The Indian agricultural sector was adequately focused in the first Five Year Plan and its performance was impressive. But the second Five Year Plan emphasised industrial development under the stewardship of P C Mahalanobis. The plan emphasised establishment of heavy industries and decided to take foreign technological and financial aid. The target was to make the Indian economy industrially self-sufficient. The same focus continued in the third Plan and thereafter.
The agricultural model that India followed at that time was different from the situation now. The government expenditure in the sector was considerable. The agricultural sector in India is mainly a state subject. But the central government had a big role to play in those days.
During the tenure of Indira Gandhi, the agricultural sector got much needed stability. In that period, subsidised fertilisers and pesticides and other subsidised inputs like irrigation and seeds were offered to aid the growth of this sector. On the demand side, the government itself purchased big amounts of agricultural outputs like paddy, wheat and many other cereals like pulses and oil seeds at Minimum Support Prices (MSP). Other important agricultural products such as sugar and jute were also procured by the government at MSP rates. The government used a portion of this agro produce in the Public Distribution System (PDS) and the remaining portion was stored as buffer stock for food security. Therefore, the supply of and demand for agricultural products were matched in the Indian economy. This system continued till the implementation of the New Economic Policy (NEP) in 1991-92.
Agriculture under NEP
After 1991, India entered an open economic system. Government intervention and participation began to decline. The agriculture sector was not spared either. Subsidy in fertilizers and many other inputs was gradually withdrawn. Imports and exports of many agro products were allowed and the government contracted the extent of the PDS. Resultantly, governmental purchase of agro products also declined substantially.
The main problem has been the fall of public expenditure in real terms in agriculture. The entire agricultural sector became vulnerable. Farmers’ suicide has been a longstanding issue in India. Recent data (Business Line, January 8, 2019) reveal that across various Indian states, 16,324 farm labourers and 20,008 farmers have ended their lives in three years (2014-16). This is a gruesome reflection of the Indian agrarian crisis.
Agricultural productivity has not declined. Rather, total agrarian production has increased. There have been cases of over production as well. But the man days in agriculture have begun to fall and the rural population has begun to engage themselves more in non-farm activities.
Addressing the stressed agricultural sector
Slowdown of consumption is one of the most important indicators in the present Indian economy. The estimated 6.5% growth in private consumption in the Q2 of the present fiscal is known to be the lowest in the last consecutive five quarters. There are many reasons for this. The lack of job opportunities, low growth of rural wage rates, poor performance of agriculture, pricing of agro products are some of the important factors for this slowdown in consumption spending. Overproduction of agro products has also been detrimental for a section of the farming community. The recent sharp fall in prices of onions and potatoes, oil seeds and some other crops are indicative of this problem. The immediate need is to build infrastructure for enhanced marketing of agricultural products. At the same time, suitable storage facility, broad based crop insurance programmes and provision for MSPs are also needed.
PM’s plan to double farmers’ income in five years
The government of India is trying to revive agriculture. Prime Minister Narendra Modi has adopted a plan for doubling farmers’ income in five years. As a part of it, distribution of soil health cards to about 10 crore farmers, enhancement of crop insurance schemes, completion of 99 projects under PMKSY by 2019, encouragement of FDI in food processing, supplying inputs to marketing of outputs are some of the programmes that have been undertaken. Some agricultural economists including Ashok Gulati and Siraj Hussain have pointed out that the Modi government’s three policies aimed at productivity gain, reduction of cultivation cost and better remunerative prices are welcome.
But one wonders about the government’s declared goal of doubling farmers’ income in five years. Agricultural economists have pointed out that the investment required in development of agriculture, irrigation, rural roads, and rural energy to attain 10.41% annual growth of real income to achieve DFI by 2022-23 is huge and is around three times the present governmental allocation. An estimated Rs. 6,40,000 crore at 2011-12 prices (without logistics or cold chain expenditure) is roughly the investment that is required. To achieve this, there is need for a 22% rise in the annual growth of financial investment in this sector in real terms.
Gulati and Hussain have cited the Chinese experience. China lowered poverty by 50% in six years (1978-84) under its DFI policy. That was possible due to an ensured higher pricing system (with much higher MSPs) of a variety of agro-products. But India took as many as 18 years (1993-2011) to achieve a similar target.
Development of rural sector as a whole is a great challenge
The agricultural sector is only a part of the rural economy. Some observers think that the Indian government should emphasise more the living condition in rural areas. It has been increasingly difficult to live quality lives in rural areas. It is because more emphasis is being given to developing the urban sector.
A study pointed out that in 2004-05 and 2011-12, India experienced for the first time, a reduction in the agricultural labour force. The rate of decline had been 2.04% per year. In spite of that, agriculture still employs around 64% of the total workforce but produced only 39% of the total rural output in 2012-13 (Chand, Srivastava and Singh (CSS), EPW, December 30, 2017). CSS have estimated that to bring convergence between the share of agriculture in total output and employment, 84 million agricultural workers are required to be shifted to non-farm sectors requiring about 70% increase in non-farm employment. CSS has mentioned that per worker average productivity was only Rs. 30,912 in the farm sector whereas it had been Rs. 1,19,512 in the non-farm sector.
Rural manufacturing and employment generation
In the rural manufacturing sector, employment generation has increased substantially. CSS observed that between 1972-73 and 2003-04, the manufacturing sector added 10.29 million jobs, that is, 29% incremental non-farm jobs. But during the next decade, job creation growth in that sector came down to only 1%.
The fall in growth of job creation in the rural non-farm sectors was mainly due to change in technology. During that period, the rural industry also became more and more capital intensive. Again, within the manufacturing sector, most of the sub sectors witnessed either stagnation or fall in employment generation between 2003-04 and 2011-2012. What is the reason behind this? CSS observed that lack of technical skill and education among the labour force was responsible factor. Therefore, improvement in rural infrastructure alone is insufficient. That must be accompanied by human resource development.