CHAPTER 1
Indian Agriculture: Performance
and Challenges
1.1 Agriculture is a critical sector of the Indian economy. Though its
contribution to the overall Gross Domestic Product (GDP) of the country has
fallen from about 30 percent in 1990- 91 to less than 15 percent in 2011-12, a
trend that is expected in the development process of any economy, agriculture
yet forms the backbone of development. An average Indian still spends almost
half of his/her total expenditure on food, while roughly half of India’s work
force is still engaged in agriculture for its livelihood. Being both a source
of livelihood and food security for a vast majority of low income, poor and
vulnerable sections of society, its performance assumes greater significance in
view of the proposed National Food Security Bill and the ongoing Mahatma Gandhi
National Rural Employment Guarantee Act (MGNREGA) scheme. The experience from
BRICS countries indicates that a one percentage growth in agriculture is at
least two to three times more effective in reducing poverty than the same
growth emanating from non-agriculture sectors. Given that India is still home
to the largest number of poor and malnourished people in the world, a higher
priority to agriculture will achieve the goals of reducing poverty and
malnutrition as well as of inclusive growth. Since agriculture forms the
resource base for a number of agro- based industries and agro -services, it
would be more meaningful to view agriculture not as farming alone but as a
holistic value chain, which includes farming, wholesaling, warehousing
(including logistics), processing, and retailing. Further, it may be noted that
in the last two Five Year Plans, it is clearly mentioned that for the economy
to grow at 9 per cent, it is important that agriculture should grow at least by
4 per cent per annum.
1.2 Achieving an 8-9 percent rate of growth in overall GDP may not
deliver much in terms of poverty reduction unless agricultural growth
accelerates. At the same time ‘growth with inclusiveness’ can be achieved only
when agriculture growth accelerates and is also widely shared amongst people
and regions of the country. All these factors point to just one thing: that
agriculture has to be kept at the centre of any reform agenda or planning
process, in order to make a significant dent on poverty and malnutrition, and
to ensure long-term food security for the people.
1.3 This chapter briefly reviews the status and performance of
agriculture, especially during the last two decades, and also presents what could
be the way forward, given our objectives of accelerated growth, inclusiveness
and the reducing of poverty and hunger.
Structure and Structural Transformation of Indian Agriculture
1.4 The agriculture sector in India has undergone significant structural
changes in the form of decrease in share of GDP from 30 percent in 1990-91 to
14.5 percent in 2010-11
indicating a shift from the traditional agrarian
economy towards a service dominated one (Fig 1.1). This decrease in agriculture’s
contribution to GDP has not been accompanied by a matching reduction in the
share of agriculture in employment. About 52% of the total workforce is still
employed by the farm sector which makes more than half of the Indian population
dependant on agriculture for sustenance (NSS 66th Round). However, within the rural economy, the share of income from
non-farm activities has also increased.
Fig 1.1:
Sectoral Composition of GDP
Source: CSO
1.5 The
average size of operational holdings in India has diminished progressively from
2.28 ha in 1970-71 to 1.55 ha in 1990-91 to 1.23 ha
in 2005-06 (Fig. 1.2). As per Agriculture Census 2005-06, the proportion of
marginal holdings (area less than 1 ha) has increased from 61.6 percent in
1995-96 to 64.8 percent in 2005-06. This is followed by about 18 percent small
holdings (1-2 ha.), about 16 percent medium holdings (more than 2 to less than
10 ha.) and less than 1 percent large holdings (10 ha. and above).
Fig 1.2: Average size (ha) of holdings as per different Agriculture
Census (for all size groups)
Source: Department of Agriculture and Cooperation,
Agricultural Census Division, Ministry of Agriculture.
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1.6 With the declining share of agriculture to GDP, the continuing high
pressure of population on agriculture and the increasing fragmentation of land
holdings leading to decreasing availability of cultivated land area per
household, the agriculture sector alone would hardly be in a position to create
additional employment opportunities to sustain the livelihood of the rural
households. This calls for creation of additional employment opportunities in
the non-farm and manufacturing sector, especially in agro based rural
industries which have area specific comparative advantage in terms of resources
endowment and development possibilities. This would require suitable skill
development of the people so as to gainfully employ them in non-farm
activities. This alone would be able to make agriculture viable in a
sustainable manner. In addition, by creating more employment and absorbing some
of the surplus labour in agriculture, this will contribute to achieving our
objective of inclusive growth.
1.7 Fragmentation of operational holdings has widened the base of the
agrarian pyramid in most states. Empirical studies have, however, demonstrated
that agricultural productivity is size neutral. Factors that determine
productivity favourably include among others an easy and reliable access to
modern inputs, access to suitable technology tailored for specific needs, the
presence of support infrastructure and innovative marketing systems to
aggregate and market the output from such small holdings efficiently and
effectively. In agricultural technology, the use of high yielding varieties as
in the case of Bt cotton and maize, economy in input use, the availability of
quality seeds and farming techniques such as system of rice intensification
enabled finally by marketing links all have high potential to improve yield.
Growth Performance of Agriculture
Overall Growth
1.8 The growth performance of the agriculture sector has been
fluctuating across the plan periods (Fig 1.3). It witnessed a growth rate of
4.8 per cent during the Eighth plan period (1992–97). However, the agrarian
situation saw a downturn towards the beginning of the Ninth plan period (1997–2002)
and the Tenth plan period (2002–07), when the agricultural growth rate came
down to 2.5 percent and 2.4 percent respectively. This crippling growth rate of
2.4 percent in agriculture as against a robust annual average overall growth
rate of 7.6 per cent for the economy during the tenth plan period was clearly a
cause for concern. The trend rate of growth during the period 1992-93 to
2010-11 is 2.8 percent while the average annual rate of growth in agriculture
& allied sectors-GDP during the same period is 3.2 percent.
Fig. 1.3: Growth Rates: GDP
(overall) and GDP (Agriculture & Allied Sectors)
Note: *
Figures for the Eleventh Plan show growth rates for the first four years of the
Plan.
Source: CSO.
1.9 The Eleventh Plan had sought to reverse the deceleration of
agricultural growth which occurred in the Ninth Plan and continued into the
Tenth Plan. It has had some success in that foodgrain production touched a new
peak of 250.42 million tonnes in 2011-12. Agricultural GDP growth has
accelerated to an average 3.9 percent growth during 2005-06 to 2010-11, partly
because of initiatives taken since 2004. As per the latest advance estimate of
National Income released by the Central Statistics Office (CSO), agriculture
and allied sectors are likely to grow at 2.5 percent during 2011-12 as against
7 percent during the previous year at constant (2004-05) prices. The Approach
Paper to Twelfth Plan drafted by Planning Commission estimates that with a
revision of the farm sector GDP growth rates for 2010-11 and the expected good
harvest in 2011-12, the average growth in agriculture & allied sectors in
the Eleventh Plan may be higher at 3.3-3.5 percent per year against a target of
4 percent.
1.10 The increasing divergence between the growth trends of the total
economy and that of agriculture & allied sectors suggests an under
performance by agriculture (Fig 1.4). It is also significant that unlike the
overall economic growth pattern, agricultural performance in India has been
quite volatile (the Coefficient of Variation (CV) during 2000-01 to 2010-11 was
1.6 compared to 1.1 during 1992-93 to 1999-2000). This is almost six times more
than the CV observed in the overall GDP growth of the country indicating that
high and perhaps increasing volatility is a real challenge in agriculture,
which is likely to increase in the years to come in the wake of climate change.
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Fig 1.4: Comparative Performance
of Growth of GDP and Agri-GDP
Note: Figures are at 2004-05
prices.
Source: CSO.
Regional Variations in Growth
1.11 The Indian agriculture growth pattern has been highly varied at the
state level. Since agriculture is a state subject, the overall performance of
the agriculture sector in India largely depends on what occurs at the state
level. There is a wide variation in the performance of different states. During
2000-01 to 2008-09, the growth performance of agriculture in Rajasthan (8.2%),
Gujarat (7.7%) and Bihar (7.1%) was much higher than that of Uttar Pradesh
(2.3%) and West Bengal (2.4%). The recent dynamics of erstwhile poor performing
states like Orissa, Chhattisgarh and Himachal Pradesh showing strong growth in
agriculture can be seen from Fig. 1.5 & 1.6.
Fig. 1.5: Average Annual Growth Rate (%) of Gross State Domestic Product
from Agriculture & Allied Sector, 1994-95 to 1999-2000
Source: CSO.
Note: GSDP estimates are at 1993-94 prices.
Fig 1.6: Average Annual Growth
Rate (%) of Gross State Domestic Product from Agriculture & Allied Sector,
2000-01 to 2008-09
Source:
CSO.
Note:
GSDP estimates are at 1999-2000 prices.
Crop-Specific Growth
1.12 During 2010-11, foodgrains production was 244.78 million tonnes,
comprising of 121.14 million tonnes during Kharif season and 123.64 million tonnes
during the Rabi season. Of the total foodgrains production, production of
cereals was 226.54 million tonnes and pulses 18.24 million tonnes. As per 2nd
advance estimates for 2011-12, total foodgrains production is estimated at a
record level of 250.42 million tonnes which is 5.64 million tonnes higher than
that of the last year production. Production of rice is estimated at 102.75
million tonnes, Wheat 88.31 million tonnes, coarse cereals 42.08 million tonnes
and pulses 17.28 million tonnes. Oilseeds production during 2011-12 is
estimated at 30.53 million tonnes, sugarcane production is estimated at 347.87
million tonnes and cotton production is estimated at 34.09 million bales (of
170 kg. each). Jute production has been estimated at 10.95 million bales (of
180 kg each). Despite inconsistent climatic factors in some parts of the
country, there has been a record production, surpassing the targeted production
of 245 million tonnes of foodgrains by more than 5 million tonnes during
2011-12.
1.13 Growth in the production of agricultural crops depends upon acreage
and yield. Given the limitations in the expansion of acreage, the main source
of long-term output growth is improvement in yields. A comparative picture in
average annual growth rates of area,
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production, and yield of different crops for two periods 1990-91 to
1999-2000 and 2000-01 to 2010-11 is given in Table 1.1. In the case of wheat,
the growth in area and yield have been marginal during 2000-01 to 2010-11
suggesting that the yield levels have plateaued for this crop. This suggests
the need for renewed research to boost production and productivity.
1.14 All the major coarse cereals display a negative growth in area
during both the periods except for maize, which recorded an annual growth rate
of 2.68 per cent in the 2000-01 to 2010-11 period. The production of maize has
also increased by 7.12 percent in the latter period (Fig. 1.7). In pulses, gram
recorded a growth of 6.39 percent in production during the same period driven
by expansion in the area under cultivation. Soyabean has recorded a high rate
of growth in production in both the periods, driven primarily by expansion in
area under cultivation. In fact oilseeds as a group have shown some significant
changes in the two decades: the production growth rate has more than doubled in
the decade of 2000s over the previous decade, driven both by productivity gains
(eg. groundnut and soyabean) as well as by area gains. The average annual
growth rates of production and productivity of groundnut during 2000-01 to
2010-11 are abnormally high due to high fluctuations in the production and
productivity during the years 2002-03, 2006-07 & 2007-08. The trend growth
rates in the production and productivity of groundnut during 2000-01 to 2010-11
work out to 1.66 per cent and 2.63 per cent respectively. Fruits &
vegetables have shown a higher growth in production and area in 2000-01 to
2010-11 as compared to 1990-91 to 1999-2000.
Fig 1.7: Area, Production &
Yield of Maize
Source: Directorate of Economics
& Statistics, Ministry of Agriculture.
1.15 The biggest increase in the growth rates of yields in the two
periods, however, is in groundnut and cotton. Cotton has experienced
significant changes with the introduction of Bt cotton in 2002 (Fig. 1.8). By
2011-12, almost 90 percent of cotton area is covered under Bt. cotton,
production has more than doubled (compared to 2002-03), yields have gone up by
almost 70 percent, and export potential for more than Rs 10,000 crore worth of
raw cotton per year has been created. More such revolutions to accelerate
agri-growth are needed.
Fig. 1.8: Area, Production &
Yield of Cotton
Source: Directorate of Economics & Statistics, Ministry of
Agriculture.
Table
1.1: All India Average Annual Growth Rates of Area, Production and Yield of
Principal Crops (%)
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Crops/Crop Groups
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1990-91
to 1999-2000
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2000-01
to 2010-11
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A
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P
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Y
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A
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P
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Y
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Rice
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0.70
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2.09
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1.36
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-0.39
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1.32
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1.47
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Wheat
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1.62
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4.52
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2.87
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0.57
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1.39
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0.73
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Maize
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0.85
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2.24
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1.37
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2.68
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7.12
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4.13
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Coarse Cereals
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-2.42
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-0.08
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2.03
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-0.13
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5.0
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4.64
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Total
Cereals
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-0.12
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2.29
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2.38
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-0.09
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1.82
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1.69
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Gram
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0.88
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3.86
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2.97
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4.31
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6.39
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1.19
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Tur
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-0.45
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1.89
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2.03
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2.58
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1.89
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-0.65
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Total
Pulses
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-0.91
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1.06
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1.82
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2.30
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4.02
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1.21
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Total
Foodgrains
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-0.27
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2.19
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2.43
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0.34
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1.95
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1.37
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Groundnut
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-2.25
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-2.40
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-0.30
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-1.08
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13.13
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12.76
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R &
M
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2.28
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4.82
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2.96
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2.76
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6.26
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2.72
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Soyabean
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11.01
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16.37
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4.67
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4.15
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8.31
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4.17
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Oilseeds
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0.75
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2.53
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1.76
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1.27
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7.00
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5.18
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Sugarcane
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2.25
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3.16
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0.91
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1.95
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2.12
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0.03
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Cotton
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1.42
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0.93
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-0.54
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2.66
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12.12
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9.15
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Note: A: Area, P: Production, Y:
Yield
Source: Directorate
of Economics & Statistics, Ministry of Agriculture.
1.16 Structural change in the composition of agriculture leading to a
diversification of Indian agriculture into horticulture, livestock and
fisheries since the 1990s is a landmark development with great challenges and
unlimited opportunities. The share of livestock in
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total output from the agriculture and allied sectors has increased from
20% in Triennium Ending (T.E.) 1990-91 to 25% in T.E. 2009-10 (at 2004-05
prices). Currently foodgrains constitute about one fifth of the total value of
output from the agriculture & allied sector which is less than the
contribution from the livestock sector and almost equal to that of the
horticulture sector (Fig. 1.9 & 1.10).
Composition (%) of Output of
Agriculture & Allied Sectors
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Fig. 1.9: T.E. 1990-91
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Fig. 1.10: T.E. 2009-10
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Source: CSO
1.17 The shares of fruits & vegetables and livestock have shown an
increasing trend in recent years implying that they have been growing at a much
faster rate than the traditional crops sector. Given the rising share of high
value commodities in the total value of agricultural output and their growth
potential, this segment is likely to drive agricultural growth in the years to
come. Being highly perishable in nature, this segment requires faster and
better linkages between farms and firms in terms of logistics, processing and
organised retailing. This would entail institutional changes that can
incentivise entrepreneurs to invest in building efficient and faster value chains
that reduce wastages, and increase the incomes of the farmers at the bottom of
the chain.
Drivers of Growth in Agriculture
Investment
1.18 In recent years, the share of Gross Capital Formation (GCF) of
agriculture & allied sector in total GCF has hovered between 6 to 8 percent
whereas it was around 18 percent during the early 1980s (Fig 1.11). This
indicates that the non-agriculture sectors are receiving higher investment as
compared to agriculture & allied sector over the plan periods resulting in
growth disparities. Though this is in line with the overall falling share of
agriculture in the overall GDP, and also conforms to the development process
observed elsewhere in the developing world, yet keeping in view the high
population pressure on agriculture for their sustenance, there is need for
substantial increase in investment in agriculture.
Fig. 1.11: Per cent Share of
Agriculture & Allied Sector in Total Gross Capital Formation
Note: All the figures are at
2004-05 prices.
Source: CSO.
1.19 The key indicator in drivers of agri-growth is GCF in agriculture
as a percentage to agri-GDP. This indicator, GCF in agriculture & allied
sector as percentage of agri- GDP, increased from 7.0% during the First Plan
(1951 -56) to 10.8% during the Fifth Plan (1974 -79) after which it followed a
declining trend up to Eighth Plan (1992-97); when it came down to 8.8 percent.
From the Ninth Plan (1997-2002) onwards, a reversal in trend has been achieved partly
due to the efforts of government schemes and programmes, resulting in an
increase in GCF to 13.9 percent of GDP (agri) during the Tenth plan (2002-07).
It has further risen to 18.7 percent of agri-GDP during the first three years
of the Eleventh Plan. Thus, as a percentage of agri-GDP, the GCF (agri) has
more than doubled during the last decade (Fig. 1.12). Yet, the agriculture GDP
growth has not accelerated commensurately, though it has improved over the
growth rates achieved in the Ninth and Tenth Five Year Plans.
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Fig. 1.12: GCF (Agri) as a (%) of
GDP (Agri)
Note: All the figures are at
2004-05 prices.
Source: CSO.
1.20 While the GCF as percentage of agri-GDP has improved substantially,
there has not been a commensurate improvement in the rate of growth of the
agriculture sector. Another aspect, which impacts agricultural development
relates to subsidies. The biggest of all these input subsidies is the
fertilizer subsidy, and there are clear indications that it has led to an
imbalanced use of N, P and K in states like Punjab and Haryana and has also
contributed to deteriorating soil conditions. The expenditure on subsidies
crowds out public investment in agriculture research, irrigation, rural roads
and power. Lower public investment due to more emphasis on provision of subsidy
will only further deteriorate the quality of public services like uninterrupted
power supply, in some cases involving macroeconomic inefficiencies such as
private investment in diesel generating sets. This leads to under utilization
of power capacity due to poor distribution and maintenance.
1.21 There are some research studies available to show that the marginal
returns evident in terms of poverty alleviation or accelerating agricultural
growth are much lower from input subsidies than from investments in rural roads
or agri-R&D or irrigation (Sheggen Fan et al., 2008). There is always a
trade-off between allocating money through subsidies or by increasing
investments. The investment option is much better than subsidies for sustaining
long-term growth in agricultural production and also to reduce poverty faster.
Fig. 1.13: Share (%) of Public
and Private Investment in Agriculture & Allied Sectors
Source:
Directorate of Economics & Statistics, Ministry of Agriculture & CSO.
1.22 It is interesting to note that while public investment in
agriculture is critical and important, in actual terms, it forms about 20
percent of the total investment in agriculture; 80 percent comes from the
private sector (Fig. 1.13). In the early 1980s, for example, the share of the
public sector and private sector (including household sector) in gross capital
formation in agriculture was roughly equal, but by the early 2000s, the share
of the private sector was four times larger than the share of the public sector
at 2004-05 prices. Moreover, the private sector responds much better and faster
to the incentive structures in agriculture. Hence, along with bringing in
greater public investment in agriculture, there is a need for bringing in
reforms in the incentive structure.
Irrigation, Seeds, Fertilizers and Credit
1.23 There is no doubt that the overall size, quality, and efficiency of
investment are always the key drivers of growth in any sector. In case of public investments in agriculture, as
defined in the National Accounts Statistics, more than 80 percent is accounted
for major and medium irrigation schemes. Even in the case of private investments in agriculture,
almost half is accounted for by irrigation (minor, primarily through
groundwater, but also now increasingly drip, etc.). So irrigation remains the
most dominant component in the overall investment in agriculture. Without
proper use of water, it is difficult to get good returns on better high
yielding seeds and higher doses of fertilizers. Water will remain a critical
input for agriculture in the decades to come until science develops seeds that
can thrive in dry climate with very little water. The net sown area has
remained around 141 million hectares during the last 40 years. The cropping
intensity, i.e., the ratio of gross cropped area to
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net cropped area, has however,
gone up from 118 per cent in 1970-71 to 138 percent in 2008-09.
Fig. 1.14: Movements in the gross
cropped area, net sown area, net irrigated area and gross irrigated area,
1950-51 to 2008-09
88
63
1.24 India currently has an overall irrigation potential in the country
of 140 million hectares, out of which only about 109 million ha have been
created, and around 80 million ha utilized. The current efficiency levels of
public surface irrigation schemes (major and medium irrigation schemes) can be
substantially improved through appropriate institutional reforms, better
management and incentive environment. It may involve engaging water user
associations, or some other groups and agencies, and even by unbundling the
large surface schemes into storage (dams), transmission (main canals) and
retail distribution of water (distribution at the farmer level). Groundwater
irrigation, which is a bigger source of irrigation today, suffers from
over-exploitation in most of the states, particularly in the north-west where
the water table is depleting drastically. Free or low pricing of power for
irrigation has primarily contributed to this problem. Major reforms in the
power sector, improvement in the quality of power and availability of power are
a precondition for improving the overall groundwater situation in the country.
1.25 Gross Irrigated area as a
per cent of Gross Cropped area has increased from
34
percent in 1990-91 to 45.3
percent in 2008-09. However, there are wide variations in irrigation coverage
across states and across crops as can be seen from Figs 1.15 and 1.16,
respectively.
Fig. 1.15: State-wise Irrigation
coverage 2008-09.
(Percent)
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UTTARAKHAND
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JHARKHAND
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Source:
Directorate of Economics and Statistics, DAC.
1.26 While Punjab (98), Haryana (85), Uttar Pradesh (76), Bihar (61),
Tamil Nadu (58) and West Bengal (56) have more than half of the cropped area
under irrigation, Odissa, Rajasthan, Madhya Pradesh, Karnataka, Chhattisgarh,
Himachal Pradesh, Maharashtra, Kerala, Jharkhand and Assam have very low
acreage under irrigation. Among crops, the major coarse cereals, pulses and
most of the oilseeds are grown under rainfed conditions.
Fig 1.16: Crop-wise Irrigation
coverage, 2008-09
(Percent)
Source: Directorate of Economics and Statistics,
DAC
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1.27 An analysis of the net sown area, extent of irrigation and cropping
intensity (Fig 1.17) reveals that Uttar Pradesh, Bihar, Andhra Pradesh and
Tamil Nadu have ample scope to increase their cropping intensity as they have
fairly large acreage under irrigation. States with high irrigation can have
higher cropping intensity with a suitable change in cropping pattern by growing
crops and varieties with durations that suit the crop growth and fit into the
crop sequence.
Fig 1.17: Net Sown Area, Extent
of Irrigation and Cropping Intensity Net Sown
Area, Irrigation & Cropping Intensity in major States in 2008-09
UTTARAKHAND
JHARKHAND
1.28 Seed is considered to be a catalyst of change in agriculture. The
Green Revolution in India during the late sixties and seventies bears witness
to this truth. And lately, during the decade of 2000s, Bt cotton seeds and
hybrid maize seeds have shown spectacular results. The major difference in the
two periods is that earlier these high yielding seeds came from public
institutions, but lately they are increasingly coming from the private sector
in selected crops. The Seeds Bill seeks to answer some
of these concerns, while increasing the level of
public investment in domestic R&D, along with institutional reforms that
can deliver. Overall, the seed replacement rate has been improving, but much
more can be done in this regard to give a boost to productivity through seed
improvement.
Fig.
1.18: Production and Distribution of Seeds in India
Source:
Directorate of Economics and Statistics, DAC.
1.29 Fertilizer forms another important input in
agriculture growth. While the overall consumption of fertilizer has increased
from 70 kg per ha in 1991-92 to 144 kg per ha by 2010-11, (Fig. 1.19 &
1.20) the N, P, K balance particularly, in high fertilizer use areas(e.g.
northwest) is seriously distorted. It is apparent that an integrated nutrient
management approach is required to enable a balanced use of fertilizers for
optimum results. Also, the setting up of adequate capacity for soil testing
needs to be continued.
Fig.
1.19: Consumption of Fertilisers in India
Source: Directorate of Economics and Statistics, DAC.
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Fig. 1.20: Share of Nitrogen,
Phosphatic, and Potassic Fertilizers in total fertilizer consumption during
2000-01 and 2010-11
1.30 Credit to buy modern inputs for farming operations, is a
facilitator in this change. While the overall credit to agriculture has been
growing phenomenally during the last five years or so, and the interest rates
for farmers have also been reduced to 7 percent (4 percent after taking into
account the 3 percent subvention in interest for timely repayment of crop
loans), yet the biggest challenge remains in terms of increasing access to
credit, particularly for the bottom 40 percent. More innovative models are
needed to reach this category as they rely largely on the informal sector for
credit with high rates of interest.
Emerging Demand—Supply Imbalances
1.31 With the Indian economy growing at 8 percent and higher expenditure
elasticity of fruits & vegetables and livestock as compared to cereals,
there is an increasing pressure on the prices of such high value perishable
commodities. The per capita monthly consumption of cereals has declined from
14.80 kg in 1983-84 to 12.11 kg in 2004-05 and further to 11.35 kg in 2009-10
in the rural areas. In the urban areas, it has declined from 11.30 kg in
1983-84 to 9.94 kg in 2004-05 and to 9.37kg. in 2009-10. The agricultural
production basket is still not fully aligned to the emerging demand patterns.
Trade in Agricultural Commodities
1.32 The policy reforms of the 1990s more or less eliminated the bias
against agriculture by lowering industrial tariffs and correcting for the
overvalued exchange rates which lead to an improvement in the terms of trade in
favour of agriculture. This was followed by a calibrated liberalization of
agri- exports and imports. As a result, Indian agriculture has increasingly been
opened to global agriculture with the ratio of agricultural exports and imports
as a percent of Agricultural GDP rising from 4.9 percent in 1990-91 to 12.7
percent in
2010-11. (Fig 1.21) This is still low as compared to the share of India’s
total exports and imports as a percent of India’s GDP at 55.7 percent India is
a net exporter of agricultural commodities with agricultural exports
constituting 11 percent of India’s total exports. However, the share of
agricultural exports in India’s overall exports has been declining from 18.5
percent in 1990-91 to 10.5 percent in 2010-11.
Fig 1.21: Trend in Trade of
agricultural commodities
Source: CSO, DGCI&S.
1. 33 Bringing in reforms to streamline domestic markets and expanding the
infrastructure and institutions to connect local markets with national and
global markets, will go a long way in improving India’s competiveness and the
benefits from trade liberalization.
Public-Private Participation in Indian Agriculture
1.34 The private sector involvement in Indian agriculture is a recent
development. This is apparent in initiative such as infusion of new
technologies like BT cotton, hybrid seed technology in maize; in a
mainstreaming of the fragmented small holders by integration of rural business/
service hubs (RBHs) at the back end and agro-processing industry and organized
retailing at the front end. Successful examples like Bt cotton, hybrid maize,
pusa basmati rice, etc. suggest beneficial outcomes comes from public sector
partnership with the private sector farmer groups and the like. The government
has to play a more proactive role as coordinator, facilitator and also as a
regulator. Higher investment in basic infrastructure like roads, canal waters,
watersheds, check dams, etc. will attract private investment in other areas of
the supply chain.
1.35 Future breakthrough technologies in agriculture will come
increasingly from the pri-vate sector, and India’s private sector has the
strength to multiply those technologies and to reach millions of farmers (big
and small) in the fastest possible way. There is a need to
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channelize these sources in an orderly manner, so that in the process,
apart from the private sector profitability, the farming community is also
benefited. This will assist in pushing Indian agriculture to a higher and more
sustainable growth which would be the most powerful engine for poverty
reduction. For areas where the private sector has not shown much interest such
as rainfed areas, tribal areas, natural resource management, pulses, mil-lets,
the role of public research system would continue to be critical.
Price Policy
1.36 Though with economic liberalization and gradual integration with
the world economy, relaxation of export controls on several agricultural
products since 1991 have helped agricultural exports, there are still
occasional interventions by the government (for example, export bans on wheat
and rice, or limits on the stocking of grains by private trade that dissuade
the private sector players from investing in the agri-system. However, one of
the main government interventions in the agricultural markets currently is its
policy of minimum support prices (MSP) for agricultural commodities. For
procurement of horticultural commodities which are perishable in nature and not
covered under the Price Support Scheme, with a view to protect the growers of
these commodities from making distress sale in the event of bumper crop during
the peak harvesting periods when the prices tend to fall below the economic
cost of production, a Market Intervention Scheme (MIS) is implemented on the
request of a State /UT Government which is ready to bear 50 percent loss (25
percent in case of North-Eastern States), if any, incurred on its
implementation.
Marketing and Warehouse Facilities
1.37 In the context of foodgrains policy, concern has been raised about
simultaneous occurrence of high food inflation and large foodgrains stocks in
our granaries. It has been argued (Kaushik Basu, 2011) that, in creating a
better foodgrains policy, it is imperative that the entire system of foodgrains
production, procurement, release and distribution is looked at. Besides
improving storage facilities there is a need to redesign the mechanics of
procurement and release of foodgrains to the market to ensure that the impact
on prices is substantial in the desire direction. An improvement in marketing
conditions and encouragement to private sector participation can be achieved by
reforming the Agricultural Produce Marketing Committee (APMC) Acts. Appropriate
changes in the APMC Acts can boost private sector investment in developing
regularized markets, logistics and warehouse receipt systems, futures markets,
and in infrastructure (such as cold storage facilities, quality certification,
etc.) for imports and exports. This is particularly relevant for the high value
segment that is currently hostage to high post-harvest losses and weak
farm-firm linkages. The introduction of the Model Act in 2003 was directed
towards allowing private market yards, direct buying and selling, and also to
promote and regulate contract farming in high value agriculture. Although many
states have adopted the new Model Act, with modifications, its impact on
farmers in terms of better prices for their produce and a reduction in the high
differences between farm harvest prices and consumer prices is not yet visible.
Land and Credit Markets
1.38 The linking of small and fragmented farms with large-scale
processors and retailers remains a challenge in the high value sector, and
restricted land (lease) markets tend to compound the problem. Allaying the
fears of a farmer regarding possible alienation from his own land because of
leasing it out to the retailer/processor require the freeing up of land lease
markets. Legalizing lease markets also protects the interests of the retailer/
processor, and enables him to undertake larger investments. In this context, it
may be helpful to ensure the registration of land deeds and the computerization
of land records for bringing about greater transparency and reliability. Some
states have made a beginning in computerizing the land records, but most others
have a long way to go. The land and credit markets are intricately linked, and
improving the marketability of land will enhance access of farmers to
institutional credit that requires the pledging of collaterals.
The Way Forward
1.39 The significance of agriculture sector in India is not restricted
to its contribution to GDP, but that on account of its complementarity with
other sectors. It has far reaching ability to impact poverty alleviation and
rural development. There are several areas of importance for the agriculture sector
growth. These include, among others, enhancing public sector investment in
research apart from effective transfer of technology along with institutional
reforms in the research set up to make it more accountable and geared towards
delivery, conservation of land, water and biological resources, the development
of rainfed agriculture, the development of minor irrigation, timely and
adequate availability of inputs, support for marketing infrastructure, an
increase in flow of credit particularly to the small and marginal farmers.
1.40 Achievement of food and nutrition security and alleviation of
poverty and unemployment on a sustainable basis depend on the efficient and
judicious use of natural resources (land/ soil, water, agri-biodiversity and
climate). Inefficient use and mismanagement of productive resources, especially
land, water, energy and agro-chemicals has vastly reduced fertility and damaged
the physical, chemical and biological properties of the soil. The limit of land
availability for agriculture has already reached. Our continued inability to
judiciously use these non-renewable natural resources can have serious
implications.
1.41 The transition from traditional to high value agriculture will be
primarily driven by private investments, which are three fourths of total
investments in agriculture. However, to ensure that this happens smoothly and
rapidly, government policy needs to act as a catalyst by way of providing
greater investments in R&D, roads and public irrigation.
1.42 A strategic vision for agriculture must factor in three important
elements: (a) India’s comparative advantage; (b) efficient markets at home and
freer trade; and (c) environmental sustainability. The agriculture sector calls
for major reforms, from marketing to investment and institutional change,
especially in water management, new technologies, land markets and creation of
efficient value chains.
1.43 The subsequent chapters give in detail the progress made in each
component and various programmes of agriculture, and the way forward.
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