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January 25, 2013

Rescue the farmer from agriculture

The current model of agriculture is unsustainable and grievous for the Indian farmer. 

How important is Agriculture to the Indian economy? Not much if one measures by the contribution of the to gross domestic product, which has steadily been decreasing. After two decades of pursuing new economic policies, the contribution from agriculture and its allied sectors has fallen from one-third in 1990 to less than 15 percent of gross domestic product (GDP) in 2011-12. The downward momentum is set to continue, the farm sector is in near stagnation while the other sectors of the economy are set to grow larger.

The worrying fact, however, is that the agricultural sector continues to employ more than half of the working population. The 66th National Sample Survey reveals that agriculture still employs about 52 percent of our total workforce. Therein lies the rub. About 52 percent of the working population is employed in a sector that represents just one-seventh of our economy and it is struggling to break the three percent growth ceiling. Any meaningful effort to put India’s growth rate into a higher trajectory should look at ways to increase the growth rate of the farm sector. The way for India to become a middle-income country runs through its farms.

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According to the State of Indian Agriculture 2011-12 report, the average size of farm holdings was 1.23 hectares in 2005-06. It has diminished progressively from 2.28 hectares in 1970-71 to 1.55 hectares in 1990-91. About 83 percent of farm holdings were with the small and marginal farmers (area less than 2 hectares), with marginal farmers (area less than 1 hectare) making the bulk of it – 64.8 percent.

The relationship between the size of the landholding and productivity has been debated since the 1960s in India. Some studies have found an inverse relationship between farm size and productivity while other researchers have found evidences to the contrary. The debate is now more of academic interest than of any policy implications as marginal farmers, however productive, cannot generate sustainable income.

Researchers at the National Centre for Agricultural Economics and Policy Research have pointed out that at least 0.8 hectares of land holding is needed for a farming family to stay above the poverty line. According to their report, about 62 percent of our farmers have holdings below 0.8 hectares (2 acres).

Agriculture is a risky business as its outcome depends on variables that are beyond a farmer’s control. The Mahatma Gandhi National Rural Employment Guarantee Scheme is a good example of one such. For much of rural India, the scheme has increased the wages of farm labour, as workers preferred digging and refilling holes rather than tilling the land in the hot sun. The point that even marginal farmers engage labour during sowing or harvesting got lost in details.

Low farm income and increasing livelihood expenditures have perpetually kept the marginal farmer in a debt trap. The numerous subsidies and periodical loan-waiver have only helped to keep the small and marginal farmers in ventilators. The only way to move them out of ventilator is by deploying them in other vocations. Farmers and farming are so romanticised and politicised in our country that it becomes quite difficult for anyone, especially the policy makers, to accept that there are just too many unviable farmers amongst us.

Empirical studies show that income insecurity issues tend to force small and marginal farmers to use far more resources than large farmers. The evidence of such overuse is already quite visible. In almost all parts of the country, the ground water has reached near depletion, the nitrogen, phosphorus and potassium (N-P-K) imbalances have worsened and rising salinity also indicate that drastic measures are required to improve soil health. A marginal farmer has no option but to go the hazardous extra mile. Blame lies with the paternalistic government that has kept a small farmer chained to his farm.

There is now growing consensus among policy researchers that only a significant boost in non-farm income can save these small and marginal farmers. However the consensus ends there. There is no consensus on how these millions of people find alternative non-farm incomes, that too in rural areas. Given our dispersed rural geography, it would be quite difficult for anyone to find a sustainable part-time income without actually being closer to an urban center. The buzzword in recent literature hopes that “agro-based rural industries” will create the income for these millions. While FDI in retail will create an efficient supply chain and bring a marginal increase in income along with jobs, it is hardly enough to bring millions above the poverty line.

Since the 1990s, the focus in agriculture has shifted from research to subsidies. The government should cut back on the subsidies and directly invest in the agricultural sector. A good start for investment is to look into financing of land acquisitions by willing farmers to help create medium holdings. Additional medium holdings will translate into meaningful returns to scale and more importantly be less resource intensive. While home mortgages are relatively easy to get, no financial institution is willing to lend money for agricultural land acquisition by farmers. Moreover, even with massive subsidies, mechanisation is not viable with smallholdings and the government needs to focus on creating a large-scale manufacturing sector to absorb re-skilled farmers and end their hardship as a subsistence farmer. Farming, apart from quarrying, is probably the toughest profession to be in with regards to manual labour. An all-weather hardened farmer will be an excellent asset to any manufacturer.

By design or by default, as the difference between urban and rural incomes widen, the invisible hand will eventually re-allocate human capital away from this sector. Political largesse might delay the eventuality but it might also result in large tracts of land becoming unarable. But can we afford the delay?

Photo: IITA


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