Neglect of agriculture has been chronic in Indian government policy-making since the Eighties. Crop production is still highly dependent on the rains. While ground water and its overuse helped (especially with foodgrains) production for a few years, its effect is wearing off and production is not growing.
Agricultural production has grown by much less than the overall gross domestic product (usually around half the rate) since 1985. In 2004-05, the growth was 1 per cent versus 6.9 per cent for GDP. Foodgrains production growth has been erratic, being 210 million tons in 1999-2000, and the years thereafter being 197, 213, 174, 212 and 206 tons respectively. Oilseeds production has grown in the last two years — 2003 to 2005 — as has cotton. Sugarcane has been declining, especially in the last two years. Tea production has not grown in the last two years. Coffee has shown a reasonable growth trend. So has rubber production. Between 1992 and 2002, horticultural crops (fruits, vegetables, spices, coconut, cashew, areca nut and so on) grew by over 50 per cent (people suspect this number) and then remained static. Coconut has shown the highest increases. India is today the largest producer of milk in the world. Production has risen every year. It was 17.8 million tons in 1950-51 and 91 million tons in 2004-05. Marine fish production has also risen every year.
Thus, crops in horticulture, plantations, milk, fish and some commercial crops account for a major part of the increase in agricultural production. Foodgrains, the largest in agricultural production, have done poorly. The farmer had already diversified from foodgrains into other agricultural activities. Crop area for foodgrains has plateaued, with little additional land (except by further denuding the declining forest cover) available for cultivation. More and more land has been diverted to non-agricultural activities — industry, special economic zones, urban housing and so on. For increased foodgrains production, this diversion must be controlled. Productivity increase is vital, for which more investment is necessary.
Investment (gross capital formation) in agriculture increased from Rs 14,836 crores in 1990-91, and to Rs 20,510 crores in 2003-04. However, as a proportion to GDP, investment in agriculture declined from 1.92 per cent to 1.31 per cent. Investment has stagnated for over two decades.
The decline is mostly in public capital formation, not private. In 1990-91, public (government) capital formation was 29.6 per cent, while private was 70.4 per cent. In 2003-04, it was 25.6 per cent and 74.4 per cent respectively. This trend was there also in the Eighties and Nineties. Government investment has consistently neglected agriculture. Physical inputs for agriculture — for example, in the use of high-yielding variety of seeds, irrigated area, electricity availability in villages and the low road density — have stagnated or grown by little. Private investment expenditure on agriculture by households is chiefly on agricultural implements, machinery, transport equipment and others, while smaller proportions are spent on wells and other irrigation sources, followed by land reclamation, bunding and other land improvements. The other areas for household investment are on orchards and plantations, farmhouses, barns, animal sheds and other capital expenditures. The nature of crops benefited by public investment is also different. Private investment is not made by the small farmer. It cannot substitute for public investment. Much of the Nineties saw a continuing improvement in the terms of trade in favour of agriculture, and private investment went up.
When there is public investment in agriculture, it mostly benefits crop agriculture. Its decline has been on major and minor irrigation projects. These have a long gestation period — five to nine or more years — and the poor investment recorded for the last decade means that little benefits from new projects can be expected for agriculture in the coming years. The rise in private investment has meant rise in minor irrigation, pump sets and agricultural machinery. These are of no benefit to millions of small farmers, and works sometimes to their disadvantage. Public investment must be in massive micro irrigation.
Studies have shown that there is a strong possibility in canal-irrigated areas for private investment to rise as the stock of public investment in irrigation goes up. With public investment in decline, even private investment may not rise as before.
In the Seventies and Eighties, agricultural growth was stimulated by diffusion of high-yielding technologies across all crops, heavy public spending on rural infrastructure by the government (in roads, markets, canal irrigation, power supplies), support services (extension, input supplies and credit facilities), rising minimum support and procurement prices, and incentives like subsidies on water, power, fertilizers, and support prices that in the second half of the Nineties had little relation to costs. These factors are especially relevant for foodgrains and were responsible for the rapid growth in their production in these decades.
Since the Nineties, the drivers for agricultural growth have changed. They are now demand- and market-driven. Incentives are market-oriented because of the relative fall in prices of manufactured goods to agricultural products. Water is still the key to increase in productivity and production.
Some irritants and obvious distortions were removed — abolition of zonal restrictions on movement of agricultural commodities; private agencies given more scope in distribution of inputs, agricultural extension and provision of some services; removing controls on some commodities like non-nitrogenous fertilizers; some liberalization of imports and exports of agricultural commodities.
Small land holdings have not constrained agricultural production growth as supposed. However, a floor on splitting land holdings is required. Incentives for group farming might be considered to enlarge holdings.
High value agriculture (fruits and vegetables or specialized crops) is on small and medium farms and can use contract farming for larger holdings. Sugarcane in Maharashtra is grown in smallholdings with processing being done in large and efficient factories. Economies of scale are in processing, not production. Agricultural wastelands used for agricultural purposes are a corporate opportunity. There is also a case for liberalizing tenancy provisions to allow leasing out of land.
Procurement prices and support prices, buffer stocks acting as cushion and the public distribution system for the poor are key elements of the agricultural price policy. Support prices became identical to procurement prices, leading to excess procurement and now to inadequate procurement. It has also led to reduced price support to the poor because of mounting subsidy costs owing to rising support prices, and diversion of resources from research, extension and infrastructure to pay for high support prices.
The quality of public spending needs re-examination. Better targeting must reduce subsidies on irrigation, power and fertilizers. Research and development must improve. Rural infrastructure (road, power, markets, rural towns), regulation of ground water use, rational user charges for water, animal health, watershed, land reclamation, and other support services for productive assets need money and organization. Water regulation and more innovative and better-planned irrigation investments are necessary. A fast track process to evaluate the introduction of genetically modified seeds is vital.