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Faltering Farm Production - Analysis - K.Ramasubba Reddy

Economic development does not necessarily result in equitable distribution of the fruits of development. It often results in sectoral disparities, rural urban disparities, regional disparities and disparities among social groups. While some divergence in income distribution can be explained rationally in economic terms, continued widening of disparities is a cause for concern. The extent and reasons for the disparities should be gone into meticulously before they assume intolerable proportions and result in social tensions, economic deprivations and political upheavals.
Timely and appropriate remedial measures need to be initiated to bring the national income distribution system back to the justifiable levels, before it is too late. Wise Statesmen do it, ensure economic equity and govern for longer time; unwise rulers ignore the danger signals and bring ruination unto the economy as well as unto them selves.

2.	Findings of National Commission on Farmers: ‘There is a general feeling among farmers of being ‘left behind’ in large parts of rural India. The widening disparity in per capita income between farm and other than farm sector, the very slow rate of growth in agriculture, the declining profitability, extremely weak social security arrangements, weakening family and community based mechanism of social protection, lack of employment opportunities etc., and the rising aspirations are building up social unrest which if not arrested could lead to threats to internal peace and security.
	The worsening cost-risk-return structure of farming, the low and stagnating income of farmers and the huge and widening income divide between farmers and non-farmers are the main deterrents. So much so, as per the 59th Round of NSSO, 40 per cent of the farmers wish to quit farming. Economic growth which bypasses a large population is joyless growth and not sustainable in the long run. What then is the future for India’s rural population numbering over 700 million? We cannot be silent onlookers to a situation where 30% of India is shining and 70% is weeping.
	Equity considerations can not be ignored for too long. Faster growth in agriculture with improvement in welfare of the rural population is important. The need is not only to register increase in agriculture production in million tons but actual improvement in rural incomes.’

3.	DECLING TRENDS-INDICATORS: The Steering Group on XIth Five-Year Plan identified some key areas such as declining public private investment, technology reaching a plateau, lack of crop diversification and falling fertiliser consumption for the decline in agriculture growth.
	*Sharp decline of agri sector income in national income, from 55% in 1950 to 17% in 2009, yet people dependant on agriculture declined from 70% to only 55% .
	*The rate of agri sector growth is very low at 2.2% during 1993-2004(economic reform period), compared to the rates of growth in industry sector at 6.7% and service sector at 9.1% during the same period .Taking into account the rate of population growth, the per capita real income of those working in agriculture sector remained stagnant while those working in other sectors more than trebled /quadrupled, during the economic reform period.
	*Decline in AGRI. Share in Gross Capital Formation by half, from 10.2% (2001-02) to 5.8% (2006-07),
	*Decline in AGRI loans by banks from 18%1980-81) to 8.7% (2004-05), as against mandated 18% annually,
	Decline in area under food grains at an annual rate of 0.25%, over 16 year period from 1990-91 Decline in the rate of NPK use from 8.2(1980-81/90-91) to 2.3(1995-97/2005-06),
	*Near stagnation of food grain production213 M.Tons (2003-2004),217M.Tons (2006-07).
	*Decline in the rate of growth of food grains during 1990-2007 to 1.2%, less than population growth of 1.9%. Hence per capita consumption of cereals has declined from a peak of 468 gms per day in 1990-91 to 412 gms per capita per day in 2005-06, indicating a decline of 13%.
	*Slow growth in irrigated area at the rate of 1.25% (1989-90/2006-07),
	*Increasing Rural Urban disparity in consumption (Rural people per household consumption only half of urban people consumption). 75% of the poor live in rural India,
	*Increase in unemployment rate to 8.28% (2004-05) from 6.28% (93-94)
	POOR EXTENSION AND INPUT SUPPLY: Linkages* between the laboratory and the field have weakened and extension services have often little to extend by way of specific information and advice on the basis of location, time and farming system.
	4. Poor marketing and Distress sales: Distress sales by small/ marginal farmers to square off their debts or for immediate consumption purposes soon after harvest are quite common. It is normal for a farmer to get 15-30 percent discounted price for spot payment for his produce. According to reliable resources, about 50 percent of the marketable surplus of small/marginal farmers is disposed of in this manner.
	9. Suicides of Farmers: An unfortunate consequence of the constellation of hardships faced by small farm families is the growing number of suicides among farmers in thousands, which is not prevalent in any other profession.

Causes of distressing conditions :

4.	MSP less than Cost of Production
	The cost of production is invariably higher than the minimum support price, due to ever-increasing prices of diesel and other inputs. An examination of the projections of cost of cultivation for 12 food grain crops given by the Commission for Agricultural Costs and Prices (CACP) for the crop season 2005-06 with the MSP prevailing in 2004-05 clearly shows that C2 cost (cost of production per quintal) is not covered by the MSP in most States.
	MSP should be regarded as the bottom line for procurement both by Government and private traders. Purchase by Government should be MSP plus cost escalation since the announcement of MSP. This will be reflected in the prevailing market price. Government should procure the staple grains needed for PDS at the same price private traders are willing to pay to farmers.
	Dr MahendraDev of CACP observed : “recent field visits show that the cost of agricultural production is on the rise because of NREGA. Labour costs are up, diesel prices have shot up. We need to give proper price to the farmer, although it does not guarantee production increase Crop diversification and marketing are equally important issues, he said and switched to emerging issues such as climate change and equity.

5.	Decline in Government Investment in the Agricultural Sector
	After the economic reforms started, the government’s expenditure and investment in the agricultural sector have been drastically reduced. This is based on the policy of minimum intervention by the government enunciated by the policy of globalisation. The expenditure of the government in rural development, including agriculture, irrigation, flood control, village industry, energy and transport, declined from an average of 14.5 per cent in 1986-1990 to six per cent in 1995-2000.
	When the economic reforms started, the annual rate of growth of irrigated land was 2.62 per cent; later it got reduced to 0.5 per cent in the post-reform period. The consequences were many. The rate of capital formation in agriculture came down, and the agricultural growth rate was also reduced. This has affected the purchasing power of the rural people and subsequently their standard of living.
	In recent years, the capital formation in agriculture as a ratio of agricultural GDP has been going down at a high rate. On the other hand, the capital-output ratio in broad agriculture has been going up from about 1.73 in1950-51, rose to 2.13 by 1966-67. It further went up to more than 2.5 and upwards by the mid-1980s. Currently, the capital output ratio is about 2.4: 1.
	If we assume that this ratio will rise to 2.5 in the coming years, for a growth rate of 4 per cent in broad agriculture, we need a capital formation proportion to GDP in agriculture of at least about 10 per cent. This proportion was about 4.7 per cent in 1950-51 and moved up to 11 per cent by 1978-79. But, thereafter it has been declining and currently it would be about 6.7 per cent. We need to step up the ratio about 50 per cent if we want a growth rate of 4 per cent in broad agriculture. This is a huge task. Foreign investment will not go in for agriculture. So, the task is cut out. We must pay attention to improving the growth rate in agriculture as a top-most priority and this would need higher proportion of aggregate investment towards broad agriculture.
	Currently only 6-7 per cent of overall investment goes in for agriculture, that is, only 2 per cent of aggregate GDP is being devoted for agricultural capital formation.

6. Decline in Agri investment

	The share of agriculture in the total GCF (at 1999-2000 prices) fell from 7.7 per cent in 2004-05 to 7.2 per cent in 2005-06 and further to 7 per cent in 2006-07. What is really significant is that this decline has been caused by the fall in the share of the private sector in the GCF — in the past, the trend was the reverse.
	According to the numbers given in the Survey, the private sector’s share in the GCF has dropped from 7.7 per cent in 2004-05 to 7.1 per cent in 2005-06 and to 6.6 per cent in 2006-07. The private sector’s share in 1999-2000 was as high as 11.9 per cent.
	The reasons for this are several and quite varied. Although the prices of agri-commodities have remained high in the wholesale and retail markets during the larger part of this phase, the farmer gets less than half the retail price. This has adversely affected the profitability of agriculture. It was found in the 59th round of the National Sample Survey Organisation (NSSO) that 40 per cent of the farmers wished to quit farming. While 27 per cent considered it unprofitable, 8 per cent deemed it too risky. there is a ‘need to narrow the gap between producer prices and consumer prices through proper marketing support’.
	The NSSO survey showed that only 30 per cent of farmers adopted some new practice during the survey year. When it came to technical information, only 6 per cent of the farmers relied on the extension agencies and even less (3 per cent) on government agencies. For the others, the main source of information on technology was the input-suppliers who had their own vested trade interests.

7. Continuous decline in the share of plan outlays:

There has been continuous decline in the plan outlays for Agriculture. During 6th Five Year Plan the share was5.8%; the same declined to 4.9% during 9th Plan and further down to 3.9% during the 10th Plan. The share of expenditure on Research &Education was very low at 6% of the total development expenditure on Agriculture. The growth of public expenditure has slowed down since 1990s on Research and Extension, in constant terms. In the case of extension services the growth of expenditure was highest in the sixties resulting in acceleration in the agricultural growth. Thereafter the rate slowdown is very sharp. The rate of growth of expenditure on extension services has declined three-fold since 1990s.
The total expenditure on Agriculture fell from 13% in the 90s to 10% in the early part of the current decade. The growth of expenditure on irrigation declined from 14% from the first half of 1990s to 10% in the second half of 1990s and further to 4% in the subsequent period.

8. Adverse changes in the banking policy since the economic reforms of 1991, reducing loan availability

The concept of priority sector lending itself has come under attack, with the suggestion by the Narsimhan Committee Report (1993) that the 40 per cent direct credit to the priority sector should be phased out. While this recommendation has not been implemented, there has been a dilution of the priority sector lending policy. The operational relevance of the priority sector lending has been weakened by the inclusion of a vast number of items, including agricultural machinery, direct finance to the housing sector etc.

More than 70 per cent of farmer households have no access to any formal sources of credit.

9. Agriculture: A losing proposition:

During the nineties the profitability in agriculture declined by 14% mainly due to stagnancy in yield growth and increase in prices of inputs outpacing the increase in prices of output. Even if we look at the latest cost of cultivation for major food grain crops for 2005-06 [CACP data] and compare it with MSP prevailing in 2004-05, it would appear that the C2 costs of

paddy,jowar,bajra,maize,tur,moong,urad,gram and barley were not covered even by MSP in many States. It would be extremely unlikely that in long run farmers would continue to cultivate these crops .The total monthly income of farmers’ households for land holding up to 2 hectare was lower than the total consumption expenditure indicating the non viable status of these farmer households. Indebtedness of farmers is rising not only because of farming-related expenditure, but also because of the need for healthcare

10. BAN and RESTICTIONS ON EXPORT OF AGRI.COMMODITIES:

	*Resulting in loss to farmers of price realization at higher international prices prevailing.*
	PUTTING FARMERS FIRST “Everything else can wait, but not agriculture”- Jawaharlal Nehru, 1947 ”Agriculture is a high-risk economic activity” “Agriculture is not just a food producing machine for the urban population”
	“Neglect of domestic policies’ hit farm growth”
	Mahendra Dev, Chairman CACP, attributed the poor performance on the agricultural front to the liberalisation policy, the tax and financial policies of the Government. “The Prime Minister, Dr Manmohan Singh, and the Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, contend that industrial liberalisation has had a positive impact on agriculture, but many others aver that globalisation and WTO has had an adverse impact on agricultural production. Financial liberalisation has affected agricultural credit. We need to connect this by addressing supply chain factors such as land and water management, financial credit etc. *KRSR/26041010*