Indian Agriculture: More from Less

Agriculture is one of the sectors where India is facing the exit problem. India agriculture has become a victim of its own success. Indian agriculture has become cereal-centric and as a result, regionally-biased and input-intensive, consuming generous amounts of land, water, and fertiliser. Encouraging other crops, notably pulses (via a Rainbow Revolution to follow the Green and White Revolutions) will be necessary to match supply with evolving dietary patterns that favour greater proteins consumption. At the same time, rapid industrialization and climate change will require economizing on land and water, respectively – getting “more from less” of these inputs.

The land challenge

There is a sharp decline in cultivable land per person in India – much sharper than in other countries. Over the next twenty years, India’s fast population growth will make the cross-country comparison even less favourable for India.

Productivity issues in agriculture

The central challenge of Indian agriculture is low productivity, evident in modest average yields, especially in pulses. The two main food grains – wheat and rice – in India are grown on the most fertile and irrigated areas in the country. And they use a large part of the resources that the government channels to agriculture, whether water, fertiliser, power, credit or procurement under the MSP program. Even then, average yields of wheat and rice in India are much below that of China’s – 46 per cent below in the case of rice and 39 per cent in the case of wheat.

In case of wheat, India’s average yield in 2013 of 3075 kg/ha is lower than the world average of 3257 kg/ha. Although both Punjab and Haryana have much higher yields of 4500 kg/ha, most other Indian states have yields lower than that of Bangladesh.

In case of paddy production, all Indian states have yields below that of China and most states have yields below that of Bangladesh. India’s best state, Punjab, has paddy yield close to 6000 kg/ha whereas China’s yield is 6709 kg/ha.

In case of pulses, India has low yields comparable to most countries. Some states do much better than the all-India average, but even the key pulse producing state of Madhya Pradesh has yields (938 kg/ha) barely three-fifths that of China’s (1550 kg/ha).Given that India is the major producer and consumer of pulses, imports cannot be the main source for meeting domestic demand. Therefore, policy must incentivise movement of resources towards production of pulses.

Meeting the high and growing demand for pulses in the country will require large increases in pulses production on irrigated land, but this will not occur if agriculture policies continue to focus largely on cereals and sugarcane.

The water challenge

India has much lower levels of water per capita than Brazil, one of the world’s leading agricultural countries. Although water is one of India’s most scarce natural resources, India uses 2 to 4 times more water to produce a unit of major food crop than does China and Brazil. Since independence, India focussed on canal irrigation and tube wells. In both cases the water has been deployed via “flood” irrigation, which is an extremely inefficient use of water.

Irrigation investments must shift to adopting technologies like sprinkler and drip irrigation and rainwater harvesting (leveraging labour available under the MGNREGS where possible). In order to facilitate this shift, the new irrigation technologies need to be accorded “infrastructure lending” status (currently accorded to canal irrigation) and both the centre and states need to increase public spending for micro irrigation.

The consolidation of ongoing irrigation schemes – the Accelerated Irrigation Benefit Programme (AIBP), Integrated Watershed Management Programme (IWMP) and On Farm Water Management (OFWM) – into the Prime Minister’s Krishi Sinchayi Yojana (PMKSY) offers the possibility of convergence of investments in irrigation, from water source to distribution and end-use.

India should also shift away from exports of water-intensive rice, cotton, sugar and soybean.

Micro irrigation

An efficient drip irrigation system reduces consumption of fertiliser (through fertigation8) and water lost to evaporation, and higher yields than traditional flood irrigation. The key bottlenecks in the adoption of this technology are the high initial cost of purchase and the skill required for maintenance. However, the increase in yields and reduction in costs of power and fertiliser use can help farmers recover the fixed cost quickly. Provisions for credit to farmers can incentivise greater adoption of this technology.

Minimum Support Price and Procurement Policy

While in principle MSP exists for most farmers for most crops (23 crops), its realistic impact is quite limited for most farmers in the country. Public procurement at MSP has disproportionately focused on wheat, rice and sugarcane and perhaps even at the expense of other crops such as pulses and oilseeds. This has resulted in buffer stocks of paddy and wheat to be above the required norms, but also caused frequent price spikes in pulses and edible oils, despite substantial imports of these commodities.

The absence of MSP procurement for most crops in most states implies either that farmers are selling their products to private intermediaries above the MSP or below the MSP. One way of rationalizing MSP policy is to make these price signals reflect social rather than just private returns of production. For example, the social returns to pulse production is higher than the private returns, because it not only uses less water and fertiliser but fixes atmospheric nitrogen naturally and helps keep the soil porous and well aerated because of its deep and extensive root systems. These positive social benefits should be incorporated into MSP estimates.

“Price Deficiency Payment” system

Farmers could also be assured a floor price for their crops through a “Price Deficiency Payment”. Under this system if the price in an Agriculture Produce Market Committee (APMC) mandi fell below the MSP then the farmer would be entitled to a maximum of, say, 50 per cent of the difference between the MSP and the market price. This subsidy could be paid to the farmer via Direct Benefits Transfer (DBT). Such a system would keep the quantum of the subsidy bill in check and also be consistent with India’s obligations to the WTO.

Agricultural research and education

Addressing India’s multiple challenges in agriculture will require significant upgradation of country’s national agriculture research and extension systems. In more recent years, however, agriculture research has been plagued by severe under investment and neglect. There are three major weaknesses.

• In states where agriculture is relatively more important, agriculture education is especially weak if measured by the number of students enrolled in agricultural universities. This is especially true in states in the Northern (except Punjab and Haryana) and Eastern regions. The agriculture universities have been plagued by: resource crunch, difficulty in attracting talented faculty, limited linkages and collaborations with international counterparts, weakening of the lab-to-land connect; and lack of innovation.
• Investment in public agricultural research in India needs to be augmented. Given the large externalities, the centre needs to play a more important role. There is a strong need to take steps to enhance research productivity among the scientists in public agriculture research institutes by instituting performance indicators.

Market Segmentation

Market segmentation reduces overall welfare because it prevents gains through competition, efficient resource allocation, specialization in subsectors and fewer intermediaries. The causes of market segmentation are many – differences in remoteness and connectivity (rural roads), local market power of intermediaries, degree of private sector competition, propensity of regional exposure to shocks, local storage capacity, mandi infrastructure and farmers access to them, storage life of the crop and crop specific processing cost. Market segmentation results in large differences in producer and consumer prices. Thus, greater market integration is essential for farmers to get higher farm gate prices.

While the GST bill is a step in the right direction, a lot more needs to be done by the states, including, creating better physical infrastructure, improved price dissemination campaigns, and removing laws that force farmers to sell to local monopolies, etc.