Agricultural Liberalisation, Rural Growth Challenges and Biotechnology in India

Agricultural Policy Reforms and Pricing in Post-Liberalisation India

• Post-Liberalisation Challenges and the Risk of a Dual Society

  • Agricultural growth alone determines the fortunes of a majority of Indian farmers and helps alleviate poverty.
  • The neglect of public investment in rural infrastructure post-liberalisation is a key factor behind steep deceleration in agricultural growth.
  • Elite-centered growth policies that ignore agriculture may lead to a dual society of rich and poor.
  • Market-driven liberalisation tends to favor:
    • Wealthy farmers,
    • Prosperous regions, at the cost of the disadvantaged.
  • Peasant movements and local activists must intervene to protect the interests of small and marginal farmers during liberalisation.
  • Globalisation brings both opportunities and challenges. Though it offers access to global trade and growth, most Indian peasants have not benefited so far.
  • India possesses strong potential to become an agricultural superpower with:
    • Abundant sunshine,
    • Adequate rainfall,
    • Diverse agro-climatic zones, and
    • Rich biodiversity.
  • Policy focus over the last decade has been diffuse, leading to reduced investment in agriculture.
  • There is confusion in policy environment and uncertainty around biotechnology adoption.
  • A clear and science-based stance on agricultural biotechnology by the Central government is urgently required to avoid regressing into non-technological solutions.

• Pricing Policy and Macro-Economic Influences

  • Macro-economic policies not directly targeted at agriculture can still impact production and social relations in the sector.
  • Movements in:
    • Terms of trade,
    • Pricing policies,
    • Fiscal and monetary policy,
    • Exchange rate and credit policy
    have significant effects on Indian agriculture, especially during structural adjustment periods.
  • The issue of agricultural pricing has gained importance due to:
    • Rising political influence of powerful farm lobbies, and
    • Macro-economic linkages with reform programs.
  • Changes in fiscal, monetary, and exchange policies can:
    • Significantly affect agricultural price trends,
    • Influence other sectors through feedback loops.
  • A plausible pricing strategy includes:
    • Removing negative protection against agriculture,
    • Allowing staggered price increases over time.
  • It is vital to support vulnerable populations with safety nets during this adjustment.
  • Support mechanisms must include:
    • Increased funding for poverty alleviation,
    • Employment generation programs,
    • Strengthened Public Distribution System (PDS) targeted to specific populations.

Fiscal Policies and Institutional Support for Sustainable Agricultural Growth

• Equity in Public Investment Benefits

  • A sustainable fiscal policy must ensure that those who benefited most from public agricultural investment contribute proportionately.
  • One effective approach is the phased reduction of input subsidies, particularly on fertilizers and electricity.
  • Failure to raise water and electricity charges to cost-recovery levels will deteriorate service delivery and harm agriculture and the nation.
  • Public investment, especially in irrigation infrastructure, has steadily declined.
  • Agricultural investment’s share in both total investment and government expenditure has fallen significantly.
  • Private investment has not picked up momentum, especially in low-growth regions, which cannot prosper without renewed public support.

• Input Supplies and Irrigation Efficiency

  • Fertilizer use is regionally and crop-wise concentrated, disproportionately favoring rich farmers.
  • Subsidy benefits are highly skewed and must be reduced gradually.
  • Increasing irrigation investment is a more effective method of raising output than fertilizer subsidies.
  • Irrigation systems face major issues including:
    • Low water charge collection,
    • Poor maintenance, and
    • High establishment costs.
  • Improved technology is critical for output growth.
  • There exists a large gap between actual and potential yields due to poor adoption of best practices.
  • Seed quality is a key constraint—many farmers do not differentiate between "seed and grain".
  • Research institutes have limited seed multiplication capacity and supply quality seeds in only small quantities.
  • India must develop a competitive seed market by:
    • Expanding public sector roles, and
    • Encouraging private sector participation.
  • Shifting subsidies from other inputs to seed production may yield better outcomes.

• Agricultural Credit Reforms and Accessibility

  • Revitalising rural credit systems is essential as moneylenders still play a large role.
  • Access to institutional credit by small farmers must be systematically studied and addressed.
  • Timely and productive credit delivery is crucial for smallholder success.
  • Comprehensive reform is needed across both cooperative and commercial banks.
  • Non-viable Regional Rural Banks (RRBs) continue to be a longstanding problem and require resolution.

• Agricultural Marketing Inefficiencies and Commercialisation

  • Government support for marketing infrastructure is essential, as current systems are inefficient and outdated.
  • Price support operations are focused on wheat and rice, but often do not reach deficit States.
  • Market interventions exist for sugar and cotton but are poorly executed.
  • Over-commercialisation may disproportionately benefit endowment-rich regions.
  • Marketing structures in backward districts remain underdeveloped and non-commercial.
  • Understanding class relations and local marketing practices is key to effective reform.

Food Stock Operations, Technology, Sustainability, and Institutional Reform in Indian Agriculture

• Food Stock Operations and Subsidy Challenges

  • Economic costs of food grains handled by the Food Corporation of India (FCI) have sharply increased.
  • This rise is due to a growing gap between economic cost and procurement prices, including higher incidental costs in procurement and distribution.
  • Credit subsidy to the FCI is not fully accounted for in cost structures, further complicating fiscal burdens.
  • Food security remains a paramount concern, making subsidy reforms politically difficult.
  • Restricting PDS coverage to a narrowly targeted group is essential for fiscal sustainability.
  • Optimal food stock levels have not been systematically calculated, and current norms may need revision.
  • An integrated framework is needed to reassess stock levels, procurement, and off-take policies.
  • Policy changes such as restricting PDS off-take must come before stock recalibration efforts.

• Technology Dissemination and Sustainability Concerns

  • Dry land technology must be disseminated on priority, similar to past thrust missions in select crops or regions.
  • Challenges include poor land conditions, underdeveloped infrastructure, weak research and extension services, and limited competitiveness of dry land regions.
  • Investment is needed not only in technology but in removing barriers to adoption.
  • Growth must be sustainable over the medium and long term.
  • Agro-climatic Regional Planning (ACRP) is a suitable framework since dry land technologies are area-specific.
  • Sustainability of irrigation systems also requires emphasis, particularly in drought-prone areas.
  • As agriculture pursues higher growth paths, sustainability challenges will intensify.

• Institutional Arrangements and Structural Reforms

  • Land reforms must be central to structural adjustment despite their political difficulty.
  • State intervention bias requires compensatory reforms, including changes in land tenure and regional agrarian structures.
  • Institutional lending mechanisms should be strengthened for both production and long-term investment.
  • Crop insurance schemes must be expanded to include remunerative cash crops for cross-subsidisation.
  • NAFED should be treated at par with FCI for regional coarse cereal marketing and distribution.
  • Special programmes are needed for:
    • Irrigation system maintenance
    • Dissemination of dry land technology on an area-specific basis
  • Agricultural labourers—though landless—are the backbone of rural economies.
  • Measures must be instituted for:
    • Monitoring minimum wage laws, and
    • Distribution of surplus land among these labourers.
  • Institutional reforms have recently been neglected despite their critical role.
  • Changes in endowments and technology are driving shifts in institutional demand that must be addressed.