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Indian Agriculture - Issues and Reforms

with Gopal Naik, Professor

Issues in Indian Agriculture

GN: The critical issues that plague Indian agriculture at present are the knowledge deficit and infrastructure deficit, especially in the rural areas. Problems related to irrigation infrastructure, market infrastructure and transport infrastructure add significant cost to farmers' operations. Another issue is lack of delivery mechanisms. There are a number of schemes aimed towards developing agriculture. We don’t have effective delivery mechanisms that can translate those into effective facilitation at the ground level, in terms of increasing productivity or decreasing cost or increasing price realization. Inadequate government support exacerbates these issues.
Government failure is a major concern in agriculture because the high risks involved make help and facilitation necessary. Like any other business enterprise, agriculture is subjected to high risks because of the volatile nature of the factors involved. For instance, weather is often a problem - you have droughts in one year and heavy rains in the next. In both cases, farmers lose out, hence they have to look for a normal period to make money. Government, therefore, has to play a major role in providing support to farmers. This is true all over the world and there is hardly any country where government intervention is not present. There may of course be variations in the extent of intervention; but if you check the situation in most countries or regions, including developed ones like the US, Canada and the European Union, you see substantial intervention by the government. Thus government facilitation is essential for sound agricultural development.

GN: Irrigation in India can be broadly classified into two parts: the surface irrigation part and the ground water part. The issues related to each of these are completely different. As far as surface irrigation is concerned, there are a few major problems. One is the system management itself. We do not effectively manage water bodies, in terms of how much water is stored, how much is being used for irrigation, or what value we can add to this water. This is partly because it is seen more of an engineering kind of work rather than looking holistically that its main purpose is irrigation. We, therefore, do not have the mindset to make the best use of water for irrigation purposes. Consequently, water use efficiency is very poor in India and remains a major concern. According to many estimates, the extent of area irrigated compared to the capacity built is very low, averaging about 40%. We have problems like water logging at the head part of the water bodies and deficit at the tail-ends. Big dams have their own problems like rehabilitation of people, ecological concerns and whether they adequately serve their purpose. So these are issues with respect to surface irrigation.
If you look at groundwater, the major issue is equity. Those who have better abilities to extract water take away disproportionately from groundwater aquifiers. This gives rise to various problems. One is that if groundwater is closer to the coastal area, groundwater may get mixed with salt which affects everybody and is a negative externality. In many other places, groundwater level goes down drastically and often the wells go dry, making it difficult to get even drinking water. So we have dual problems related to availability of drinking water as well as access of groundwater to the poor.

GN: The basic question is that whether the government should be doing so many things i.e. getting into PDS etc. or should it only come in when there is a drought or famine. The current debate is that we need to ensure that there is enough food for people and there is access to food. The issue is that we have a trend that focuses more on wheat & paddy and their growth rate and productivity has not been very high. There are concerns are about whether we can actually feed the growing population or not. Some issues that are emerging are that should we also look at the local food sufficiency or not. Earlier every area would have one or the other food crop but because of the popularization of rice and wheat we may have lost many coarse cereals and therefore the ability to produce these coarse cereals. Though now we do realize that nutritionally they are important so should we have more of a local focus on food security depending on the requirement and ability to produce food grains? Should we see whether the food grain produced in that area is able to meet the requirement of that area and what could be done on say the technology front so that these cereals could be produced locally and in difficult areas and thus ensure food security.

GN: One part is that it is considered enormously expensive. We also do not know if we will be able to manage the systems well, given the fact that large systems have not been well-managed in the past. We may also end up creating unintended problems like flooding in certain areas and worsen the existing situation. At some point we have to talk about how to manage better the existing systems, let alone creating new systems. If 40% of the command area is being irrigated, our focus should be about managing them well rather than creating new dams. So those are issues we need to look at and try to streamline current systems than spending enormously on new big projects.

Effectiveness of Agricultural Institutions

GN: Creating new institutional arrangements with the hope that it will deliver results is quite common in the context of Indian agriculture. But as we have seen such arrangements often fail to create any tangible impact. Even though these arrangements are good conceptually, making them work is a big challenge for the Indian government. ATMA as an initiative is yet to show any productive result. It has not been able to demonstrate a success story even though it is conceptually very sound. However, there has been some success with respect to the transfer of technology using the Krishi Vigyana Kendra (KVK). It has been observed that such schemes are more successful when they are run by NGO’s. This is because they have better organization ability and in this case also because the KVK’s scientists could collaborate with the NGO in terms of technology and reach.

GN: The problem lies primarily in our culture. It is said that ten Indians are equal to one Japanese when it comes to executing plans. We have a democratic setup which allows a lot of bureaucracy creeping into the system. Moreover, it has been observed that we are inefficient especially when it comes to collective effort. We do not work well in teams and this is a major problem not just in agricultural initiatives but in other areas as well. The way our parliament is run and the problems with the SME’s are a few examples. It is a general perception that cooperatives do not work well in capitalist nations, but we have seen a number of cooperatives work efficiently in America. In contrast, Anand’s milk cooperative is the only successful cooperative in our country. The solution probably lies in education. The benefits of working collectively should be taught to Indians right from their childhood.

GN: NAFED has historically not done much besides executing some government schemes like the channelizing of exports and imports. On its own it has done very little for agricultural marketing, processing and production. This is largely because such initiatives involve trading and establishing a competitive market. This requires highly qualified people who can make quick decisions. NAFED is ill equipped when it comes to quality personnel. Hence it has not been effective in doing such business. Setting up of a research institution for handling the onion crisis is the only successful initiative that NAFED has implemented thus far.

Agricultural Reforms

GN: There are a number of issues with respect to private sector participation. One aspect is the government rules and regulations. Either there is no legislation or there exists a multitude of legislations. Getting through these complicated set of rules is difficult and poses a big problem for private players. Even simple things like a warehouse receipt system is a complicated issue in India. Ideally there should be a legislation which helps people to come forward and offer these services with ease.
Implementing legislation itself takes an extremely long time in India and even when established there is a lack of clarity which increases complexity. There is a high degree of risk involved. For example, the essential commodities act which says that at any point of time the government can actually come in and have a say on the amount of storage that is permissible for the good in question is a big demotivator for private players.
The second aspect which prevents private sector intervention is that most private players want quick returns. In agriculture most of the returns come in the long term and it requires a lot of time and effort in developing the markets. There exist many new concepts like commodity markets and futures. Good quality standards are also new to people, therefore it needs enormous effort on the part of private sector players to develop such markets in order to reap any profits. For example, consider the export markets for grapes. We finally understand the market and we now know the quality standard for serving the high end markets like Western Europe. It has taken us more than ten years to achieve this. Private players are not patient to enough to wait for such long durations. Moreover if it is a small company then resources available to it will be limited and hence the individual company might not be able to put in the required effort to bear result.

GN: The problems faced can be tackled along multiple dimensions. One is that government can do certain things on its own. Secondly, there should be institutional innovations like self-help groups, farmers clubs, and joint liability groups. Currently, there are some producers’ companies that seem to be doing alright. Groups of farmers can join together to do certain common things like procuring inputs as well as selling the produce, and even getting credit and knowledge of farming practices. In certain places, contract farming to some extent helps wherever there is labour intensive work. Quite often, it's a question of information sharing, with small farmers have difficulty in getting proper information about practices, input markets and output markets. This can be made available through rural kiosks or common service centers. Thus the issues facing small farmers can be addressed.

GN: Legislation is one major area the government that can be looked at to improve public private partnership in the agriculture sector. APMC has been of some help in this case, but many other states will have to modify as well as clarify the legislation which has been a big hurdle. According to the APMC, you can open a private market but it is still under the APMC which often creates problems. Due to APMC inspections and regulations, how facilitating it is, is itself a question.

GN: There are certainly some very interesting traditional knowledge networks and grass root level innovations that are already in practice such as the HoneyBee network and other networks that are trying to put them together. One thing that has to happen is to screen these innovations to see the interesting ones and then channel them through the current networks such as Kisan Vigyan Kendras(KVKs) . Once these innovations are brought to the KVKs, these technologies can be transferred to the farmers and departments. The HoneyBee network has been documenting the same and disseminating them through their newsletter. However screening of technology is important since all innovations are not relevant or attractive to all areas. Hence it is important to screen them according to the geographical area and the local context of agriculture and use it for the local KVKs to promote.

Providing Services to Farmers

GN: There is no point in protecting agriculture jobs if we want cheaper food. With NREGS rural wages have gone up including areas where there are fast growing urban centre. With higher wages there is no incentive to produce agriculture crops and so for cheaper food and cheaper agricultural produce the only option is to go for mechanization. It is correct to the extent that it releases people from rural to urban areas which require more people. Of course, there are problems associated but we need to see if it’s alright if food is expensive and either pay higher wages or leave it to the market to decide what food prices should be. These are difficult choices and the balancing that needs to be done involves a trade off between the long run and short run outlook. In the long run if we say it’s okay to have higher food prices because we assume that with the current income growth rate the per capita income will go up and food being a small part of income it is not very important. However, in the short run we can’t do that because there are a lot of poor people. Hence we need to encourage mechanization. Also, it is increasingly very difficult and expensive to rear animals even in the rural areas. There are no common resources available any longer such as common forests or grazing lands so farmers have to go for confined feeding that means higher costs hence it is not feasible at all. Hence animal husbandry is no longer feasible except the milch animals and that too in some places. With all these changes mechanization is required.

GN: That's one major issue that government has to address since there has to be a long term policy with respect to credit that can allow certain amount of flexibility e.g. the government might want to waive interest rate in a drought year or come up with some formula that for a particular set of conditions the government is ready to help to a certain extent. If that is very clear than institutions can also tune their operation to that and make it easy for them to work but the major issue they face is the uncertainty with respect to policy itself. So institutions have difficulty in predicting what the policy will be and so they shirk away from credit to agriculture. Hence, they avoid it and would like to provide it only to certain enterprises such as poultry which they call agriculture since they can get back their returns quickly. All these market distortions happen because of the uncertainty with respect to government policies and therefore defining long term policy with respect to credit is very important.

GN: Risk is a major factor in agriculture hence it is important to take care of the risk and how one can address it and what mechanisms will enable to address it. We have the futures market and insurance by the government. One of the most effective risk management techniques has been the MSP – Minimum Support Price which has helped farmers in terms that it makes sure that the price they receive is at least the MSP. Insurance as it is implemented has its own problems like not getting the farmer his reimbursement for a long period of time which takes away its benefits. The other aspect is that all these are new institutional innovations and it takes time for people to understand the mechanism. Farmers complain that they pay every year but don’t get their money back every year. They don’t understand what insurance is. Hence it requires the government to come in and support it e.g. in terms of a premium payment of 50-75% or subsidising the premium.

Conclusion

The critical issues in Indian agriculture are related to knowledge and infrastructure. Although there isn't a lack of initiatives and institutions to tackle these issues, we have to become better at managing big systems to achieve success in our endeavors. At the same time, we should look into new approaches like private sector participation and harnessing of indigenous knowlege to improve performance. Small farmers who are especially vulnerable to the monsoons should be focused upon and services like credit and crop insurance should be made more accessible. This will ensure that agricultural sector remains viable and caters to the country's needs.

Quotes

From the interview

"We do not effectively manage water bodies, in terms of how much water is stored, how much is being used for irrigation, or what value we can add to this water."
(On the present condition of irrigation in India)

"Creating new institutional arrangements with the hope that it will deliver results is quite common in the context of Indian agriculture. But as we have seen such arrangements often fail to create any tangible impact."
(On the numerous institutional frameworks set up in India to solve problems in agriculture)

" Quite often, it's a question of information sharing, with small farmers have difficulty in getting proper information about practices, input markets and output markets. This can be made available through rural kiosks or common service centers."
(On the ways of making information accessible to small farmers)

"Market distortions happen because of the uncertainty with respect to government policies and therefore defining long term policy with respect to credit is very important."
(On the need for a consistent rural credit policy)

Profile

Gopal Naik is a Professor in the area of Economics & Social Sciences and Chairperson of the Centre for Public Policy at IIM Bangalore. His areas of interest are Policy Impact on Technology Adoption in Agriculture, and Asymmetric Information in Agricultural Markets.
He has a PhD from the University of Illinois and a M.Sc in Agriculture from G.B.Pant University of Agriculture & Technology. He has consulted various state and central governemnts as well as global institutions like WHO and UNDP.

• Critical issues in Indian agriculture
• Problems with irrigation infrastructure
• Opinion about food security in India
• Feasibility of interlinking of rivers

• Effectiveness of institutional arrangements like ATMA
• Why do institutional initiatives fail?
• How successful has been NAFED?

• Institutional reforms to increase private sector participation
• Assisting small and marginal farmers
• Initiatives to encourage public-private partnership
• Harnessing indigenous knowledge

• Impact of mechanization on livelihood
• Developing a sound rural credit policy
• Encouraging crop insurance