Experience shows that agriculture benefits far more from overall macro-economic reforms
As the world gears up to face the challenges of the new millenium, India's growing population threatens to break all records and touch the one-billion mark. At this juncture one worrying question before us is whether we will be able to feed our masses. The answer lies in maintaining the Gross Domestic Product ( gdp ) from agriculture at a minimum growth rate of 4-5 per cent per annum which will sustain an overall gdp growth of 7-8 per cent per annum over the next decade and beyond. This growth rate is necessary to meet the demand from the growing population and rise in per capita income, to step up exports of agricultural commodities and for alleviating poverty.
Although population growth and increase in per capita income will raise the demand for foodgrains, experience has shown that a number of factors operate as a consequence of socio-economic development, urbanisation and modernisation which dampen the demand for foodgrains. Apart from the decline in population growth, there is a change in the tastes and preferences away from foodgrains to non-foodgrains like dairy products, vegetables and fruits. Further, because of restrictions on trade in India at present, the prices of staple cereals like wheat and rice are substantially lower -- between 20 per cent to 40 per cent -- as compared to world prices. Increasing urbanisation and opening up of trade would raise the price of foodgrains resulting in lower demand, even though the poor need to be protected from such a rise in the cost of food. Besides mechanisation of agriculture and increasing use of electricity for pumping water reduce the need for human and animal energy for such operations resulting in reduced intake of foodgrains and forage on this account.
India has the potential for achieving this rate of agricultural growth in a sustainable manner without causing undue pressure on its natural resources. Although the scope for increasing area under cultivation is limited, there is ample potential for raising productivity per unit of land by augmenting surface and groundwater resources and through the widespread use of yield-increasing and input-saving technologies.
The recently revamped programme for watershed development towards soil and moisture conservation in dryland or rainfed areas seems to be making a favorable impact owing to its participatory character. As a consequence of these developments, the annual rate of deforestation has declined from 1.3 million hectares in the 1970s to 0.55 million hectares in the 1980s and further to 0.13 million hectares in the 1990s.
To set agriculture on the path of sustainable development effective strategies are needed for stepping up public and private investment in infrastructure development like irrigation, rural electrification, rural roads, warehousing and agroprocessing. Secondly, agricultural research and extension need to be considerably strengthened, especially in newly-emerging areas like biotechnologies, for evolving environment-friendly practices that save on inputs like water and chemicals and raise the productivity of inputs used. Agricultural research requires to be specially focused on the need of dry land agriculture, so that private investment on soil and moisture conservation becomes profitable. Thirdly, the strategy for poverty alleviation and human development through more employment opportunities, provision of primary education and health services has to be revamped for achieving effective food security and relieving pressure on common property resources.
These tasks would require reforms at three levels. Firstly, at the national level, macro-economic reforms underway need to be extended to agriculture by opening up trade and by removing restrictions like those on domestic trade and agro-processing. By improving terms of trade for agriculture and by opening up new opportunities for production and trade, these reforms will provide incentives for greater private investment in augmenting agricultural infrastructure. They will also provide incentives for making agriculture more competitive.
The experience with liberalisation shows that agriculture benefits by way of improved terms of trade far more from the overall macro-economic reforms such as doing away with protection to industry and the correction of overvalued exchange rate than from the reforms directly bearing on agriculture. The macro-economic reforms undertaken so far in India are yet to bear fruit in terms of improved trade for agriculture, not to speak of the fact that these reforms are yet to run their full course. As it is, the improved terms of trade explain only a small part of the observed rise in private investment in agriculture, which is explained basically by the publicly provided infrastructure like power. It is clear, therefore, that strengthening of publicly provided infrastructure in the medium term hold the key to full benefits from the macroeconomic reforms.
This brings us to the second set of reforms at the state level, where there needs to be a thorough restructuring of institutions for the management of infrastructure like irrigation, rural electricity, research and extension and rural credit. Basically, these reforms need to be directed towards depoliticising and debureaucratising the management by involving the farmers, so that a link can be established between the efficiency of the services delivered and charges to be collected for the services rendered. This would help to improve the efficiency of services as well as to expand such services.
For the sustainable development of agriculture, an increase in total factor productivity through the use of environment-friendly technologies has to become a predominant source of agricultural growth. Such a strategy alone can reduce pressure on natural resources and can minimise pollution from the excessive use of chemical inputs. The level of research expenditure in India at present is suboptimal or significantly lower than desired in Bihar, Madhya Pradesh, Orissa, Uttar Pradesh and West Bengal, where productivity is low and poverty is widespread. The research expenditures are also not in tune with the diversification of agriculture and are not quite environment friendly in that livestock, horticulture, agroforestry and dryland areas receive suboptimal expenditures.
The performance of watershed development programmes in rainfed areas shows that to sustain interest and participation of farmers in soil and moisture conservation, it would be necessary to improve economic returns on the investments made in the conservation of resources. This can be done by introducing new yield-increasing technologies and new horticultural products which have a favourable demand and are also environment-friendly. Indeed, since irrigated areas have so far received greater attention for research and extension, the rainfed or unfavourable areas are now showing higher marginal returns than irrigated areas from government investments in technologies and infrastructure. The poverty-reducing effects of such investments are also larger in unfavourable areas. Greater attention to unfavourable areas requires that high priority is accorded to biotechnologies so as to withstand biotic and abiotic stresses; to research specific to individual agroclimatic regions; and to ensure greater interaction with farmers through effective extension services in difficult areas.
Institutional credit for agriculture has to expand at a faster rate than before because of the need to step up agricultural growth and to make it more diversified. New technology in a globalised environment leads to high-input, high-risk farming, so that small farmers can adopt improved resource-saving practices only if credit is available in time on reasonable terms. Only about 20 per cent of their credit needs are met now by the formal sources, the rest being from the informal sources at very high interest rates. It may be necessary to subsidise part of the high transaction costs incurred by the banks in serving a large number of small borrowers. The utilisation of credit and repayment could be improved through group-lending with the participation of ngo s, thrift societies and women.
The above reforms of institutions for the creation and delivery of infrastructure can yield the desired results only if farmers' awareness and participation is enhanced at the grassroots level. For this, local self-governance systems, like Panchayati Raj, need to be strengthened by delegating to them functions for socio-economic development of respective areas; devolving necessary financial resources and entrusting them with power over the administration. Such a decentralisation would contribute to proper designing and effective implementation of poverty alleviation programmes including human development; and towards targeting food and other subsidies to the poor. This targeting of subsidies is essential for sustaining macro-economic reforms like opening up agricultural trade, as they may lead to the rise in prices of food in the short-run.
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