Agriculture and Economic Revival

GS 3- ECONOMY: Role of Agriculture in Indian Economy

Introduction

        Agriculture plays a vital role in the Indian economy. Over 70 per cent of the rural households depend on agriculture and provides employment to over 60% of the population.

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GDP Growth in Agriculture Sector:

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Advantages in India:

  • Robust Demand:Large population and rising income increases demand.
  • Attractive Oppurtunities:Demand for agriculture inputs and allied sectors.(ware housing,cold storages etc)
  • Policy Support:
    • Doubling farmer’s income by 2022
    • Agriculture Export Policy set a target-over $60 billion by 2022
  • Competitive Advantage
    • High proportion of agriculture land
    • Diverse agro climatic conditions

Challenges:

  • Unemployment:(among agricultural workers 9.5% in 1994 to 15.3% in 2005)
  • Subsidies to farmers:Areas receiving highest subsidies regularly underperform those with lower subsidies)
  • Farm Size:average 1.16 hectares/2.87 acres is half what it was in 40 years ago.
  • Unsustainable Practices:Depleting Country’s aquifers.(35% efficiency in surface irrigation and 65% efficiency when pumping ground water.)
  • India uses 13% of world’s extracted water(87% used for irrigation.
  • 60% of agriculture land is at risk.
    • Fertiliser misuse
    • Poor cropping practises
    • Soil nutrient deficiencies
  • Declining rainfall during monsoon.(prime growing season for agriculture)

Current Scenario:

Major CropsMarket Arrival
Paddy, Lentil, Tomato, Banana75% or more
Wheat, Barley, Potato, CauliFlower, Cabbage, Lady’s fingerBetween 50% and 75%
Gram, Pigeon pea, Onion, Peas and MangoLess than 50%
  • Procurement:Only 13.5%(paddy) and 16.2%(wheat) farmers sell their harvest to a procurement agency at an assured Minimum Support Price (MSP).(others at an lower price)
  • Higher Kharif sowing
  • Because of Lockdown
    • loss of markets
    • the disruption in supply chains
    • closure of mandis
    • a fall in consumer food demand
    • losses in the milk, meat and poultry sectors(rs 25000 crore)
  • Inflation in prices
    • disruptions in supply chains
    • rise in trader margins
    • not accurately representative of prices for farmers
  • Small and marginal farmers who are net buyers of food had to face the brunt of higher food prices.
  • Many rural households may have returned to intensified farming for food,income-security.(Data as per Centre for Monitoring Indian Economy (CMIE)-Farmers in 
    • June 2019-11.2 crore
    • June 2020-3 crore

Problems with Government package:

  • Even if agriculture grows by 4%-contribute only 0.6 percentage points to GVA growth.(To contribute a full one% point to GVA growth, agriculture have to grow-6%)
  • spending for agriculture is less than ₹5,000 crore.
  • schemes are already included in the budget and some are routed through banks.
  • No change in PM Kisan outlay was done.

Additional points:

  • Inflation and prices:
    • Higher rural inflation
    • Reduced food purchases in rural
  • consumer price indices are not representative of farmer’s prices.
  • The claims that higher rural inflation benefited farmers: it was due to higher food demand, are misplaced.
  • Indicators of distress, not prosperity:rural unemployment rates rose sharply in 2020-(22.8% (April), 21.1% (May) and 19.5% (June).
  • Iin August 2020, rural unemployment rates were higher than in February 2020 or August 2019.

Way Forward

  • Government should have set all MSPs at 150% of the C2 cost(comprehensive cost) of production.
  • Instead of a moratorium,should have waived the interest on loans.
  • A package of direct assistance for the crisis-ridden poultry and meat sectors(at least rs 20000 crores.)
  • Instead of loan-based schemes to support private investment in dairy.(direct financial assistance to small milk producers)
  • Instalments of PM-KISAN:the government should have doubled the payments to farmers from ₹6,000 a year to ₹12,000 a year.

Conclusion

  • Agriculture has benefited from improved farming techniques but the growth is not equitable.The number of essential commodities should be reduced to absolute minimum especially the non food crops.
  • This is not to deny a potential rise in demand from higher rabi procurement, higher kharif sowing and flow of cheap credit, which together appear to have resulted in higher purchase of tractors and fertilizers.
  • The government should discard its role as a passive observer and decisively intervene in rural India with a substantial fiscal stimulus. The earlier the better as delays would only compound mistakes.

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