Vijay Kumar Gaba: agri reforms

Tuesday, September 29, 2020

Farm Sector Reforms - 5

Continuing from last week (See Farm Sector Reforms – 4)

While announcing the famous Rs20trn economic stimulus package in May 2020, the finance minister had made the following 10 key promises for the farm sector in India. It was categorically stated that the governments sees farm sector as a key driver of overall economic growth and also a powerful engine to drive the “self-reliance” agenda.

1. Essential Commodities Act to be amended to enable better price realization for farmers by attracting investments and making agriculture sector competitive.

2. A central law to be enacted to provide for inter-state trade and framework for e trading of agriculture produce.

3. The government to facilitate appropriate legal framework for an enforceable standard mechanism for predictable prices of crops at the time of sowing.

4. Financing facility of Rs.1Lakh Cr to be provided for funding Agriculture Infrastructure Projects at farm gate & aggregation points (Primary Agricultural Cooperative Societies, Farmers Producer Organizations, entrepreneurs, Start ups, etc.)

5. Rs 10,000 Cr. scheme to be launched for Formalization of Micro Food Enterprise (MFE) through Cluster based approach (e g Mango in UP, Kesar in J&K, Bamboo shoots in North East, Chilli in Andhra Pradesh, Tapioca in Tamil Nadu etc

6. Rs20,000 cr support to be provided under the Pradhan Mantri Matsya Sampada Yojana (PMMSY) for integrated sustainable, inclusive development of marine and inland fisheries. Rs11,000 cr to be provided for activities in Marine, Inland fisheries and Aquaculture and Rs9,000 cr for infrastructure including Fishing Harbours Cold chain, Markets etc. Provisions of ban period support to fishermen (during the period fishing is not permitted) and personal & boat insurance.

7. Rs 13343cr to be provided for starting National Animal Disease Control Programme for foot and mouth disease and brucellosis.

8. Animal Husbandry Infrastructure Development Fund to be launched with total outlay of Rs15,000 cr.

9. Rs4,000 cr support for promotion of herbal cultivation covering 10lakh hectare. Rs500 cr scheme infrastructure development related to integrated beekeeping development centres, collection, marketing and storage centres, post harvest & value addition facilities etc.

10. Operation Green proposed to be extended from tomatoes, onion and potatoes (TOP) to all fruits and vegetables, i.e., (TOTAL).

In pursuance of these promises, the government passed three enabling legislations in the parliament.

I have said it earlier also, and I have no hesitation in reiterating that the measures already taken and the those proposed to be taken are very important and desirable. To the question “"whether these measures sufficient or we would need much more to attain the twin objectives of self-reliant India and sustainably higher economic growth?", my answer is that these measure could deliver the desirable outcome only if these are implemented with the many more structural reforms in the farm sector.

The farming sector in India is characterized by (a) small holdings; (b) low productivity and (c) landless farmers.

1. During FY11 and FY17, the total operated farm area has decreased from 160million hectare to 157.872million hectare; number of holdings have increased from 138.35 million to 146.45 million and the average holding size has decreased from 1.15 hectare to 1.08 hectare. For the context, the average farm size was 2.4hectare in 1971.

2. The marginal and small holdings (0 to 2 hectare) account for 86% of total holdings, covering about 47% of the operated area. Medium (2 to 10 hectare) holdings are 13.3% covering 44% of the operated area. Large holdings (above 10 hectare) are merely 0.57% covering 9% of the operated area.

The more important and worrying statistics however is that there are over 100mn Marginal Farmers, with average holding of 0.38 hectare (0.9 acre) accounting for almost 68% of the total farmers. These farmers mostly do sustenance farming, and under no circumstances can earn decent two square meals from farming activity alone. 100mn farm holdings means about 400mn population, assuming an average family of 4. Marginal farmers with average land holding of 1.4 hectare are another 18% or 25mn.

About 47% of the total operated area is covered by these small and marginal farmers. The uneconomical size of holdings, which are getting further divided with the death of each farmer, ensures low productivity, poor financial conditions, no investment capacity and perennial debt in many cases.

3. There is huge variation in land holding pattern amongst states. For example, AP and TN have largest proportion of landless farmers (more than 50%): Bihar and West Bengal have largest number of marginal farmers (close to 60%), where Rajasthan has the largest share of large farmers. Same agri policy for all these states is bound to fail.

4. The average monthly rural household income in India is about Rs6426 and average Monthly rural household expenses are about Rs6223. About 85% of households earn less than their expenses. About half of this income comes from cultivation and rest from other activities like labour (including MNREGA) and animal husbandry. Rural household spend about half their income to buy food. There is little change in real rural wages over past five years. Rural wages are an important component of rural income and a key determinant of minimum support price for farm produce.

…to conclude tomorrow

Thursday, May 28, 2020

Farm sector economics in India - 3

Continuing from yesterday (see Farm sector economics in India - 2)

I have said this earlier also, and I do mind reiterating. To bring any meaningful improvement in the fragile condition of India's farming community, a comprehensive rural development effort is needed. Any piecemeal solution like occasional loan waiver shall have almost no sustainable impact. The traditional farmer welfare measures like periodic hikes in support prices for certain crops, farm input subsidies, interest rate subvention have not yielded the desired results.

In my view, a sustainable improvement in Indian farmers' conditions is possible only under a comprehensive rural development mission. The mission should address the problem with structural reforms at three levels, viz., 1. Farm Level; 2. Policy Level and 3. Social Level. All reforms must be pursued "urgently, vigorously, simultaneously" and in a fully integrated fashion, for having a meaningfully sustainable impact.

Farm level reforms

At farm level farmers are struggling with a multitude of problems. The most prominent being:

(a) Uneconomical land holdings (fragmented holdings, unclear land titles) (also see here)

(b) Low productivity

(d) Poor price realization

(e) Poor market access

The measures initiated so far, e.g., higher support prices, cheaper credit, crop insurance, improved irrigation, cash fertilizer subsidy, better market access (eNAM, roads etc.) have positive impact on the state of agriculture in the country. But this may not be sufficient, as it will have only some incremental impact on the sector. What we need is a set of radical reforms that would break the linearity and provide much greater impetus to growth. (also see here)

The following ten steps, besides other measures, if taken immediately may help in significantly improving the conditions at the farm level:

(i) Enforce land consolidation by linking subsidies and facilities to a minimum farm size. Village or Block level farm cooperatives should be encouraged to achieve this objective. Changes in tenancy rules and allowing large scale leasing by corporates could be misused to exploit of farmers.

(ii) Digitize all land titles within 2years. Enforce time bound Panchayat level resolution of all title disputes preferably through mediation.

(iii) Change government procurement system. Government should provide all inputs and technical guidance to the participating cooperatives, and take 50% of the crop in lieu of this. The balance crop should pay for the labor cost and profit. This will ensure three things: (1) Guaranteed timely supply of quality inputs; (2) No debt burden on farmer in case of crop failure. The government can take adequate insurance for recovery of its costs; and (3) Adequate profit to the farmers.

(iv) The landowners who have never engaged in farming activity in past two decades should be forced to give away their landholdings to cooperatives at 50% discount. Anyways these landowners let out their land on crop sharing basis or nominal lease rental.

(v) Make sure not a single drop of river water flows into the ocean from India. Develop river linking and water distribution grid on the models of roads.

(vi) Allow corporates to develop waste and barren land for farming purposes. For example, many corporates from India and Arab world may be interested in developing Rajasthan and Gujarat desert and barren lands for growing dates, palm, aloe etc.

(vii) Set up a price equalization mechanism through participation of private corporate sector. Encourage building large scale storage capacities for farm produce. Assure a regulated return of 10% premium on bench-mark yields, and allow bonds issued by warehouses as SLR securities PSL assets.

(ix) Take factories to farms. Encourage industry to partner with farm cooperatives to set up food processing units at the farms. The farmers' cooperative allots land and provides farm produce, whereas the entrepreneurs contribute capital and undertake marketing and sales responsibilities. Both share the profit in pre-agreed ratio. This should maximize profit of both the industrial enterprise as well farmers, and create ample employment opportunities close to villages.

(x) Assist the famers in the water deficient areas to move away from water intensive crops like Paddy, Sugarcane, Banana etc. Provide them cash incentive, technical assistance, marketing & sales assistance and necessary inputs to move to less water intensive cash crops.

I shall share my thoughts and suggestions for policy level and social level reforms tomorrow.