INDIAN ECONOMY

UNIT 5

Agriculture , Industry Services

& International Trade

Submitted By :

VIRAJ JAIN : 22/10229

NITYA AGARWAL : 22/10249
LAKSHAY JOSHI : 22/10071
PERFORMANCE OF INDIAN AGRICULTURE

Recent discourses have pointed out relatively lower growth in agriculture post
the 1990s than prior to that (Desai et al. 2011; Dev and Pandey 2012; Mishra
2012; and Mishra and Reddy 2011, among others). Some of them do point to a
reversal after 2004/5. Keeping this is mind, this chapter proposes to calculate
growth rates by using triennium ending (TB) time series data, a standard
practice to smoothen out fluctuations in agricultural production, to separate
the experiences of the recent years (2004/5 to 2010/11) with that of the
immediate post-reforms period (1993/4 to 2004/5) while contrasting the
experience of the latter with the pre-reforms period (1981/2 to 1993/4). The
choice of 1981/2 as a start year is a standard practice in the analysis of Indian
agriculture; the years 1993/4 and 2004/5 have been chosen as one observed
some changes in broad trends around these years. Our calculations are based
on a double-kinked exponential curve following Boyce (1986).

Growth in Agricultural Gross Domestic Product

An analysis of agricultural gross domestic product (GDP) shows a significant

decline in the growth rate of agriculture and allied sector GDP from 3.29 per
cent in the pre-reforms period to 2.72 per cent in the immediate post-reforms
period-a matter of concern because the overall economy was going very strong
during this period. Thus, the measures taken under the rubric of economic
reforms during 1991/2 were not of much help to agriculture (Bhalla 2002;
Kumar 2002; Chand 2004). However, the agriculture sector, specifically the crop
and livestock sub-sector, showed some signs of revival during 2004/5 to
2010/11 .
Agricultural GDP from crop and livestock improved to 3.08 per cent in 2004/5-
2010/11 from 2.68 per cent during 1993/4-2004/5, but the improvement in
growth rate was not statistically significant.
This growth could be attributed to different initiatives taken by the government
since late 2005, due to which the ratio of gross fixed capital formation in
agriculture to agricultural GDP improved from 13 per cent in 2004/5 to 20 per
cent in 2010/11 (Ministry of Agriculture 2012). Total investments, especially
public investments, firmed up and public expenditure in agricultural research
and extension was boosted. However, it may be noted that public investment in
agriculture mostly relates to medium and major irrigation projects where
substantial resources are put without much critical scrutiny (Government of
India 2011; Vaidyanathan 2010). There is also a lag effect of public investments
in agriculture growth. Therefore, impacts from these will be felt more in the
long run and will depend on the nature and composition of the investment.
Besides, since the mid-2000s, private investments by individual farmers as well
as by other entities that develop infrastructure from an agri-business
perspective have increased significantly, which can also have positive
implications.? It may also be noted that the private sector's share in the total
agricultural investment is 70 to 75 per cent (MoA 2012). There is a
complementarity between public and private investments. The terms of trade
for agriculture, based on GDP-implicit price deflators, seem to have improved
considerably during the recent period; they increased from 100 in 2004/5 to
126 in 2009/10 (Dev and Pandey 2012).
The forestry sector has shown a gradual improvement in the growth rate,
whereas the fishing and aquaculture sector has registered a gradual decline
over the three periods. However, in the recent years, year-over-year growth
rates have shown noteworthy improvement in the fishing and aquaculture
sector .
Now, we take up a crop-wise analysis of growth in value of output and also in
area, production, and yield.

Crop-wise Analysis

The performance of different segments of agriculture show that growth rates in

the value of output of crops and livestock declined in the immediate post-
reforms period . But the growth rates were relatively higher in more recent
years. Growth rates for most of the individual crops except for fruits and
vegetables are similar. They declined in the immediate post-reforms period as
compared to the pre-reforms period and are showing improvements in the
recent years. During the recent period of 2004/5 to 2010/11, a significantly
higher growth was observed for cotton, maize, pulses, and oilseeds. Cereals
also registered some improvement over the post-reforms period growth rates.
The significantly higher growth of cotton coincides with the introduction of
Bacillus thuringiensis (Bt) cotton towards the end of our second period and its
spread in usage during the same period is worth noticing. However, one should
be cautious in attributing reasons for this entirely to the introduction of this
genetic modification because of the absence of appropriate counterfactuals
that separate out the impacts on account of new hybrid varieties and the lower
incidence of specific pest attacks. Indian agriculture has been witnessing
diversification over time.
However, the area under pulses and oilseeds that had declined in the post-
reforms period has revived in the recent years and there has been significant
improvement in its growth rate too. The increase in the production of other
cereals is attributable to yield growth only. In case of pulses, oilseeds, and
cotton, both area and yield growth are responsible for increase in the growth
rate of production in recent years. These improvements can be attributed to
various initiatives including the National Food Security Mission (NFSM)
launched in the year 2007/8, a favourable monsoon in almost all the years
except for 2009/10, and a price or terms of trade that favoured agriculture. It
would be worthwhile to take up an analysis across states.

An analysis of the agricultural gross state domestic

product

(GSDP) shows that it increased in 11 of the 15 major states during the 2004/5
to 2010/11, as against the post-reforms period of 1993/4 to 2004/5; the
increase was significant in seven of these states . States such as Kerala, Uttar
Pradesh, and West Bengal recorded a decline in the agricultural GSDP, but the
decline was significant in Kerala alone. Some states recorded a gradual
improvement in the agricultural GSDP over the three periods; the
improvements were significant in Andhra Pradesh and Odisha. In recent years,
the highest growth rate for agricultural GSDP was recorded by Andhra Pradesh,
followed by that in Maharashtra and then Madhya Pradesh.
Table 11.7 shows that volatility has reduced from 6.28 per cent during the post-
reforms period to 3.03 per cent in recent years at the all-India level for net
domestic produce from agriculture. Even in the case of states, it was observed
that for almost all the states fluctuations in the net state domestic produce had
reduced in recent years, as against the post-reforms period, except for
Himachal Pradesh and Maharashtra. An analysis of ß-convergence, based on
the linear regression of growth rates for net state domestic produce from
agriculture (NSDPA) per hectare on their respective initial NSDPA per hectare,
shows an overall convergence during 1980/1 to 2009/10. Despite this positive
note on reductions in volatility and an increase in convergence across states, it
should be borne in mind that more than half the workforce and their
dependents still rely on agriculture for their livelihood and a large majority of
them are small and marginal farmers. It is therefore imperative that we take up
a discussion from their perspective.

SMALL AND MARGINAL FARMERS

ROLES, CHALLENGES, AND OPPORTUNITIES

The objective of this section is to examine the role and challenges of

agricultural smallholdings in achieving agricultural growth, food security, and
livelihoods in India. It may be noted that Indian agriculture is the home of small
and marginal farmers. Therefore, the future of sustainable agriculture growth
and food security in India depends on the performance of these farmers.
Agricultural census data shows that there were about 138 million agricultural
holdings in India in 2010/11. There were around 117 million small and marginal
farmers. The average size of farm holdings has declined from 2.3 hectares (ha)
in 1970/1 to 1.15 ha in 2010/11. Small and marginal farmers account for more
than 85 per cent of the total farm house-holds, but their share in the operated
area is around 45 per cent (MoA 2017). Thus, there are significant land
inequalities in India.
The role of small farms in development and poverty reduction is well
recognized (Lipton 2006). The global experience of growth and poverty
reduction shows that GDP growth originating in agriculture is at least twice as
effective in reducing poverty as GDP growth originating outside agriculture
(The World Bank 2008). Small holdings play an important role in agricultural
development and poverty reduction.

Farm Size, Output, and Productivity

There has been debate in India on the relationship between farm size and
productivity. The results of the situation assessment survey (SAS) of farmers, of
the 59th National Sample Survey (2003), empirically established that for the
agricultural year 2002/3, small farms continued to produce more in value terms
per hectare than medium and large farms.
The value of output per hectare was INR 14,754 for marginal farmers, INR
13,001 for small farmers, INR 10,655 for medium farmers, and INR 8,783 for
large farmers. It shows that from the efficiency point of view, small holdings are
equal to or better than large holdings.
It has been observed statistically that small holdings have higher productivity
than medium and large farms. But it is not enough to compensate for the
disadvantage of the small area of holdings. The cost of cultivation per hectare is
also high on small and marginal farms as compared to medium and large farms.
At the all-India level, net farm income per hectare for small holdings was higher
than large holdings. Across 20 major states, the results were similar to the SAS
(2003) brought out many issues relating to small and marginal farmers. Based
on this survey, NCEUS (2008: 7) mentions some of the general issues that
confront marginal-small farmers as agriculturalists are: imperfect markets for
inputs/product leading to smaller value realizations; absence of access to credit
markets or imperfect credit markets leading to sub-optimal investment
decisions or input applications; poor human resource base; smaller access to
suitable extension services restricting suitable decisions regarding cultivation
practices and technological know-how; poorer access to 'public goods' such as
public irrigation, command area development, electricity grids; greater
negative externalities from poor quality land and water management, etc.
Increasing globalization has added to the problems faced by the smallholding
agriculture. The policies of huge subsidies and protection by developed
countries have negative effects on small holding farmers in developing
countries. If support is not given to small farms, globalization may become
advantageous solely for large farms.

Credit and Indebtedness

Smallholdings need credit for both consumption and investment purposes. As

discussed in Mishra (2012), we reiterate some of the recent policy discourses. A
report by a working group, Reserve Bank of India (RBI) (2006), pointed out the
relevance of both credit and non-credit factors. But some important
observations are that agriculturists continue to be bothered with inadequate
amount, untimely loan and other hassles while borrowing credit from formal
sources; failure of the system to differentiate between wilful and non-wilful
defaulters; and the absence of any credit guarantees to facilitate the non-wilful
defaulter.
The report of the expert group on agricultural indebtedness indicates that
farmers are increasingly depending on informal sources of credit; share of debt
of farmer households from formal sources shows a secular increase from 7.3
per cent in 1951 to 66.3 per cent in 1991, but then it declined to 61.1 per cent
in 2002 (Government of India 2007). Dependence on informal sources is higher
for marginal and small farmers (Figure 11.2), that too at a higher interest
burden because 73 per cent of the debt borne by farmer households from non-
institutional sources has an interest rate of more than 20 per cent, of which
more than half (overall 38 per cent) have an interest rate of more than 30 per
cent per annum.
Shetty (2009) further observes that (a) there has been a decline in the number
of rural bank branches from 32,981 in 1996 to 31,967 in 2005, (b) there has
been a decline in the number of agricultural borrow accounts from 277 lakh in
March 1992 to 198 lakh in March 2001, and (c) there has been a decline in
agricultural credit as per cent of net bank credit from 18 per cent in the 1980s,
which is the statutory requirement, to 11 per cent in 2004.
The ratio of the share of credit disbursed to the share of area operated and the
ratio of the share of the number of borrow accounts to the share of the
number of operational holdings indicate that both had been declining for
marginal holdings (those with less than one hectare) till 2002/3 (Table 11.8).
For smallholdings, both the ratios increased in the 1980s but in the 1990s, it is
only the ratio of borrow accounts to operational holdings that increased,
whereas the ratio of credit disbursed to area operated decreased. For other
categories of holdings, the ratio of credit disbursed to area operated showed a
slight decline in the 1980s, but both the ratios increased in the 1990s. In other
words, there was a shift in favour of smallholders in the 1980s, which seems to
have reversed in favour of the other (medium and large) holdings in the 1990s.

OPPORTUNITIES: TECHNOLOGICAL AND

INSTITUTIONAL INNOVATIONS

There are many opportunities in the form of technological and institutional

innovations that can enable marginal and small farmers to raise agricultural
productivity and increase incomes through diversification and high value
agriculture. Research and extension should give importance to cost reduction
without reducing yields. Therefore, new technological innovations with
approaches focusing on LEISA that do not use chemical fertilizers, pesticides or
genetically modified organisms. It counters the argument of 'there is no
alternative' (TINA) by affirming that there are multiple alternatives that are
situation specific, but they are not mainstream practices because to
promulgate them one needs the support of appropriate knowledge, resources,
and also appropriate leveraging with new advances in marketing opportunities
and information technology.

Information Technology:

Changes in information technology will help in a big way to improve agri-

business and incomes of small farmers. Indian private companies and non-
governmental organizations (NGOs) are global leaders in providing information
to farmers, as a spin-off from India's meteoric rise as a world leader in
information and communications technology (ICT). Echoupals have expanded
access to internet in rural areas.
Up to 6,400 internet kiosks were set up between 2000 and 2007 by ITC Limited,
one of the largest agricultural exporters. They reached about 4 million farmers
growing a range of crops-soybean, coffee, wheat, rice, pulses, or shrimp—in
over 40,000 villages. They get free information in their language about local
and global market prices, weather forecasts, farming practices, and crop
insurance. They serve as purchase centres, cutting marketing costs and
allowing farmers to obtain a bigger farm price. The M. S. Swaminathan
Research Foundation established knowledge centres in Puducherry in 1997.
With the support of the Indian Space Research Organization (ISRO), these
centres in each village are connected by satellite to a hub at Villianur. Women
self-help groups use the centres computers to manage their business accounts
and coordinate their activities using video links with other villages. The
declining costs of ICTs are giving small farmers a far greater access to
information. Mobile phone coverage in India is expanding and has an important
function of linking farmers to markets.
A number of innovative institutional models are emerging to link farmer groups
to bargain together in the input and produce markets.
There are different models for marketing collectively by small and marginal
farmers: the self-help group model, co-operative model, small producer co-
operatives, and contract farming. Apni mandis in Punjab, rytu bazars in Andhra
Pradesh, and dairy co-operatives are some of the successful cases in marketing.
The real challenge lies in organising small and marginal farmers for marketing
and linking them to high value agriculture. Thus, group approach is needed for
getting benefits from marketing. The most important problem for the small
farmers is output price fluctuations. There is a big gap between producer prices
and consumer prices.

Non-pesticide Management:

Non pesticide management (NPM) is one of the approaches that reduce costs
and adverse implications on the environment. As the term suggests, it tries to
manage pests without the use of chemical pesticides and, if feasible, tries to
avoid the use of fertilizers. This technology is knowledge centric and hence its
success as also scaling-up depends a lot on appropriate extension services. A
successful intervention, as discussed in Mishra and Reddy (2011), is
community-managed sustainable agriculture (CMSA) under the aegis of the
Society for Elimination of Rural Poverty (SERP) in Andhra Pradesh 1º A major
emphasis of this intervention is on retaining soil health through natural
processes that enhance microbial activity and replenish nutrients to sustain
productivity. NPM has a number of non-negotiable practices that include deep
summer ploughing, community bonfires, seed treatment, bird perches, border
crops, trap crops, yellow and white plates, intercrops, light traps, pheromone
traps, delta traps in groundnut, alleys in paddy, and cutting of the tips in paddy
at the time of transplantation among others' (Mishra and Reddy 2011).
Under CMSA, farmer field schools comprising 15 to 20 members meet every
week for on-site observations that help them understand the ecological
systems-the life cycle of pests and their predators.
If pest infestation is observed, a discussion is had with the resource person as
also with other groups in the village to gauge the intensity of the problem and
plan a course of action. Bio-pesticides are used only as a last resort. In addition
to pest management, nitrogen fixation and soil nutrient deficiencies are
addressed through locally available resources. Some of the other important
aspects are setting up of community seed banks and the promotion of
appropriate cropping pattern and crop rotation practices. Local youth are
encouraged to start micro-enterprises with forward and backward linkages to
facilitate input availability or the marketing of produce.
There have been other similar experiments," for instance the Revitalizing Rain-
fed Agriculture Network (RRAN) comprising of a number of civil society groups
working in the field. An aspect of their interventions is that they are refined as
per the local conditions with focus on natural resource management and other
integrated measures to help adapt to rain-fed conditions, as also to the
increasing vagaries of monsoon. This is particularly important because more
than three-fifths of the geographical and more than two-thirds of the gross
cropped area are in rain-fed regions (Planning Commission 2011a). This calls fer
an alternative policy discourse on agricultural intervention, which has been
indicated in the approach paper to the 12th Five-year Plan (Planning
Commission 2011b; also see Mishra et al. 2013). It suggests initiatives in the
form of comprehensive pilots spread across different agroecological conditions
that focus on integrating interventions in water, soil, seed, livestock, fisheries,
credit, and institutions, among others. This will require knowledge
interventions from each perspective.

Federation of Self-Help Groups:

Beginning with 400 acres in 2004/5, the programme under NPM in Andhra
Pradesh covered 18.15 lakh acres in 2009/10 and are likely to have scaled-up
further since then. This has to be understood under the institutional
arrangement of federation of women SHGs that SERP had built to improve the
livelihood of poorer households. Interactions with SHGs and their federations
made SERP evaluate the livelihood problems associated with agriculture and
the need to reduce costs in cultivation led to NPM. The success in Andhra
Pradesh has now been extended to the national level under the National Rural
Livelihoods Mission (NRLM) through a programme called the Mahila Kissan
Sashaktikaran Pariyojana (MKSP),13 The agricultural intervention under also
tried to involve NGOs such as PRADAN (Professional Assistance for
Development Action) who, as part of their livelihood facilitation, have
independently been forming federations of women SHGs in the poorer districts
of the country for nearly two decades.
The institutional imperative articulated in the federation of SHGs and other
successful experiments, such as the Grameen Bank in Bangladesh and the
People's Participation Programme of the Food and Agriculture Organization
(FAO) in Sri Lanka, Thailand, and Zambia (see Rouse 1996), give some lessons.
These, as indicated in Mishra and Reddy (2011), point to restricting the number
of members to 20 or 25 per farmer group (or about 15 per SHG) and drawing
members from homogenous groups to avoid conflicts. The focus should be on
local problems identified by the group and to limit the involvement of outside
promoters to only enabling or facilitating processes so that the members can
take over as soon as possible. Training and capacity building for four-to-five
years, including hand-holding for the initial stages, should be part of the long-
term process of building sustainable small-marginal federated farmer groups. A
sound organizational structure should be built right from its foundation with an
insistence on female membership and participation from the group level itself.
Building institutions also requires developing democratic processes that are
sensitive to inequities at every level. Once these are put in place and capacities
of individuals and their institutions augmented, groups and their federated
institutions become self-sustaining and, over time, they could slowly graduate
to address other requirements of the community.
To address some of these concerns, an identified opportunity is the effective
use of information technology, whether to know about monsoon patterns or to
be informed about new knowledge on agricultural production and
management or on the prevailing prices in different markets. The alternatives
of RRAN and NPM through CMSA under SERP are people-centred initiatives
through the involvement of small and marginal farmers through SHGs and field
schools. Institutions that organize farmers offer another opportunity. They
aggregated farmers in groups of 20 to 25 and then federate them at village,
sub-district, and district level to articulate their interests and improve their
bargaining power at various levels. On the knowledge front, it is equally
important that technologies that reduce costs-and hence risks-while not
compromising on production or yield and make use of locally available
resources are encouraged.