The Agriculture Dividend

Pessimism over India’s GDP growth rate has steadily mounted after the economy grew at a subdued 6.6 per cent in the quarter ending December 31, 2018.
 
Talk of eight per cent growth in 2019-20 has vanished. Most analysts expect growth in 2018-19 to be sub-seven per cent. The consensus among global institutions like the International Monetary Fund (IMF) and the World Bank is that with crude oil prices trending towards $70 per barrel, Indian GDP growth in 2019-20 will at  best be between seven per cent and 7.5 per cent.  

This is bad news for the economy. India needs more robust growth to accelerate the reduction in people living below the poverty line. The key to the problem lies in agriculture. Historically agricultural growth has been around three per cent a year. In contrast, services are growing at an average of nearly 10 per cent and industry at an average of around five per cent. Between them services and industry contribute 86 per cent to India’s overall economy.  

Excluding agriculture, and taking the relative weights in GDP of services and industry as 60 per cent and 26 per cent respectively, Indian GDP growth would trend at around eight per cent a year. Agriculture, growing at three per cent, drags the overall GDP rate down to seven per cent despite its low weightage of 14 per cent in India’s GDP.  

While the lack of land, labour and tax reforms has slowed industrial growth, it is agriculture that needs surgical reform. Indian agriculture has grown tortoise-like over decades. There is no reason, however, to believe that the agricultural sector should forever be consigned to low growth rates. Doubling the annual agricultural growth rate from three to six per cent will, despite its low weightage in the overall GDP pie, add a crucial 0.5 per cent to overall economic growth, taking India nearer to eight per cent GDP growth levels. For this to happen, agriculture needs deep reforms to boost productivity per acre by reprioritising crops sown, creating a new technological ecosystem, and revamping market distribution.  

In a well-researched article in the Hindustan Times, Nachiket Mor, who works with the Bill and Melinda Gates Foundation, developed the argument for increasing agricultural productivity by citing China’s success: “In March 2018, Nature magazine published a groundbreaking 10-year study by China Agriculture University involving millions of smallholder farmers adopting enhanced practices. Through a scaled, countrywide effort, farm productivity rose by 11 per cent while the use of nitrogen fertilisers – critical to increasing crop productivity, but also harmful to the environment when overused – declined by 14-18 per cent. The profitability of  the intervention, even before monetising the positive environmental impacts, was $12.2 billion.

“The programme was an impressive marriage of knowledge workers, researchers, farmers, new technology, and businesses – all supported by a committed government that stayed the course. The result stunned the scientific community for its scale, success and impact. Between 2005 and 2015, China Agricultural University led a nationally coordinated initiative for 20.9 million smallholder farmers in wheat, rice and maize to promote adoption of enhanced management technologies for greater yields and reduced environmental pollution. The project began by conducting over 13,000 field studies across all agro-ecological zones, from the subtropical south to the frigid north. Based on the trials, over 1,152 agricultural scientists from 33 agricultural universities collaborated with local farmers and experts to develop packages of recommended practices tailored to local conditions.”

This sort of collaboration between government, scientists, NGOs and farmers is lacking in India. Vested interests continue to oppose genetically modified (GM) crops which could significantly boost per-acre profitability. Enhanced Chinese agricultural productivity helped the country produce nearly 600 million tonnes of food grains in 2018. India, with only a slightly smaller population, has struggled to produce 300 million tonnes of food grains per year.  

The government’s Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) scheme has begun transferring Rs 6,000 annually to the bank accounts of small farmers (with holdings below five acres). But this is a palliative. Farmers need more than cash subsidies. They need technology, direct marketing and leased farming where corporates use the latest crop and meteorological technology to boost productivity. The farmer thus becomes a partner-landlord with the corporate-tenant providing expertise from farm to fork.  

Ajay Srivastava, an Indian Trade Services officer, in an op-ed in The Times of India takes this idea forward: “An expanded PM-Kisan scheme which replaces all subsidies except MSP and a reduced size MSP scheme would work best. This will keep us free from food grain imports, raise farmers’ income and significantly reduce pressure at the WTO. But for exports, we need a different strategy. We have many examples of successful practices – Dutch food and floriculture, French vineyards, Japanese intensive farming or Israeli water conservation techniques. Let us see what made the Netherlands the world’s second-largest food exporter. It has many farming centres of excellence focused on exports. They use glass houses. Produce pesticides-free fruit vegetables. Use 60 per cent less water. And drones to track crop growth.  

“Such practices need massive investments. In technology, they need farm to fork infrastructure, global certification of  farms and produce. Government and most Indian farmers are not in a position to make such investments. We may invite private participation in less than 1 per cent of arable land. Land can be taken on lease from farmers. No need to transfer land rights. This can be done by actively promoting contract farming ventures (CFVs) for large-scale exports. They will be like SEZs for agriculture.”  

It is through such innovation that Indian agriculture can climb out of  its decades-long rut of low growth. When over 50 per cent of a country’s population lives off agriculture but the sector contributes only 14 per cent to GDP, farmer distress is the inevitable consequence. Crucially too, boosting farmers’ incomes will drive rural consumption. Nearly 65 per cent of  Indians live in rural areas. A rise in their purchasing power, directly or indirectly through the farm sector, will deliver a powerful boost to the overall economy. Agricultural reforms, implemented well, have the potential to relieve farmers’ distress and return the economy  to a higher sustainable trajectory of growth.