Is India’s policy negligence hurtling its agriculture down the MSME route?


The parable of ‘blind men and an elephant’ increasingly seems to represent India’s agriculture policies, just as it previously did for India’s Industrialization.

Planning in silos coupled with tenured postings has denied India policy continuity, accountability and efficacy. Despite overwhelming precedence, Indian policy makers have failed to recognise that ensuring rural growth demands a multipronged policy thrust. Over 55% India resides in villages. Shifting rural youth to industrial or construction jobs; innovation in sustainable farm technologies, finance and productivity; vocational education and training and finally storage, logistics and accessible markets must all tango in tandem. Only then does rural growth move the wheels of consumption resulting in sustained GDP growth.

Japan, Taiwan and Korea followed the British model to get their villages engaged in a bottom up manufacturing value chain. This resulted in improved grounds up process innovation, increasing productivity and increased rural household incomes.

China’s policy pragmatism, within 35 years, pulled 850 million people out of poverty through grounds up development. Within China, rewarding meritocracy and ensuring policy continuity, despite political transitions, was ensured. Rural development policies ensured rural bank credit access, vocational training, gender equality, nutrition and healthcare push. In its first six years of opening up from 1979, over 23.5 million rural youth found employment. By 1995 numbers had catapulted to 135 million, while vocational training had been imparted to more than half its youth. This constituted China’s productive and low cost industrial spine. Simultaneously, Chinese urbanization and housing thrust engaged millions of youth in infrastructure and construction jobs. Lack of labour laws, and devaluing yuan in 1994, rushed global investments to barter inflation free western growth through cheaper Chinese goods. This surged China’s exports, GDP and employment.

In agriculture, China invested billions of dollars in enhancing yields through seed and process innovations. Direct farm subsidy provided on per hectare basis, ensured farmers freedom to grow and amounted to more than $20 billion two years ago. China’s innovation driven productivity in most crops is almost double of India’s. Such policy pragmatism has benefitted 800 million Chinese farmers directly resulting in the biggest human income upgrade in world history. India’s GDP was greater than China’s till 1970. India’s small land holdings, poor farm processes, illiteracy and lack of irrigation, process and innovation thrust has traditionally left farmers rain God dependent. India’s shame during PL-480 imports, led to food grain self-sufficiency through green revolution(GR) initiatives. No efforts were however made to undo the adverse impact of this revolution on soil fertility, fertilizer overdependence, loss of genetic diversity. Lack of irrigation connectivity resulted in huge depletion of ground water aquifers. GR success overwhelmed our focus on balanced diet through nutrition per capita. Ignoring concepts like scaling of farm yield and produce size standardization cost India global market access. Minimum support price benefitted less than 10% of high end farmers, denying equity to small and marginal ones.

Meanwhile, India’s industrial policies failed to draw rural youth into employment, thus increasing poverty pressure on growing rural households. This is the genesis of social rural conflicts across India.

India’s socialist tilt denied it access to western global industry or agricultural supply chains for inflow or upgradation of technologies. Lack of trained and low cost manpower reduced our export promotion policy to licence procurement and import manipulations.

In fact, India’s liberalisation story is direct opposite of China. Post 1991, industrial employment plummeted while imports and economy grew. Growing figures in industries hid the ugly fact that average employment remained stagnant around 2 persons per unit, till 2004.

Drastic import tariffs cuts, reduced most manufacturers into becoming import dependent. India’s obtuse labour laws, inspector raj and plethora of compliances ensured that industries shed jobs to employ machines. India’s policy’s fascination for large industries for creating jobs, was totally misplaced as large units preferred automation rather than labour strikes. In the name of labour protection policies, India killed labour accountability, productivity and serious greenfield investments. Lessons from west and east on generating employment via small industries were totally ignored. Policy euphoria over growth in services overlooked the fact that services cannot replace manufacturing for providing bulk employment. Instead, India’s services sector growth upset the wage equilibrium across manufacturing industries. Liberalisation wiped out many of local, yet globally competitive industries. All these reduced India into becoming import dependent on China.

During past two decades, irrational policies have resulted in labour productivity and wage decline. Productivity slid from 10.3% during 2006-10 to 3.7% during 2016-18, while industrial wages plummeted over 5% between during 2011-15 to 2016-18, resulting in demand deflation.

In agriculture, India with one sixth global population has only 4% of world fresh water resources. Over half of India’s cultivable area is small holdings and rain dependent. Nearly 125 million land owners averaging only 0.6 hectares of holding suffer from low productivity, enhanced input costs and reduced market access. Bank nationalization thrust to ensure rural credit percolation fizzled post 1991, when many rural branches closed. Thereafter local moneylender dependence has increased farmer suicides.

The impact of liberalisation on agriculture was even more devastating than industry. Public distribution system reforms and shifting to WTO from GATT, timed India’s increased import dependence of pulses and oilseeds due to inadequate production technology, low yields and inability to match import prices. Lack of Israel like focus on terrain compatible cultivars, inefficient harvesting and fertilization processes along with lack of innovation in high yield seeds has been accentuated by issues of shifting climate patterns, increasing varieties of plant pests and high credit cost, turning agriculture into a hugely risky business. Inadequate storage and logistic solutions added with frequent policy flip-flop on export or import deny any farmer the opportunity to reap benefits of good rains or bountiful harvest.

The constant tussle between environmentalists and infrastructure development have reduced job possibilities in infrastructure sector. Even when dams get completed, their last mile irrigation connectivity potential is hampered by project delays, resultant cost overruns and poor execution.Lack of policy focus on rural healthcare, education, training and investment in irrigation infrastructure has seen agriculture share in its GDP drop from 33% to 17 % between 1991 and today. Effective policy interventions like crop insurance, digital agricultural markets, income tax waivers, free electricity, subsidised fertilizer and MSP have failed to rejuvenate India's rural economy. Leakages and inefficiency is rampant in food procurement. FCI in 2019 procured paddy at Rs 17.50 per kg, which became Rs 36 per kg for rice. Local market price of rice was Rs 28 per kg. FCI resultantly lost Rs 6 per kg, while distributing it for Rs 2.

India needs a drastic policy planning turnaround by introducing a ground up approach rather than top down. Rural and urban nutrition priority must shift policy focus on vegetables, fruit, lentils, food grain, dairy, fish and meats for national nutrition security. A holistic, pan India, Gandhian Antyoday Rural Plan must be evolved by consensus with all stakeholders in states, state governments, seed companies, local agricultural institutes and diverse farm input providers as well as related industries.  Soil and water mapping can help highlight input and infra facility gaps. Scientific growing, improved harvesting and storage practices, bio-tech solutions, water conservation and ground water recharge innovations, extending produce shelf life, soil conservation and cost saving initiatives must be identified, developed locally or imported to empower rural India into becoming a bountiful agricultural economy.

Laudable direct cash transfer(DCT) and e-market initiatives can be conjoined with innovative rural initiatives to bypass WTO restrictions on subsidies, while reducing farmers' uncertainties. About 20% of India’s current contract farmers must also be brought within DCTs ambit. India must end its cycle of poor crop yields that match its ineffective subsidies. A nationwide irrigation infrastructure can benefit from MNREGA funds to employ local villagers to create farm irrigation connectivity and ensure their maintenance. Shift in cropping habits from one geography to another must be carried out in a phased manner, in consultation with the stakeholders. MSP can thereafter be reduced by 10% each year while incentivising desired crop shifts through a lucrative subsidy.

For this, post offices can double up as banks for direct transfers and for deploying and disbursing various rural scheme funds for local area development. Farm related companies must be encouraged to educate local farmers on best practices in farm inputs, fertilizing, growth and storage while providing farm inputs on low interest credit, backed by post office payment guarantee. A regular appraisal of all policy initiatives, their efficacy and improvements must be carried out by farmer bodies in consultation with innovation institutes and seed and farm input providers. Policy makers must be excluded from micro planning and management.

Construction industry must be incentivised to ensure job creation and gainful migration and on-job training of rural unemployed. This will enhance rural household income, thereby triggering rural demand.

Public conflict with farmers breeds uncertainty and suspicion. What needs to be assured is that the immediate policy hardships would result in improved future for them and their next generation. Recall how Shastriji’s "miss a meal a week" initiative galvanized a hungry nation.

Great policy learnings can be acquired from the processes and institutional success of Operation Flood where over 75% of milk production comes from small and landless farmers, who finally retain approximately 70% of the consumer price. This price retention assurance has made this model a success, while benefiting over a 100 million farmer homes. A similar coordinated model for agriculture by encouraging district cooperatives, individual farmers, innovation institutions, state and central governments and linked rural stakeholders can shift India’s GDP gears to double figure growth.

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Views expressed above are the author’s own.



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