

educated. Gandhiji considered

the migration of educated youth

from villages to towns and cities

as the most serious form of brain

drain affecting adversely rural

Indias development. He therefore

stressed that we should take steps

to end the divorce between intellect

and labour in rural professions.

The National Commission

on Farmers stressed the need for

attracting and retaining educated

youth in farming. The National

Policy for Farmers placed in

Parliament in November 2007,

includes the following goal to

introduce measures which can help

Harnessing the Demographic Dividend for

Agricultural Rejuvenation

AgRiCulTuRE

M S Swaminathan

OPiNiON

If educated youthchoose to live in

villages and launchthe new agriculture

movement basedon the integrated

application of

science andsocial wisdom,our untappeddemographicdividend will

become our greateststrength

to attract and retain youth in farming

and processing of farm products for

higher value addition, by making

farming intellectually stimulating

and economically rewarding.

At present, we are deriving very

little demographic dividend in

agriculture. On the other hand,

the pressure of population on land

is increasing and the average sie

of a farm holding is going down

to below 1 hectare. Farmers are

getting indebted and the temptation

to sell prime farm land for non-farm

purposes is growing, in view of

the steep rise in the price of land.

Over 45% of farmers interviewed

by the National Sample Survey

Organisation want to quit farming.

Under these conditions, how are wegoing to persuade educated youth,

including farm graduates, to stay in

villages and take to agriculture as a

profession? How can youth earn a

decent living in villages and help to

shape the future of our agriculture?

This will require a three-pronged

strategy.

D

The author is Member of Parliament (Rajya Sabha) and Chairman, M S Swaminathan Research Foundation


13/72


l Improve the productivity

and profitability of small

holdings through appropriate

technologies and market

linkages

l Enlarge the scope for the

growth of agro-processing,agro-industries and agri-

business

l Promote opportunities for

the services sector to expand

in a manner that will trigger

t h e t e c h n o l o g i c a l a n d

economic upgradation of farm

operations.

Opportunities in the services

sector in rural India are crying

for attention. Hence, I shall

concentrate on giving a glimpse

of the untapped opportunities

awaiting our educated youth to

take to a career of remunerative

self-employment in villages. The

National Commission on Farmers

had recommended a reorientation

in the pedagogic methodologies

adopted in our Farm Universities,

in order to make every scholar an

entreprener. For example, the

course in Seed Technology should

be so restructured that it becomes,

Seed Technology and Business.

This will make it unnecessary for

the scholar to go to a Business

School after earning an agricultural

degree.

Some years ago, the Government

of India launched a programme for

enabling farm graduates to start agri-

clinics and agri-business centres.

This programme administrated by

NABARD, and MANAGE located

in Hyderabad is yet to attract the

interest of educated youth to the

degree originally expected. It is

hence time that the programme is

restructured based on the lessons

learnt. Ideally a group of 4 to 5 farm

graduates, who have specialied in

agriculture, animal husbandry,

sheries, agri-business and home

science could jointly launch an

agri-clinic cum agri-business centre

in every block in the country. Agri-

clinics will provide the services

needed during the production

phase of farming, while the agri-

business centre will cater to the

needs of farm families during the

post-harvest phase of agriculture.

Thus, farm women and men can be

assisted during the entire cropping

cycle, starting with sowing andextending upto value addition and

marketing. The multi-disciplinary

expertise available within the group

of young entrepreneurs will help

them to serve farm families in a

holistic manner. The Home Science

graduate can pay particular attention

to nutrition and food safety and

processing and help a group of farm

women to start a Food ProcessingPark. The group should also assist

farm families to achieve economy

and power of scale both during the

production and post-harvest phases

of farming.

Opportunities for such young

entrepreneurs for ini t ia t ing

programmes in the elds of soil

health enhancement, plant andanimal health care, seed technology

and hybrid seed production, are

several. Climate resilient agriculture

is another area needing attention.

In dry farming areas, methods of

rainwater harvesting and storage

and watershed management as well

as the improvement of soil physics,

chemistry and microbiology, need

to be spread widely. The cultivation

of Fertilier Trees which can enrich

soil fertility and help to improve

soil carbon sequestration and

storage, can be promoted under

the Green India Mission as well

as the Mahatma Gandhi National

Rural Employment Guarantee

programme. A few fertilier trees,

a Jal Knd (water harvesting pond)

and a Biogas plant in every farm

will help to improve enormously

the productivity and protability of

dryland farming. In addition, they

will contribute to climate change

mitigation.

The Yva Kisans or young

farmers can also help womensself-help groups to manufacture

and sell the biological software

essential for sustainable agriculture.

These will include biofertiliers,

biopesticides and vermiculture.

The Fisheries graduate can promote

both inland and marine aquaculture,

using low external input sustainable

aquaculture (LEISA) techniques.

Feed and seed are the important

requirements for successful

aquaculture and trained youth can

promote their production at the

local level. They can train rural

families in induced breeding of sh

and spread quality and food safety

literacy.

Similar opportunities exist in

the fields of animal husbandry.Improved technologies of small

scale poultry and dairy farming can

be introduced. Codexalimentarius

standards of food safety can

be popular ied in the ca se of

per ishabl e commodit ies . For

this purpose, the young farmers

should establish GyanChaupals

or Village Knowledge Centres.

Such Centres will be based on


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the integrated use of the internet,

FM Radio and mobile telephony.

For example, artisanal shermen

going out into the sea in small

boats can now be empowered with

information on wave heights at

different distances from the shore

line and also on the location of

sh shoals. Such techniques will

help to transform the lives of small

scale sher families.

In the services sector designed

to meet the demand driven needs

of farming families, an important

one is soil and water quality

testing. Young farmers can

organie mobile soil-cum-waterquality testing work and go from

village to village in the area of

their operation and issue Soil

Health and Water Quality Cards to

every family. Very effective and

reliable soil testing kits are now

available. This will help rural

families to utilie in an effective

manner the nutrient based subsidy

introduced by Government from

April 1 this year. Similarly young

educated youth could help rural

communities to organie gene-

seed-grain-water banks, thereby

linking conservation, cultivation,

consumption and commerce in

a mutually reinforcing manner.

It is only through the provision

of such services that we can

achieve the goal of improving

the economic well being of rural

families.

Young farmers can also operate

C l ima te R i sk Managemen t

Centres, which will help farmers

to maximie the benefits of a

good monsoon, and minimie the

adverse impact of unfavourable

weather. Educated youth can

help to introduce in rural India

the benefits of information,

space, nuclear, bio- and eco-

technologies. Ecotechnology

involves the blend of traditionalwisdom and frontier technology.

This is the pathway to sustainable

agriculture and food security, as

well as agrarian prosperity. If

educated youth choose to live

in villages and launch the new

agriculture movement, based

on the integrated application

of science and social wisdom,

our un tapped demographicdividend will become our greatest

strength. q

(E-mail:[email protected]/

[email protected])

NAIP HELPS FARMERS REALIzE THEIR DREAMS

Millions of oriculturists in Tamil Nadu are now increasingly looking at newer markets to export

their produce, thanks to the National Agricultural Innovation Project (NAIP)- a joint projectby Indian Council of Agriculture Research (ICAR) and World Bank. The $250-million project,

largely funded by the World Bank ($200 million) has managed to provide cost-effective innovative solutions

to farmers, especially in the areas of oriculture and health food (millet jowar and bajra) to help cater to

foreign markets.

The project, which took off in 2006, has applied for patents in 31 technologies-of which six patents

have already been granted. In three and half years, they have worked on enhancing value chain and

reducing post harvest losses. They are combining and validating present technology and have fast-tracked

upstream research works. The project will be taking technology relevant to districts or using area-specic

technology to provide innovative help to farmers.

Enhanced packaging technology for Jasmine ower growers from Tamil Nadu and usage of banana

bre for making fabrics are among the various highlights of the project. The new technology has enhanced

shelf life of owers and has successfully enabled growers in Tamil Nadu to export to Gulf, European and

American markets.

Fabrics from banana bre has created employment opportunities in Gujarat, Tamil Nadu and Andhra

Pradesh and several units are coming up in these states to make fabrics from Banana bre. Value-added

products such as multi roti grains and bajra lassi have been a huge success. The project is also working on

increasing income and nutritional supplements in tribal areas. The underutilied trees/fruits are exploilted

to add extra income to rural areas.


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YE-1/11/10


16/72


Broadly speaking,

conservation

agriculture

with stress on

environmentally

curative and

preservative

practices needs to

be given utmost

priority at this

point of time

Climate Change and Indian Agriculture

AgRiCulTuRE

HERE IS no doubt that

the earth is warming

up. Eleven of the

hottest years in the last

half century have been

recorded after 1990. This is certain

to impact the way our agriculture

is managed. It has been reported

that wheat yield declined by 5

percent when average temperature

during March increased by 1 C in

Punjab. At the same time the rice

yield increased to the tune of 12%.

In Rajasthan 2 degree celsius rise

in temperature is projected to

reduce the production of grains

by 15%. Studies conducted by

the ICAR project a loss of 4.5

billion tonnes of overall wheat

production with each degree rise

in temperature throughout the

growing period. Evidence also

shows that most of the warming

that is bringing about such changes

in agriculture can be attributable to

human activities. As per the report

of the Intergovernmental Panel on

Climate Change (IPCC) the net

The author is Union Minister of State for Agriculture, Food & Public Distribution & Consumer Affairs.

increase in temperature is likely to

be 5.8 degrees Celsius by AD 2100.

This is likely to impact a series of

inter-related environmental systems

like global hydro-eco-systems, sea

level, crop production and related

agricultural activities.

There is a general consensus

amongst researchers that greenhouse gas (GHG) induced warming

would have major impact on agro

eco systems. The gases that cause

green house effect include carbon

dioxide, methane, nitrous oxide,

ozone, and chloro uro carbons.

The atmospheric concentration of

these gases has been increasing at

alarming rates in the recent years,

causing an increase of about0.76 degree celsius in mean air

temperature over the last 100 years

. As per the fourth assessment

report of IPCC, these changes in

temperature will have a detrimental

impact on many physical and

biological systems. This IPCC

report and a few other studies

indicate the probabilities of 10 to 40

K V Thomas

CONCERNS

T


17/72


per cent loss in crop production in

India with increase in temperature

by the end of the century.

Agriculture, and the techniques

of cul t ivat ion employed in

a particular region also affect

the rate and outcome of climatechange. In fact, agriculture itself

is a major contributor to climate

change as it involves process

like deforestation, desertication,

higher use of fuels and fertiliers

which might contribute to increased

nitrogen concentrations in the

earths atmosphere.

Over the Indian sub-continent

the rise of temperature is likely

to range between 3.5 and 5.5

degree celsius by 2080, according

to studies. These projections show

more warming during the winter

season than during the summer

season. The distribution of surface

warming suggests a mean annual

rise in temperatures in north India

by 3 degree celsius or more by

2050. The study also suggests that

during winter the surface mean

temperature could rise by 3 degree

celsius in northern and central parts

while it would rise 2 degree celsius

by in southern parts by 2050. In

case of rainfall a marginal increase

of 7 to 10 percent in annual rainfall

is projected over the sub-continent

by the year 2080. However, thestudy suggests falling rainfall by

5 to 25 per cent in winter while it

would be 10 to 15 per cent increase

in the summer months monsoon

fall over the country. It was also

reported that the date of onset of

summer monsoon over India could

be more variable in future. The

projected changes in climate will

have both benecial and adverse

effect on the environmental and

socio economic system. The larger

changes will have the more adverse

effects.

This indicates that increase in

temperature is likely to be less in

Kharif than in the Rabi season andRabi rainfall is largely uncertain

whereas Kharif rainfall is likely

to increase by as much as 10%

favouring rice. Such global change

will affect agriculture through

its direct and indirect effect on

crop, livestock, pests, disease and

soil, thereby threatening the food

security of many countries. India

will have to intensify efforts toovercome this.

The higher temperatures in

north India will have a signicant

impact on the wheat field. The

higher temperatures will reduce the

full grain formation by inducing

early owering . A temperature

increase of 0.5 degree Celsius will

reduce wheat yields by about 10

per cent if rainfall does not increase

simultaneously. Overall a wheat

loss of 4 to 5 million tonnes for

every 1 degree rise and a loss of

wheat by 10 to 15 per cent for every

2 degree rise in temperature can be

expected.

The loss in net farm revenue

will range between 9 to 25 per

cent for a temperature rise of 2to 2.5 degree celsius. However,

increase in atmospheric carbon

dioxide is expected to have positive

physiological effects by increasing

the rate of photo synthesis. The

effects of increase in carbon dioxide

would be higher on C3 crops

like wheat because they are more

susceptible to carbon dioxide

shortages.

Mitigation and Resilience to

Climate Change

A series of measures have been

thought of for mitigating the

adverse impact of climate change

on Indian agriculture. One strategy

is to develop transgenic cropswhich are tolerant to changes

in temperature, carbon dioxide

and heat. The planting cycle,

spacing and the input management

have to now keep pace with the rapid

change in the climatic parameters.

Water needs to be conserved and

used sparingly.

A forestation has to become

an integral part of conservationagriculture and a lot more stress needs

to be put into this. For example rice

straw should compulsorily be used

to feed animals and the practice

of burning the rice straw should be

discontinued because of its adverse

impact on contributing carbon

dioxide to climate warming.

Conservative irrigation using

drip irrigation systems need to be

introduced in various agro climatic

regions of India with increase in

temperature due to climate change.

Protected agriculture using shaded

climate controlled houses are useful

for nursery production through the

reduced effect of global warming.

Rational use and conservation

of forests and land resources,

prevention of desertication etc.

would go further in reducing the

impact.

Broadly speaking, conservation

agr icu l tu re wi th s t ress on

environmentally curative and

preservative practices needs to be

given utmost priority at this point

of time. q

(E-mail:[email protected])


18/72


Indias vast small

farm sector can be

a strong feature of

the economy rather

than a drag on it

if such institutionsand practices

can be scaled up,

and become the

rule rather than

exception

Strengthening Small Farm Sector

AgRiCulTuRE

URING LAST fewdecades major changeshave taken place inthe agrarian structurein our country. Landholding structure in

India is sl iding downwards,wi th progress ive ly grea te r concentration in the marginal and

small holding groups. Not onlyis the number of such holdingsincreasing, the area cultivated inthese groups is also expanding.For the country as a whole,small (including marginal) farmsconstitute 83.5% of total holdings,with major concentration inUttar Pradesh, Bihar and AndhraPradesh. Share of land cultivatedunder these holdings in a number

of states is one third or more ofthe total cultivated area of therespective state, only exceptionsbeing Maharashtra (31.7%),Punjab, (29.9%), and Rajasthan(22.6%).

Most small farmers are belowthe poverty line and belong to thesocially disadvantaged groups.The opportunities thrown up by

The author is a member of the Economic Advisory Council to the Prime Minister.

the opening up of the economyand a rising middle class can,as of now be availed only bythose farmers who have accessto resources. In this context,neglect of small farmers mayresult in a divide within the ruralsector. 70.5% of small farm landis devoted to cereals, with someproduct ion of seasonal frui ts ,vegetables, dairy products. Smallfarms do not generate any surplus,the difference between income andconsumption for the small farmersis Rs. 655 per month.(Data from59th round NSS, 2003)

Available Options

Although a shift to the nonagricultural sectors like industryand services seems the straightest

solution, it would not really bepossible to accommodate such ahuge number of small farmers inthese capital intensive sectors in theforeseeable future. Our objectivetherefore, should be to make thesmall farms economically viable,surplus generating, enterprises.Following are some options aimedtowards this end:

V S Vyas

PERSPECTiVE

D


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a) Enlarging farm holding b)improving productivity of theexisting crops, c) introducinghigh value crops. Theseare not mutually exclusiveoptions, and are also verymuch feasible.

Enlarging farm holdings

Even a small addition to theland of the small holders canmake a significant difference,as reected in the difference inthe poverty ratio between themarginal(i.e., those operatingless than one hectare) and thesmall farmers (those cultivatingbetween one to two hectares).

There are three ways in which theholdings of the small farmers canbe expanded: by leasing-in land,acquiring surplus land throughLand Reforms, or by purchasingland in market.

LegitimizingTenancy

A large number of marginaland small farmers lease in landto expand their meagre holdings.

Most states hold tenancy asillegal; hence these transactionsare not recorded. NSS (2003) hasrecorded 7% of the operated areaas leased in area and 11.5% of ruralhouseholds as those who leasein land. Micro studies all over thecountry have shown that 15 to 35percent land is leased in. Amongthe tenants, large majority arethe marginal and small farmers.

Only in highly commercialisedareas phenomenon of reversetenancy exists. If tenancy can bemade legal, within the provisionsof ceiling, and registered, moreland, and on better terms, can bemade available to the marginaland small farmers.

LandReforms

Redistributive land reforms

was tried in the past. The legislation

involved declaring ceiling on landholding and distributing surplusland among landless, marginaland small farmers. This was abold in it iat ive, bu t proved tobe totally awed when it cameto implementation. There were

serious leakages at all stages; lessland was declared surplus thanwhat should have been declared,(land declared surplus was only1.86% of the cultivated area); lessland was taken possession of thanthe declared surplus; less landwas allocated to the beneciariesthan was acquired; and, less landwas actually given possessionthan what was allocated. Yet, as

several micro level studies haveshown, wherever redistributiveland reform was implementedproperly it benetted those whogot land. As the Committee onState Agrarian Relations and theUnnished Tasks in Land Reformshas stated, substantial area of landcan be acquired for redistribution,even if the existing laws onceiling are properly implemented.Though it must be admitted thatin the given circumstances it isproving to be an idea whose dayshave gone

Operationoflandmarkets

Resor t ing to marke t l edoperations to enlarge holdings isnot taken seriously in our country.This needs to be revisited. Banknance to individuals to purchase

land is of course miniscule, butwhere ever the state has takeninterest, it has acquired largechunks of land for example, forestablishing SEzs. What is lessknown is the acquisition of landfor establishing homestead.

NABARD has a scheme torefinance amount advanced bybanks for land purchase, whichwas started during the quarter

January-March 2002. Hardly

any state has taken advantageof the scheme. Only Haryanashowed some interest, with lessthan 8000 persons availing ofthe scheme in the last 5 years. Inno other state even 1000 personshave availed of the scheme

during this period.The r ea sons fo r v i r t ua l

failure of the scheme includethe fact that : (i) informationis not disseminated by banks,or by the state governmentsin the State Level BankersCommittee(SLBC), (b) landrecords have not been updated,hence banks find it difficultto advance loan, (c) there is

wide gap between District LandCeiling Rates (DLC) and themarket rates. As the banks tend tofinance at the DLC rates, small/marginal farmers are not in aposition to fil l the resource gap,(d) generally,the owners do notsell irrigated land, and there islittle interest in purchasing smallfragmented pieces of dry land (e)large farmers are not interested

in selling land as the land valuesare increasing rapidly.

All these hurdles can beremoved and an active land marketcan be brought to existence withsmall farmers benefitting fromit. But it will need active supportof the state governments and thebanks.

A t l e a s t t h r e e s t a t e s ,

Karnataka, Andhra and WestBengal have acquired largeareas of land for constructionof homes for the homeless. Theprocedures evolved, especiallyin case of Karnataka, are afair blend of market forces,s ta te in i t i a t ive , and ac t ivepart icipation of panchayats. Itshould be possible to enlargethis program to get land for

marginal farmers.


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Improving prodctivity in

existing enterprises

There was a good deal ofr e sea rch i n t he 1960s and1970s on the sie productivityrelationship in agricultural sector.The overwhelming evidence

suggested that the relationship isadverse and the small farms weremore productive. The explanationgiven was that small farmersuse their own resources moreintensively resulting in higherproductivity. This conc lusionwas challenged in recent years aspurchased inputs claimed largershare in the input structure and thesmall farmers were constrained as

far as own cash resources or creditwas concerned. But more recentevidence at the all India level hassuggested that per hectare valueof output on the small farms iseven today higher than that onthe medium and large farms. Itwas Rs.14,754 on the marginalfarm and Rs. 13,001 on the smallfarms, as against Rs.12,335 asaverage for all farms. However,

because of the small area thisincome is not adequate anddisadvantages of the small sieare not compensated by higherper hectare output.

It should be rememberedthat most of the south easternand eastern countries includingChina have smaller holdingsthan ours, yet mainly because of

higher productivity farmers areable to earn much larger income.There is large scope to improveproductivity and earn higherincome from the traditional cropson the smallholdings.Yields ofthese crops (i.e. rice, wheat,millets etc.,) in our country aremuch lower than those obtained inother major producing countries.They are lower than the yields

obtained by the progressive

farmers in the same regions inthe country. The prospect for aremarkable increase in yield onall types of holdings is illustratedby the growth in area, and incomefrom two dynamic crops, i.e.,Bt cotton and maie. The main

factors determining the growth ofthese crops are: (a) sie neutral,high yie lding var ie t ies , (b)economy in input use, (c) betterquality, (d) active participationof the private sector in inputsuppl ies , pr incipal ly seeds,and (d) growing market.Suchprospects exist in other majorcrops also, (e.g. hybrid rice).There are farming techniques for

the traditional crops, which canreduce costs and increase yield.System of Rice Intensification(SRI) is an example of suchimproved techniques.

Shift to high vale crops

Another option for the smallfarmers is to shift from low valuesubsistence crops to high valuecrops in view of (a) increasing

demand due to income growthand urbaniation (b) higher andregular income flow, and (c)labour intensive production.

As it is, the small farmersdevote some land and resourcesto high value crops to generatecash income. The share of thehigh value crops, such as spices,fruits and vegetables is slowly

increasing. Yet, small farmersnd it difcult to make a major

shift from grain based croppingpattern to high value crops due toover arching requirement for self-provisioning. Even if it is assumedthat farmers with increasedincome can purchase grain fromthe market, there are three majorhurdles in shifting to high valuecrops - high capital requirement,

difculties in marketing, and high

risks entailed in raising high valuecrops.

Credit

There has been phenomenalgrowth in credit to agriculturefrom the organied sector in

the recent years. Yet the creditavailable to the small farmersis not increasing. Difculties inavailing credit are more severefor tenant farmers and thosesmall farmers who are not ableto offer collaterals. They have todepend on the informal sourcesto obtain credit on onerous terms.Innovat ions favoring smal lborrowers such as Self Help

Groups have largely bypassed thesmall farmers, as the main thrustis on consumption loans, or loansto small artisans. Disintegrationof cooperative credit system hasfurther worsened their plight.

Marketing

Because of the small lot forsale, lack of holding capacityand immediate need for cash,

small farmers are always at adisadvantage in dealing withmiddlemen. The handicaps getaggravated in case of perishableslike vegetable and fruits. Forproviding appropriate marketingfacilities, along with transferof super ior technology andassured supply of inputs, contractfarming is advocated. Contractfarming is not a new innovation

in Indian agriculture; it wasintroduced decades back by sugarfactories both in the private andcooperative sectors and later bymilk unions. These arrangementswere successful to the extentfarmers had decisive voices inthese institutions.

RiskMitigation

Propagation of high value

agriculture in Indian agricultural


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sett ing is predicated on the

access to reliable instruments

of crop and income insurance.

Existing instruments such as

agricultural crop insurance to

mitigate weather induced risks,

and minimum support prices to

ensure minimum prices for thestaple crops, are not functioning

properly. Defects in these devises

are now well known and need

to be corrected so that small

farmers may take advantages

of these protective measures.

In the present circumstances

the better alternative will be to

propagate mixed farming with

emphasis on self-provisioning,

and commercial crops , or agriculture related enterprises

such as dairying, playing a

supplementary role. This is the

model which bulk of the farmers

in risk prone areas are adopting

on their own. Small farmers

on the fringe of towns should

be supported to develop farm

horticulture in more efficient

ways. As a rule, for this highlyvulnerable group the strategy for

diversification should be guided

by the norm of from familiar to

less familiar.

Improvements in Del ivery

Systems

T h e r e a r e t e c h n o l o g i e s

available to raise productivity of

the existing crops as well as to

expand the share of high valuecrops. Policy environment at

the macro level is by and large

favourable. The major difculty

is the inefciencies in the delivery

systems.

Whatever strategy is adopted,

the success hinges on the efciency

of the delivery systems. The

small farm groups are potentially

viable in most of the ecological

regions in our country provided

institutional support is provided to

them in terms of extension, credit,

marketing and risk mitigation. An

important ingredient of agricultural

strategy should be to strengthen

institutional structure to support

the small farm agriculture.

We have an extensive network

of institutions, but they are of

little avail to the small farmers.

Reforming delivery systems in

order to make them congruent to

small farm agriculture is extremely

important. State policies in this

as in other respects should be

consciously designed to support

the small farm sector.

Policies for strengthening

delivery system have to grapple

wi th twin rea l i t i es : h igher

transaction costs to deal with

the small farmers, and growing

sophis t icat ion in market ing

and processing of agricultural

produce.

This suggests a multi pronged

strategy:

a) Aggregation of farmers needs

for inputs and sale of their

produce.

b) In present circumstances

homogeneous groups of

agricultural producers, with

joint liability and catering to

multiple needs of farming can

provide effective foundation

for an efcient and equitable

agrarian structure. Producers

Company model has much to

commend in this respect

c) Integrating various functions

such as input supply, extension

and quality control, and more

importantly, the marketing

and processing with larger

organiations in a vertical

manner is another possible

route. We have now sufcient

experience of working withdifferent models of verticallinkages, and should be ableto adapt them to the givencircumstances.

Adapting the large deliveryinst i tut ions in credi t , inputsupply etc., to the reality ofthe small-scale agriculture byreducing transaction costs. Thiscan be done as illustrated in thecredit delivery by organiationalinnovations such as BusinessCorrespondent model, and by useof IT and other technologies aspracticed by several private sector

rms dealing in the agriculturalinput supply or marketing ofagricultural produce.

For risk mitigation, there isa need for strengthening andimproving existing crop insurancesystem, populariing warehousingreceipts as negotiable instrument,aggregating farmers to operate inthe future markets, and encouragingvalue chain financing by thenancial institutions.

We have successful exampleso f i n n o v a t i o n s s u p p o r t e dby r esea rch and ex tens ione s t a b l i s h m e n t s , f a r m e r sorganiations safeguarding andfurthering members interests,innovative credit supply andmarketing institutions, innovativer i sk-shar ing a r rangements ,

successful interface with spot andforward markets by the farmersgroups. But such examples arefew and far between. Indias vastsmall farm sector can be a strongfeature of the economy rather thana drag on it if such institutionsand practices can be scaled up,and become the rule rather thanexception. q

(E-mail:[email protected])


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Reforming the three

I s namely

investments,

institutions, and

incentives - will

be critical forbringing in

and scaling up

innovations in the

agricultural sector

Three Ideas to get Agriculture Going

AgRiCulTuRE

NDIAN PLANNERS

and policy makers do

realie how critically

important it is to have

more than 4% growth in

agriculture to give any meaning

to inclusive growth. It is also

recognied that major investments

would be needed, both by public and

private sectors, to achieve this end.Keeping this in mind, much larger

budgetary resource allocations

have been made in agriculture by

the public sector, especially since

2003/04, which is reflected in a

steep increase in gross capital

formation in agriculture (GCFA) on

public account. The private sector

capital formation in agriculture,

which is almost three times higher

than that coming from the publicsector, had started increasing since

1999/2000 (Figure-1). As a result,

by late 2000s the total GCFA

was two to three times higher

than what it was in mid 1990s at

constant prices (Figure-1). Even as

percentage of agri-GDP, the GCFA

has more than doubled during the

The authors are respectively Director in Asia and a Senior Research Analyst at International Food Policy Research

Institute, New Delhi.

last decade (Figure-1). Yet, the agri-

GDP growth has not accelerated

substantially (Table-1). If at all, the

actual growth rate (average annual

or trend growth) since 2000/01 to

2009/10 is somewhat lower than

that obtained during 1992/93 to

1999/2000, or during the pre-

reform era of 1980/81 to 1991/92

(Table-1).

Th i s t ype o f somewha t

unexpected result, i.e., rising

investments and capital formation

in agriculture and yet falling or

constant rates of growth in agri-

GDP is puling. It can happen

only if one assumes that the overall

efciency (productivity) of capital

is falling substantially or that

capital formation gures are moreon paper and very less is translating

in real capital on the ground (read as

large leakages, especially in public

capital formation), or that it has

long lags between capital formation

(like dams, reservoirs, canals etc.)

shown in terms of money spent and

when it starts giving real returns, or

Ashok Gulati

Kavery Ganguly

OPiNiON

I


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that the challenges to agriculture

in terms of climate change, falling

water table, or land degradation

(losing top soils etc) have increasedso substantially that even enhanced

investments in agriculture are not

enough to take it beyond the 3%

growth barrier, or it could be a mix

of all these factors combined. More

research is needed to decipher this

riddle properly.

In the meantime, however,

it may be noted that unlike the

overall economic growth pattern,agricultural performance in

India has been quite volatile.

The coefcient of variation (CV)

during 2000/01 to 2009/10 was 1.9

compared to 1.1 during 1992/93

to 1999/2000. This is almost six

times more than the CV observed in

overall GDP growth of the country

(Table-1), indicating that high andperhaps increasing volatility is a

real challenge in agriculture, whichis likely to increase in the yearsto come in the wake of climatechange. If that is so, which isstill a conjectural hypothesis, thenhaving near ero percent growthin agriculture GDP in 2009/10 inthe wake of worst drought since1972/73, should be considered acommendable achievement of theserising investments. It means thatin order to do a proper analysis ofinvestments and growth; one hasto take out the inuence of weather

rst. We dont intend to do this

at this stage but ag this issue for

researchers and policy makers who

are concerned with low growth in

agriculture.

Another feature of Indian

agriculture growth story is that

it has performed in highly varied

form at state and sub-sectoral level.

Although highly volatile in certain

states, Gujarats agri-GDP has

registered a growth rate of 10.2%,

Bihar at 4.2%, Uttar Pradesh at2.2% and West Bengal at 2.4%

during 2000/01 to 2008/09. From

a sectoral perspective, the high

value sector (fruits and vegetables,

livestock and fishery) has been

growing at a much faster rate

than the traditional crops sector

and there is potential for further

expansion. Given the rising share

of high value commodities inthe total value of agricultural

output (48.4% in TE2008/09);

this segment is likely to drive

agricultural growth in the years

to come. Being highly perishable

in nature, this segment is also

crying for faster and better linkages

between farms and firms in the

logistics, processing and organied

retailing. While the agri-system is

under a structural transformation,there is need for better policy

communication and reforms to

hasten the speed of agricultural

diversication in India.

Instittional reforms for better

farm-rm linkages

Reforming institutions related

to plethora of controls in the agri-

system has the potential to unleasha major change for the better. It

will involve doing away with

the compulsory levy system in

commodities like rice (upto 75%

in states like Punjab, Haryana,

etc) and sugar; movement, oning,

and stocking restrictions under the

Essential Commodities Act, and

replacing the system of taxation of

primary agricultural commodities

with value added taxation. It

Figure-1: Gross capital formation in agriculture (GCFA)

on public and private account

Source:BasedatafromNationalAccountsStatistics,CSO,GovernmentofIndia

Table 1: Agricltral and Total GDP performance in India

Agricltral GDP Total GDP

% annual average growth rate & (CV)

1980/81 to 1991/92 3.8 (1.5) 5.2 (0.5)

1992/93 to 1999/00 3.8 (1.1) 6.3 (0.2)

2000/01 to 2009/10 2.4 (1.9) 7.2 (0.3)

trend growth rate (%)

1980/81 to 1991/92 3.0 5.1

1992/93 to 1999/00 3.2 6.3

2000/01 to 2009/10 2.9 7.6

Source:NationalAccountsStatistics,CSO,GovernmentofIndia,variousyears.

Note:CVdenotescoefcientofvariation


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is important to create a unified

agricultural market and thereby

creating a level playing eld for

the public and private sectors. The

Agricultural Produce Marketing

Committee Act has been under

discussion for a long time. The

Centre had also advised the states toamend this on the lines of a Model

Act in 2003 to promote private

sector participation and encourage

direct rm-farm linkages through

contract farming arrangements,

etc. While many states claim to

have amended the Act, they have

done so only partially. The ground

reality appears quite different, and

there is an urgent need to examine

and evaluate this thoroughly. The

objective should be to incentivie

and mobilie large investments

in the emerging value chains of

perishable commodities to bring

about reduction in wastages and

add value in the supply chains.

Compressing the value chains by

strengthening direct firm-farm

linkages has particular relevance

in bringing the small and marginalfarmers closer to the markets and

this is important in achieving the

inclusive growth objective.

The issue of futures markets,

warehouse receipt system, use

of information technology to

empower the growers to benefit

from emerging markets, and even

encourage the growers companies

to link with bigger processing andretailing rms remain very much

stuck in controversy. But all these

will have to be taken up in holistic

package of reforms, if we have to

get the markets right.

It is also time to free up the

land-lease markets. Vibrant land-

lease market can also attract large

investments, especially by the

private sector. This can also pave

the way towards market induced

consolidation of holdings and

benet from economies of scale.

But to do it in a manner that the

owners of land feel safe in leasing

out their lands to other farmers

or even companies, land records

need to be computeried to ensuretransparency and reliability.

Currently, ofcial statistics reveal

that only about 7% of land is

leased-out while micro-studies in

several states indicate informal

tenancy exists on about 20% of

land. Under informal tenancy

arrangements, credit remains

restricted and high cost, starving

the land from investments that

can make it more productive.Reforms in the land lease markets

are also important to overcome the

challenge of fragmenting farms and

consolidating industry. About 88%

of holdings being less than two

hectares (operating about 44% of

area), it is challenging to aggregate

and standardie their produce

for any large scale processing or

retailing company in emergingvalue chains. Freeing up land

lease markets can go a long way in

addressing this challenge.

Agricultural credit market

requires major overhauling and

loan waivers can do the least

to bring about any sustainable

solutions. Nearly 42.4% of all

farmer households and nearly 50%

of farmer households possessing

up to 2 hectares of land avail loan

from non-institutional sources at

high rates of interest (Report of

the expert group on agricultural

indebtedness, Ministry of Finance,

Government of India. 2007) Banks

have failed to meet the targeted

18% (agricultural credit as percent

of total commercial bank lending

to agriculture) which comes under

the priority sector lending. Micro-

nance institutions have lately come

under heavy attack due to their

extremely high rates of interest,

somewhat akin to money lenders.

Regulating the formal sector and

rendering it more accessible to

farmers can help them avoid relying

on informal sources.

Incentives: Rationaliing

sbsidies to boost efficiency

in resorce se, and propel

investments: Rationaliing input

and output subsidies can unleash

the potential for greater efciency

in resource use and also trigger

investments in agriculture. Food,

fertilier, power and irrigation

subsides together account for15.1% of agricultural GDP in

TE 2009/10 up from 7.8% of the

same in TE 1995/96. It is time to

rationalie these subsidies that

have outlived their significance

in the present form. Irrigation

subsidies need to be rationalied and

promote efcient use of resources

through water users association

or integrated water management

systems. Rather than providingfree power, separating feeder lines

for agricultural uses as observed

in the Jyotigram experiment in

Gujarat will be more economically

rational (Shah & Verma 2008).

To the extent possible, subsidies

on fertiliers, power, seeds,

agricultural machinery, etc. should

be given directly to the farmers,

especially the smallholders and

in disadvantageous areas. This

would go a long way in augmenting

farmers incomes and also

incentivie them to use the resources

more efciently. Investments in

rural infrastructure; roads, markets,

cold chains, processing units as also

agricultural R&D will be important

to realie higher agricultural growth.

The marginal returns on public

investments in roads, agri-R&D,


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etc are much higher than those on

fertilier subsidy or free power

(Fan, Gulati, & Thorat 2008). Some

of these investments which are of

public good in nature will have

to be taken by the public sector

such as roads, markets and other

infrastructure. Those pertaining tovalue chains, technology, etc will

ow from the private sector.

Reforming the three I s

namely investments, institutions,

and incentives - will be critical

for bringing in and scaling up

innovations in the agricultural

sector. Technology has played

an important role in improving

productivity and also achieving

major breakthrough in the past as

observed during Green Revolution

in 1960s-1970s, Bt revolution in

cotton or hybrid maie in 2000s and

it can be further replicated in other

sectors. Similar technological

or marketing innovations in

horticulture or livestock sector

can benefit a large number of

smallholders already engaged inthese sectors. Innovations along the

value chains, in linking farmers to

markets, enhancing value addition

are critical for higher growth as

also income augmentation of

smallholders. There are a large

number of private players who have

already forayed into the organied

processing, retailing and also agri-

input/service sectors, and have the

potential to scale up investments.However institutional hurdles in

doing business and also the stop-

go policy approach continue to

dampen the momentum.

It is quite evident that Indian

agriculture will be more demand

driven and future sources of growth

increasingly lie in the high value

sector. Hence it will be importantto usher in the right reforms and

envisage synergies between the

public and private sector to ensure

higher and sustainable growth

in the long run. The onus of

delivering certainly does not lie

with the public sector alone but

creating an enabling environment

will help foster better partnerships

critical for higher agricultural gro

wth. q

(E-mail:[email protected]

[email protected])

YE-1/11/2


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OST 1990 India has

emerged as one of

the worlds fastest

growing economies.

Its GDP growth rate

of about 9% in the last few years

is historically unparalleled except

by our neighbour China. With

rapid economic and social growth,however, new challenges emerge

as also new growth strategies. For

sustainable economic development,

the crucial agricultural sector has

to grow at a consistent 4% growth

rate to GDP. Given the fact that

60% of our farming is monsoon

dependent, ensuring consistent

growth in food production is

a major challenge, especially in

wake of global warming and

consequent climatic changes.

Credit has a very important role

to play in supporting agricultural

p roduc t ion and inves tment

activities. The total credit ow to

agriculture during the 10th Five

Financing Agriculture : Some Issues

AgRiCulTuRE

K G Karmakar

OVERViEW

Small and marginal

farmers should be

helped to liberate

themselves from

the stranglehold

of moneylenders

and should be

given priority for

accessing low

cost credit

Year Plan was expected to grow

at a compound annual growth rate

(CAGR) of 26.38%, as against the

CAGR of 18.63% achieved during

the 9th Five Year Plan. However,

although the total agricultural

credit has increased during the

last six years, there are serious

quantitative as well as qualitativeconcerns. The poor outreach of the

formal institutional credit structure

is a serious issue that needs to

be corrected expeditiously. The

ndings of the National Sample

Survey Organisation (NSSO)

59th Round (2003), reveal that

only 27% of the total number of

cultivator households received

credi t f rom formal sources

while 22% received credit from

informal sources. The remaining

households, comprising mainly

small and marginal farmers, had no

credit outstanding. Comprehensive

measures aimed at financial

inclusion in terms of innovative

P

The author is Managing Director, National Bank for Agriculture and Rural Development (NABARD)


27/72


products and services to increase

access to nancial services and

institutional credit, are required.

Other issues such as ensuring

credit ow to tenant farmers, oral

lessees and women cultivators,

complex documentation processes,high transaction costs, lack of

availability of quality inputs

across all regions, inadequate

and ineffective risk mitigation

arrangements, poor extension

services, weak marketing links

and sectoral and regional issues

in credit are also required to be

addressed expeditiously. The

lack of rural credit bureaus also

delays the process of sanction

of agricultural loans as there

is need to reduce loan risk and

documentation procedures.

Agricltre Sector Constraints

The importance of agriculture

in the Indian economy, in terms of

providing livelihood opportunitiesto 650 million of its population and

raw material for a large number of

its industries, cannot be overstated.

For the Indian economy to

maintain its growth momentum on

a sustainable basis, the agriculture

sector would have to play a more

important role than it has in recent

years. The actual growth in the

agriculture sector during the rst

four years of the 10th Five Year

Plan has averaged only about

2% per annum as against 4% per

annum as envisaged during the Plan

period (2002-07). While the share

of agriculture GDP in the overall

GDP has declined from around

35% in 1980-81 to around 18% at

present, the fall in the proportion

of population dependent on the

sector has been insignicant from

70% to 66% only. The rapidly

worsening ratio between the rural

per capita income from farm and

non-farm sectors is causing serious

concern. While a majority of theworkforce is still dependent on

agriculture, the GDP growth rates

in agriculture is marginally above

the rate of growth of population,

in contrast to the high growth

in the non-agricultural sector.

Secondly, growth has been uneven

across regions and crops. Thus,

despite achieving self-sufciency

Documents

Agriculture and Sustainable Dev