Agricultural Policy Strategy, Instruments and Implementation: A Review

and the Road Ahead

Short note:

Indias agricultural growth rate averaged less than one-third of the

governments -4%
Performance same before and after the reforms in the 1990s. No effect on
agriculture
ill-effects on food security, food price inflation and poverty reduction
because of inadequate level and composition of public expenditure
Agricultural education, research, extension also suffered
Agricultural growth demands massive public goods provision which
requires a radical reorientation of central, state and district government
activities

Introduction:

Part 1:

3 Problems In agriculture sector (Current):

Decelerating growth in real agricultural gross domestic product (GDP) and

land productivity
increasing food insecurity among the poor
an increased level and persistence of food inflation

To alleviate problems( Reforms didnt do these things) :

continuous location-specific generation and transfer of land augmenting
and labour using technical change
public expenditure, revamping farm support and input pricing, and
radically reorienting the existing multi-institutional model of organisation
and management.

Need for high agri growth recognized but faith on reforms rather than
policies.

Basic institutions like ICAR (Indian Council of Agri Research), SAU( State
Agri Universities) ignored, relied on market to evolve and transfer
relevant technologies

Consequences of this:

Concept of growth stayed at diversifying crop patterns, rather than

favouring high value crops
Poor planning, affected evolution and transfer of BT cotton tech (Genetic
modification)
Indequate attention to post harvest and storage technology
Supply of agriculture credit preceded technical change instead of
accompanying it
Krishi Vikaes Yojna seems like a mere Intensive agri district programme
rather than a plan involving HYV crop to promote growth

Part 2:
Role of Agricultural growth:

Narrow view: Food and raw material , Larger vision: Employment led
growth, poverty reduction
Larger vision of agricultural growth serves economic welfare while the
conventional view serves just welfare
changes in technology-led agricultural growths demand, savings,
investment and foreign exchange patterns are intimately linked to
economic growth, employment growth and poverty alleviation in rural and
urban areas

Agro performance pre and post Reforms (1991):

a) Agro Growth rate:

Averaged less than 3% pre reforms, less than targeted 4% during
reforms
During reforms(Post 1991) growth rate as ratio of total GDP from
0.61(1980s) to 0.43
Avg per hectare yield increased( although less than global level-rice,
wheat , maize and milk), Much lower than best in the world
But Growth rate of per hectare yield declined
Decelerated growth rates of yields per hectare of a majority of crops
in the reforms era with the incorporation of changes in crop pattern
in favour of high-value crops
b) Food Insecurity (Poverty line-Purchasing power parity 14.3 Rs a day rural,
21.3 Urban)
Though the headcount index (BPL) declined in both the pre-reforms
and reforms periods, its annual compound growth rate same 1.4%
in the reforms 1.3% in the pre reforms.
Absolute number of poor people increased in both periods. 420mn
in 1981, 444 in 1993 456 in 2005.
Poverty Eradication: 3% compounded growth rate in 83-93 while
1.85 % from 95-05
c) Persistence and Higher incidence of Food inflation
Agricultural labourers, food inflation ranged from near 7% to 8% in
both periods, whereas for industrial workers it varied from 8% to 9%
Food inflation has been higher than overall inflation only in the
reforms period. Moreover, it has been high for all consumers.
Persisted for long time.

Implications of these in reforms era:

Decelerating agricultural growth: Opportunity providing employment-

intensive growth, raising incomes in the farm and non-farm segments of
the economy lost.
Decelerating growth in the yields of major field crops, livestock products
and horticultural crops. Opportunity to spare land and labour for non-
agricultural growth is also being lost
Food insecurity for the large number of poor and higher food prices due to
inflation and various taxes for most consumers are being perpetuated
 Weak linkages between the growth of the agricultural and non-agricultural
sectors, with consequent threats to higher economic growth, food inflation
and poverty

PART 3:

Strategy for Agriculture Change:

To resolve consequences:

Location-specific land augmentation

Farm labour adapting to technological changes in pre- and post-harvest
operations
extensive farming : bringing hitherto uncultivated land under farming
Not feasible, land exhaustive
intensive agriculture : more and more of the same inputs- Not sustainable,
pressure on resources, Diminishing returns to scale

First two: Avoids DRS(Diminishing return to scale) , increases agri

production at lower unit costs, reduces prices of farm commodities,
benefits the poor.

Technological change need to be continuous, Agri biological process,

needs continuous evolution, new varieties.

Policy that has had to do with the growth of agriculture since the advent of
economic reforms(Post 1991):

Two types:

Improved terms of trade( Prices received and paid by farmers)

Increase in foreign trade of farm commodities

Prices paid by farmers declined: delicensing, deprotection and dereservation in

industry and trade

STRATEGIES TO IMPROVE:

1) Options for continuous technical change:

3 options: Seed centred ( eg Green rev), resource centred( new tech), integrated
farming system(both)

Need for second green rev, new farming tech recognized but no agenda spelt out

Seed-cum-resource-centred technology has been acknowledged but its need on a

continuous basis has not been recognised

Integrated farming system:

Integration of farm inputs and resources as well as all farm commodities

field crops, livestock and horticulture
Consists of resource saving practices, higher growth and productivity,
preserving the environment
Winning combination that reduces erosion; increases crop yields, soil
biological activity and nutrient recycling, intensifies land use, improving
 profits; and can therefore help reduce poverty and malnutrition and
strengthen environmental sustainability

Promoting the suggested technical changes requires 10 interrelated actions

The central government must adopt and encourage decentralisation

of the ICARs organisation and management and funding
operations, as recommended by the Mashelkar Committee and the
Swaminathan Committee.
The ICARs system and SAUs must be restructured to produce
relevant research and higher agricultural education by granting
them academic autonomy and the funds to effect a change in the
paradigm to that of the new technology
This paradigm requires human resources that will implement
location-specific integrated farming instead of advocating reducing
the gap in yield by tinkering with farmers fields and experimental
farms.
These research and development (R&D) institutions must have
autonomy and be free to recruit proficient scientists who are
receptive to the change envisaged.
They must evolve and organise demonstrations of integrated
farming on farmers fields so that its adoption is better promoted
and encouraged.
Farm inputs suppliers, including the line departments of
governments, should extend knowledge as an input, sharing the
methods and compositions of using new complementary inputs and
resources with farmers.
The training of government extension workers at the central, state,
district and village levels must be organised by the ICAR and SAUs
with a focus on the new technology.
The village-level extension workers to farmers ratio has to be
improved from about 1:800/1,000 to 1:500 or so with the use of
information technology that will help spread their services to
individual farmers or groups of them.
Seed enterprises have to be developed in the public and private
sectors that are accountable for the quality of seeds they supply at
the grass-roots level.
The densities of suppliers that provide farm inputs, sources that
provide credit and agro-processing enterprises must be increased.
2) Public Expenditure on Agriculture:

inability of governments in the reforms period to bring about technical

changes in agriculture and achieve higher agricultural growth, public outlay
on agri very less as a percent of total outlay

Higher priority to:

Agricultural research, education and extension

Irrigation and flood control
Soil and water conservation and harvesting on a watershed basis.
Rural infrastructure such as soil-testing laboratories, roads, electricity,
regulated markets, Amul-type cooperatives for perishables, rural
financial institutions and employment guarantee schemes that
 concentrate on building community assets that directly contribute to
agricultural growth.

Profile of public spending on agriculture, irrigation and flood control and rural
development in the pre-reforms and reforms periods. Studied for two scenarios
one that excludes explicit food and fertiliser subsidies, and the other that
includes them:

Spending on agriculture, irrigation and flood control and rural development

in the total public expenditure
Expenditure on agriculture and irrigation and flood control in the total for
all three criteria
Expenditure on agricultural research, education and extension in the total
for all three criteria
Expenditure on irrigation and flood control in the total for all three criteria
The average percentage of increment in expenditure over the previous
plan for each of the above purposes

All low in post reform than pre reform barring one:

First one: 35 % during reform, 32 % pre reforms. Due to more public expenditure
on rural development schemes, increased spending on food subsidy.

Rather Public expenditure for technology-led agricultural growth is far more

desirable and higher public spending on agriculture research, education and
extension also because:

This spending was only 0.30% of agricultural GDP, which is much lower
than the international norm of 2%
Public spending for this purpose had a high value on the marginal product-
based internal rate of return 20.51% during the period 1966-67 to 1989-
90
To undertake location-specific evolution and transfer of the new integrated
farming technology by restructuring
3) Price Support for Agriculture:

Minimum support price (MSP), procurement price (PP) and procurement

operations, which include the quantity to be procured, and issue price (IP), the
price at which consumers are sold this quantity

MSP used in 1960s and 70s, discontinued, must be restored, because technical
change, high risk of rapid increase in production- incentivize farmers to adopt
technical change, protects them

IP should always be lower than the open market price for vulnerable consumers,
target the PDS carefully, poor earning $1.25 or less, prevailing method leads to
inclusion of card holders who do not need the PDS

PP should be based on V+ F cost. Currently adjusted for changes in barter terms

of trade, crop-input price ratio, inflation, parity with int prices. Should be
discontinued. Function of the PP is to facilitate procurement as a source of food
security for the poor and prevent the government-determined price from acting
as a leader in the market. Suggestions would lower PP, lower pressure to raise IP
and food subsidy.

4) Pricing Farm Inputs:

Prices of Phosporus(P), K decontrolled, N not. Affected price parity of NPK,

disproportionate use, affected natural resources. Introduced concessions on
decontrolled fertilizers, improved use ratio but increased subsidy. Therefore,
guided market of NPK based on long run cost of plants and bearance level of
farmers demand curve. Subsidy payment saved to raw materials (water,
electricity) supplier as they make fertilizers costly. The prices of water from
irrigation canals and schemes and electricity should cover the O&M costs of the
projects concerned. The price of electricity must be based on its volumetric
consumption, not a flat rate. But differential pricing for different users may be
adopted to cross-subsidise agriculture

Subsides: According to GATT- To poor, agri and rural devlpmnt, society benefits
more from it than pvt enterprise.

5) Implementation of continuous tech change:

Requires a multi-institutional model of organisation and management, agriculture

being a state subject, it is the states that have to bring about technical change

Central government play three catalytic roles when the Planning Commission
consults each state government for the formulation of its annual and five-year
plans

Visualising the outcomes related to seed/breed-cum-resource centred

technical change. Outcomes- productivity of field crops, livestock and
horticulture; the real agricultural GDP growth; poverty ratio; the change in
real earnings of farm labourers; and the incidence of food inflation. Form
basis of physical targets( seeds etc.) based on these outcomes, which
helps in estimating public expenditure required fro R&D, irrigation,
electricity etc.
Creating an institutional structure to integrate agricultural r esearch,
education and extension by forming an organisational committee
representing the agriculture departments of the central and state
governments, SAUs and the ICAR at both the state and district levels to
plan and guide the implementation of integrated farming
Reviving organisational committees at the state level that used to oversee
implementation of agricultural growth

Conclusion:

rapid growth of urban-based sectors during the reforms era has failed to
accelerate agricultural growth or reduce poverty
 because of inadequacies in providing the critical public goods on which
farm growth thrives
removing these inadequacies would facilitate achieving huge multiplier
effects
agriculture is land scarce and labour surplus, its growth requires
augmenting land and labour using new technology
technology could be seed-centred, resource-centred or seed/breed-cum-
resource-centred; the last being an integrated farming system
Agricultural policy in the reforms era has neglected all these options
require a big increase in public expenditure on agriculture research,
education and extension; irrigation and flood control; watershed
development; and rural infrastructure such as soil-testing laboratories,
roads, electricity
farm product price support must follow or accompany the advocated
strategy.practice of determining an MSP should be restored and must be
based on variable costs; the PP must be based on total costs without
considering various price parities
pricing fertilisers needs rationalisation based on a guided market principle
for N, P and K that is derived from the long-run average costs of the
enterprises manufacturing them and what the farmers demand curve can
bear
Subsidy on this input may be given to suppliers of raw materials.
Must have a multi- institutional model of organisation and management.
But this model needs reorientation to become effective and accountable
while integrating research, education and extension as well as field crops,
livestock and horticulture. Could be done by creating organisational
committees at the state and district levels