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.

Clearly, most of these subsidies go to industry or to large farmers. The intended beneficiary - the small and marginal farmer - gets little benefit, if any at all. Nor do these subsidies work in ways which really enhance the productivity or efficiency of the agricultural sector. Investments in key areas that would have helped agriculture are relatively decreasing. In 2005-06, whereas the total of main subsidies to agriculture amounted to Rs 73,076 crore, the capital expenditure was Rs 68,410 crore. This distorted use of funds, evident for some years now, has been a primary reason for the present crisis.

The study points to the adverse impact of insufficient investment in the agricultural sector: the annual growth rate in food grain production dropped from 3.13 per cent in the decade of the 1980s to 1.10 per cent in the 1990s and even lower, to 0.97 per cent, from 2000 to 2004. In this context, the aim of a 4 per cent growth in agriculture is a massive challenge. Yet, not only is this necessary for an overall GDP growth of 9 to 10 per cent, it is essential for food security.

The present "self-sufficiency" in foodgrain is illusory, and is based on 260 million people below the poverty line, who can afford little food. The per capita availability of foodgrain per day tells the story of deprivation. From 468 grammes per day of cereal in 1991, the figure was down - despite the great "India shining" story - to an estimated 407 grammes in 2003. In the case of pulses, the figures are 41.6 and 29.1 grammes.

Countering these negative tendencies is going to require a reversal of the neglect of investments in agriculture. The share of agriculture and irrigation in total outlay has come down drastically from 31 per cent in the Fourth Plan to a mere 10.6 per cent in the Tenth Plan. Even as we work towards moving more people out of agriculture and into alternative employment, we need to make very substantial investments   as distinct from subsidies - in this sector.

It is not, however, a matter of investment alone: we also need a new and bold policy framework. The Guruswamy study has some concrete and specific suggestions in this regard. The most radical is the combining of the responsibilities, now fragmented into various ministries, into a single one. He also suggests that it be headed by a person designated as deputy prime minister.

Other suggestions include cutting down "misdirected and inequitable subsidies"; massive investment in agricultural infrastructure, including irrigation; storage facilities, cold chains and rural roads; improving and metering power supply; gradual withdrawal of agricultural subsidy; preventing fragmentation and encouraging consolidation of land holdings by providing credit; tax-free status for food processing and storage industry; and more focus on agricultural R&D.

This study brings together a wealth of data from multiple sources and juxtaposes it, with some analysis, in a way that provides many interesting insights. The study and its recommendations merit wide dissemination, intense debate and - hopefully - quick action.

The writer is honorary chairperson, National Foundation for India.