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Agriculture: The lifeline solicits focus - Views on News from Equitymaster
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  • Sep 1, 2001

    Agriculture: The lifeline solicits focus

    “In regard to the importance of agriculture in a broader socio-economic sense, all the three basic objectives of economic development of the country, namely, output growth, price stability and poverty alleviation are best served by the growth of the agricultural sector. It may sound ironic that agriculture is one sector where there is convergence of all the three main objectives of economic policy in India but we seem to have relegated the sector to the background in the process of economic reforms…” – Dr. Y. V. Reddy, Deputy Governor, RBI.

    The role of agriculture in the Indian economy cannot be understated. Though agriculture contributes to just 25% of the Gross Domestic Product (GDP), almost 73% of the Indian population relies on agriculture for their livelihood. There is a famous Gandhian say “Wealth and prosperity of India lies in towns and villages of the country…” Here in this article, we attempt to unravel the structure of the Indian agriculture sector and the problems that hinder growth of the sector.

    Consider the current state of the Indian agricultural industry. It is a well-known fact that a significant portion of the Indian population is dependent on agriculture-derived income. But how significant is that? As per the 1991 census survey, 74.3% (629 m) of population lived in rural India and this has come down from as high as 82.7% (299 m) in 1950-51. Out of this, almost 50% in 1991 i.e. 314 m (140 m in 1950-51) are basically cultivators, agriculture workers and others. Since a substantial portion of the rural population do not own land, a good harvest is very critical for their earnings. This is also dependent on monsoons. Moreover, the holding pattern of farms clearly indicates the actual problem in the agricultural sector.

    Worker population - A big chunk…
    (m) Cultivators Agri Labourers Others Total
    1951 69.9 27.3 42.8 140
    % of total 49.9% 19.5% 30.6% 100.0%
    1961 99.6 31.5 57.6 188.7
    % of total 52.8% 16.7% 30.5% 100.0%
    1971 78.2 47.5 54.7 180.4
    % of total 43.4% 26.3% 30.3% 100.0%
    1981 92.5 55.5 96.6 244.6
    % of total 37.8% 22.7% 39.5% 100.0%
    1991 110.7 74.6 128.8 314.1
    % of total 35.2% 23.8% 41.0% 100.0%

    22% of the agriculturalist in the semi-medium, medium and the large farmers category account for almost 67% of the total area under cultivation. And 51% of the sub-marginal and small farmers account for just around 9% of the total area operated, which puts forth the fragmented holding patterns. The average size of holdings in the marginal and small category is 0.39 and 1.43 hectares respectively as compared to the overall average of 1.55 hectares. Whatever the small farmers produce, substantial portion is self-consumed and the ’excesses’, if any, are sold in the markets. To add to their woes, the markets are also unregulated and as a result they do not have always get a fair price. Most of the time, since they owe a significant sum to the landowner, the landowner buys the output at a far cheaper price.

    Fragmented holding pattern…
    (% of all holdings) FY91 % of land
    Avg size
    Marginal (< than 1 hectares) 59.3% 15.0% 0.39
    Small ( 1-2 hectares) 18.7% 17.4% 1.43
    Semi-medium (2-4 hectares) 13.3% 23.2% 2.76
    Medium (4-10 hectares) 7.1% 27.0% 5.9
    Large (> 10 hectares) 1.6% 17.3% 17.33
    All holdings 100.0% 100.0% 1.57

    And since there are fragmented holding patterns, machanisation in the 31% of the total area is close to impossible and that reflects in the penetration levels of tractors in India. As of 2001, we had close to 2.4 m tractors and we are ranked below USA, Japan and Italy. This despite the fact that India ranks first in terms of irrigated area of 57 m hectares and first in terms of arable land. Though India is ranked as one of the largest markets in terms of number of tractors sold per annum, we are way below the number of tractors used per hectare. The density of tractors is 10 per thousand hectares as compared with the world average 50-60 per thousand hectares.

    Mechanisation is a far cry…
    (m hectares) FY95 FY96 FY97 FY98 FY99 FY00
    Area under foodgrains 123.9 121.0 123.6 124.1 125.4 126.2
    Fertiliser/hectare 72.1 74.4 75.5 85.4 88.5 95.3
    Tractors (m) 1.7 2.1 2.2 2.2 2.3 2.3
    Pumpsets (m) 10.7 11.1 11.6 12.0 12.5 13.0

    However, the penetration levels of tractors have increased in the 1990s (the average tractor industry growth has ranged between 8.5%-10.2%). This along with increase in fertilizer consumption has improved yields, albeit marginally. Average yield per hectare of food grains has gone up from 1,380 kilograms (Kgs) per hectare in FY90 to 1,620 Kgs per hectare in FY99. But at the same time, the area under cultivation has also come down from 128 m hectares in FY90 to 125 m hectares in FY99. Though one can easily say that the fall in agricultural output is because of unfavorable monsoons, the rural populations lacks adequate irrigational facilities to conserve water to withstand such unforeseen circumstances.

    One of the key reasons why Indian agricultural sector has not been growing is the lack of government spending, both structural as well as social. In all the five-year plans, the government has hardly spent the budgeted outlay for the purpose of agriculture, irrigation and flood control. The government ‘managed’ to spend 37% of the budgeted outlay for agriculture in the first five-year plan and this has remained the upper slab till now. In all the successive five-year plans (seven of them), the actual spending has ranged between 20%-23%.

    Unmet targets…
    (%) Actual/
    First plan 37.0%
    Second plan 20.9%
    Third plan 20.5%
    Fourth plan 23.3%
    Fifth plan 22.1%
    Sixth plan 23.9%
    Seventh plan 22.0%
    Eight plan 22.2%
    The reason why the government has not been able to step up investments is because of significant subsidies. On one hand, investments are falling and on the other, subsidies are rising. Subsidies benefit neither the farmer nor the society (although it is meant to) but it deteriorates the finances of the government. To put things in perspective, a significant portion of fertilizer subsidy is incurred towards repaying the manufacturers than the end-user, for which it is aimed at.

    If this is the case, how can one expect the rural population to get better roads, organised markets to sell his produce and better education? Though all the government recognizes the importance of boosting agriculture, none of them have been able to implement it due to various ‘other reasons’.

    Here are a few measures that could go a long way in providing the necessary impetus for growth of the sector.

    • The investment spending by the government has been languishing at 20% of the budgeted allocation. The government needs to step up investments. Investment could cover various aspects like setting up mandis, cold storages and warehouses. For a country, which is heavily reliant on monsoons for agricultural production, investment in improving irrigational facilities are also the need of the hour. Subsidies also have to be streamlined and need to be oriented towards more productive purposes.

    • Consolidation of land holdings also needs to be addressed. This could improve productivity and yields, as mechanisation is feasible only in the case of larger farms.

      Credit concentration – Need to improve…
      (% of total credit) FY95 FY96 FY97 FY98 FY99
      Less than Rs 25,000 51.8% 49.3% 46.8% 46.0% 38.2%
      Less than Rs 0.2 m 25.7% 25.3% 25.6% 26.7% 29.7%
      Total 77.5% 74.7% 72.5% 72.7% 67.9%

    • The government should also increase the scope of corporate participation in agriculture. Already, companies like Hindustan Lever have created a mark in Punjab by helping farmers in increasing wheat productivity. Similar exercises at a larger scale could bring enormous benefits to the agriculture sector.

    Indeed, in the last decade, some structural developments, has taken place. One is the sharp improvement in literacy rate. If the rural population understands that credit is available through co-operatives and mechanisation actually results in better yield, the governments’ target of 310 MT agricultural output could become a reality.

    Despite being one of the largest agricultural producers in the world, the per capita food grain consumption is hovering around 500 grams a day. Surprisingly, there has been little improvement in this figure since independence. Its time agriculture is given due attention.

    “It is true that genetic yields or maximum attainable yields have hit a kind of barrier off late. While scientific research must continue to increase the maximum attainable yield, we need to bridge, as a first step, the considerable gap that still exists between attainable yields and actual productivity levels in the field. This sector need to grow at a faster rate than in the past to allow for higher per capita consumption…” – C. Rangarajan, Former Governor, RBI



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