Agriculture: Under-invested and over-subsidised?

The Crisis in Indian Agriculture

The ‘self-sufficiency` in foodgrain is illusory... 260 million people live below the poverty line in India. The per capita availability of foodgrain per day tells the story of deprivation. Most subsidies go to industry or to large farmers. The intended beneficiary - the small and marginal farmer - gets little benefit

Kiran Karnik Delhi

Agriculture has sometimes been referred to as the sick child of the Indian economy, holding back the country's growth. At other times, it has been hailed as a great success, having the capability to not only feed the country, but to also export grain. It is true that we did move from a precarious "ship to lip" existence (a reference to the dependence on imported foodgrain arriving by ships) in the 1960s to a time of overflowing granaries; yet, it is also a fact that growth in agricultural output has been very low - barely keeping up with the growing population.

Agriculture now accounts for less than a fifth of our GDP (as compared to over 55 per cent in 1950). However, with about 60 per cent of the population depending on agriculture for their livelihood, the vital importance of this sector is obvious. Any assault on large-scale poverty - and, of course, overall economic growth - requires focused attention on agriculture. Apart from the economic and food security dimensions, agriculture in India has a strong political aspect, given that 60 per cent of the voters are linked directly to it. Little wonder, then, that it gets much attention - even if a large part of this is mere lip-service. There is also a perception that a huge proportion of government funding goes into this sector and that much of it is wasteful. In this context, this recent study throws much-needed light and provides interesting insights into this sector.

Mohan Guruswamy and his co-authors, Uma Natarajan and Shagun Khare, look into the crisis now facing Indian agriculture, with particular emphasis on analysing the pattern of government spending in this area. A key highlight of the study is the issue of investment versus subsidy, and the related issue about who are the beneficiaries of the subsidies. All evidence points to the fact that these subsidies have, as this study bears out, "mostly benefited the relatively well-off farmers and have left the vast majority with little or nothing". Fertilisers provide a good example of misguided subsidies. First, the subsidy primarily benefits states and districts that are relatively well-off, since availability of water is a requirement for use of fertilisers. Second, it encourages over-use, resulting in long-term soil degradation and water pollution; this is made worse by subsidies that lead to a skew in usage between nitrogenous, potassium and phosphatic fertilisers. Third, as much as a third of the subsidy goes to the fertiliser industry, and not to farmers. Worse, the methodology involved encourages "gold-plating" of capital costs by industry, leading to unfairly large subsidies (these have increased from Rs 4,389 crore to Rs 16,254 crore in the last 15 years).

The power subsidy, the study points out, is even larger: Rs 30,462 crore in 2001-02. Since electricity is either free or based on a flat charge, it is used wastefully. Big farmers are obviously the prime beneficiaries. It also leads to excessive water pumping and a rapid depletion in ground water, with an adverse impact on small farmers who have shallow - or no - wells. Besides, the irrigation subsidy, the study notes, does benefit small farmers. However, with two thirds of cropped land being rain-fed, this subsidy too benefits the better off areas. Finally, as for food subsidy (Rs 26,200 crore in 2005-06) - a large part of this (about a third) is for storage.