Agricultural reforms: About time

For a country that has about two thirds of its population depending on the primary sector for employment, a strong growth in the sector could multiply into a robust growth in the economy. Let us a look a few reason why the sector has been posting dismal growth figures.

One of the major problems that the economy faces is the instability in output of the agricultural sector. This is due to the fact that irrigation facilities are to a large extent primitive in nature. Consequently, the cultivators have to wait for the monsoon God to smile. For a country, that is striving to be the face of technology, this is certainly not something to be proud of. According to the Statistical Outline of India (Tata Services) only 31.7% of the total land under irrigation is irrigated by canals. The most predominant method is the use of wells & tube wells that support about 56% of the land under irrigation.

The other very pressing problem with the agricultural sector is low productivity, especially in the food crop. The table below shows the country's yields are appalling when compared to the largest producer and the best producer globally. This is due to the factors like use of conventional methods and lack of knowledge of modern methods amongst the agricultural community. Also, over crowding has led to division of land and farmers are left with very small pieces. India has about 100 m cultivators with an average land holding of 1.5 hectares.

There is a need to improve price flexibility, movement of farm products and the development of a marketing infrastructure, which is nationally integrated. For this the private sector has to step in. There in lies a very big opportunity for the Indian economy. Once the private sector participation begins, many of the problem the sector faces are likely to be solved. The private sector will bring with it modern methods of farming, which will help improve the yield significantly. The need is to move to a market mechanism and at the same time protect the interest of the cultivators. The solution therefore, lies somewhere between the right price and non-price mix.

The lack of a marketing infrastructure is hurting the interests of the cultivators as the prices of agricultural commodities are stagnating. This is because the main buyers are the FCI (Food Corporation of India) and STCs (State Trading Corporations), which with full granaries are likely to lift less of the produce. Thus, even a good monsoon does not does not help.

The direct institutional finance to the sector has also been slowing down, according to the RBI's annual report. The average growth in loans outstanding decelerated to 13.6% between 1990 to 1999 as compared to 14.1% growth recorded for the corresponding period in the 1980s. The worst hit is the marginal farmer who saw the credit growing by 12%, which RBI describes at the slowest pace.

The government needs to act urgently. Boosting the private industrial and services sector alone is not going to boost demand for agricultural goods. It works the other way round. We talk so much about US$ 50 bn in software exports in the 2008, what about agricultural exports? That too could be the engine of growth.