Dry spell should bring change to India

August 20, 2009

India is high on the list of candidates to help lead the world out of the current recession. The country weathered the global downturn remarkably well and looked poised to race ahead in coming years. Against this backdrop, the modest slowdown in growth caused by this year’s weak rainfall is little more than an annoying speed bump.

But the dry spell should sound an alarm to India’s politicians. Years of misguided agricultural policy have indisputably made the situation worse. Greater investment in irrigation and hardier crops could have halved the economic damage from a lackluster monsoon. More crucially, an overhaul of India’s farming policy could help close the gap with China — which has grown more than twice as fast since 1980.

Nobody could accuse India of neglecting its farmers. The country lavishes huge subsidies on the sector, sets minimum prices to shield farmers from price fluctuations and offers free electricity and water. Yet the spending has contributed to the parlous state of Indian public finances while doing little to increase agricultural productivity and farm incomes. State intervention is a stifling embrace — focusing on welfare and security rather than on efforts to make the sector more dynamic.

As a result, farm productivity growth has lagged badly behind China — where agricultural reform was the starting point of liberalization in 1978. Since the 1970s, the productivity growth of wheat farmers in India has been barely half that of the Chinese, where yields have trebled, according to the statistics by the Food and Agriculture Organization. India’s rice growers are also roughly half as efficient as their Chinese counterparts.

Given the size of India’s agricultural population — about 70 percent of the total — this is a terrible missed opportunity. Rural Indians still account for about 64 percent of spending, according to research by emerging markets research group Trusted Sources.

Because farming policy is the prerogative of India’s states, a nationwide reform would require plenty of arm-twisting. Those states that have invested more heavily and liberalized — Gujarat, Punjab and Haryana — have been rewarded with rising farm incomes. Higher cell phone and car sales have followed in short order.

First, India needs to sort out its costly and wasteful subsidies. “Little of this money ever really finds its way to the farmers anyway,” says Devesh Roy, an analyst with International Food Policy Research Institute. “Corruption and inefficiency creates a lot of leakage.” Fertilizer subsidies mostly benefit the agribusinesses that produce them, while electricity, though free, is highly unreliable.

Longer-term investments would give a much bigger bang for the rupee but have been neglected. “The agricultural universities have collapsed,” says Devesh Kapur, head of the India Center at the University of Pennsylvania. “This has meant no new drought-resistant crop varieties or significant technological innovations for irrigation.” As the irrigation system has fallen into disrepair, the amount of land covered has fallen by almost 20 percent since the early 1990s. Even India’s Planning Commission believes only around a third of irrigation water reaches crops.

Price supports on a narrow range of crops have led to an overproduction of cereals — even in dry regions, where such water-greedy plants make little sense.

Finally, India needs to take a leaf out of China’s reform manual and liberalize. When China allowed in foreign retailers and let them link up with farmers, there was a surge in farm productivity. All farmers should also be free to sell directly to retailers rather than through government boards as at present. Many states have already moved in this direction.

If the drought nudges Indian politicians towards reform it will not just be the nation that benefits. A feeble farm sector has made India highly protective of its farmers in global trade negotiations — creating a major road block for the Doha round. Another fillip to rural demand would make India a more effective driver of global growth. India finally needs to harness the full potential of its farmers.

4 comments

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Year after year, reports are written but nothing gets done. Many in govt succumb to populist policies and neglect to look at the larger national interest. Even the so-called economic reforms came about only because the national govt found itself in a crisis situation. Let us hope that the govt has the will to use this drought (mini crisis) to enact some meaningful reforms in the agricultural sector.

Posted by Ganesan Srinivasan | Report as abusive

It is a no brainer to say that India must liberalize and modernize its agri sector. An efficient agricultural sector will require India to create non-agricultural jobs in order to absorb the people moving away from farming. China did this through its export led manufacturing drive. Simply reforming the agricultural sector with no alternative job opportunities will unleash a tidal wave of unemployed farmers descending on the cities whose infrastructure is already creaking and crippled India must therefore develop policies that reform the agri sector in tandem with promoting food processing and manufacturing jobs. Despite all the talk, the country’s conomic planners have simply failed to do this for years now.

Posted by Anil | Report as abusive

Dear friend,
some things went wrong by five times,not able to complete it.
Your article on agricultural fronts are knowledge oriented.
In India,Many rich farmers with sided with medium farmers and closely connected with major political parties,associates,by indirectly,farm workers,absentees are demanding higher price for their harvest grains,free power supply,waiving of ex loans,and subsides for seeds,fertilizer,modern farm equipments at very lower rates had made state governments and central government to come for time to time adjustments for both consolidation and survival in national democratic functioning.
No doubt,this year south monsoon failure may be affected in production of food grains,storage and supply.
To add that,moderate education,heavy,easy available mobiles,fair transport,mass interests on higher education,TV Accssibilities also brought many changes,womens educations have made more inclinations to urban towns for social and economic status.
Lastly,governments,agricultural scientists and policy makers to formulate a new, possible slow down from rural to urban migration.
China on other hand had a new devices to maintain balance between rural and urban economic status,income,and life style.

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[...] Commentaries » Blog Archive » Dry spell should bring change to … [...]

This is the perfect time for the governments and the farmers to reflect on their vision on the country’s farming and food security (do not get confused with food availability in the market or in FCI godowns). The complete dependence on crops and seeds which require too much of water and chemicals, motorised and electrical farm implements can easily convert rainfall deficiency into droughts and famines. The focus should be on agricultural and food diversity, not only on irrigating more and more land. If there are less rainfall, there will be lesser water in the rivers and other water channels, then there will be irrigation canal in place but no water for agriculture. That is what the case in Arwal District of Bihar. A large area of the district is connected with Son Canal for irrigation but this year there is very few water in the river itself and crops are dead due to water shortage.
The adverse impacts of climate change are evident and are there to stay. The erratic or changed rainfall pattern has been recorded in most regions of the country. If the country wants to mitigate its impacts, some out of the box solutions must be looked for and implemented, blending with the wisdom Indian Farmers have acquired after thousands of years of practical experiences.

Posted by Ishteyaque | Report as abusive

[...] increase agricultural productivity and farm incomes. State intervention is a stifling embrace — focusing on welfare and security rather than on efforts to make the sector more [...]