Sunday, February 28, 2016

Agriculture Sector needs a Transformation to ensure Sustainable Livelihoods for the Farmers and Food Security

The Economic Survey 2015-16 presented  in the Parliament by the Union Finance Minister Shri Arun Jaitley stressed on the declining growth in agriculture, owing to two consecutive drought years and due to decline in production and area sown of major crops.The agriculture sector needs a transformation to ensure sustainable livelihoods for the farmers and food security for the population. The transformation in agriculture has to be steered by raising productivity in agriculture, by investing in efficient irrigation technologies, and efficient use of all inputs. Economic Survey 2015-16  emphasizes that to improve productivity in agriculture in India needs to be guided by followings:

(i)                 Irrigation

To raise the productivity of agriculture in India there is need to expand the acreage under irrigation along with adoption of  appropriate technologies for efficient utilization of water through  suitable pricing. First, adoption of irrigation technologies which improve efficiency in the use of water is imperative in a scenario  where flood irrigation has resulted  in wastage of water. Second, focus on efficient  irrigation technologies  is owing to climate change and indiscriminate wastage of water in agriculture  and other uses. Having ‘more crop per drop’ through motto to improve  productivity  in agriculture which can ensure food and water security in the future.

Net irrigated Area to Total cropped area in India

                        As per the latest available data on irrigation, the all India percentage distribution  of net irrigated are to the total cropped area during 2012-13 was 33.9 per cent.  There is regional disparity in irrigated farming, with net irrigated area to Total cropped area at more than 50 per cent in the states of Punjab, Tamil Nadu and Uttar Pradesh, while it is at less than 50 per cent in the remaining States. There is need to scope for increasing  the coverage  of irrigated area  across the country to  increase productivity in agriculture.

There is need to arrest the declining trend in efficient utilization  of irrigation potential and also reverse it in the next two three years. A larger share of funds available under the Mahatama Gandhi National Rural Employment Guarantee Act (MGNEREGA)/ other employment  generating schemes need to be  deployed  for creating and maintenance of community assets including de-silting  and repair of  tanks and other water bodies that are used for irrigation.

Efficiency in Irrigation

                        Achieving efficiency  in the use of irrigation  systems will be the main determinant of agriculture productivity. The conventional systems of  irrigation have become on-viable in many parts of India due to  increasing  shortages of water, wastage of water through over irrigation, and concerns of salination of soil as per Task force on Agriculture (NITI Aayog, 2015). The introduction  of efficient  irrigation  technologies which are  both economically  and technically efficient like drip and sprinkler irrigation  can improve water use efficiency , reduce costs of production by reducing labour  costs  and power consumption.

Water Productivity

Water productivity at  the all India level is very low and needs to be enhanced through tapping, harvesting and recycling water, efficient on-farm water management  practices, mirco-irrigation (MI), use of waste  water and resource  conservation  technologies. The overall irrigation efficiency of the major and medium irrigation projects in India is estimated  at around 38 per cent. Efficiency of the surface irrigation system can be improved  from about 35-40 per cent  to around 60 per cent and that of groundwater from about  65-70 per cent  to 75 per cent.


The level of farm mechanization in India requires more to be done in terms of introduction of better equipment for each farming operation in order to reduce drudgery, to improve efficiency by saving on time and labor, improve productivity, minimize wastage and reduce labor costs for each operation. With shortage of labour for agriculture operations owing to rural urban migration, shift from agriculture  to services  and rise in demand for  labor in non- farm activities, there is need to use labour for  agriculture operation judiciously,  which makes a strong case for  mechanization of farming. The overall level of mechanization in farming is below 50 per cent in the case of majority of the farming operations in India.  With increasing fragmentation of landholdings and low rates of tractor penetration among small farmers, there is need for a market in tractor rentals, akin to cars and road construction equipment, driven by private  participation.  With suitable  mobile and internet  applications,  manufacturers of  tractors along with other stakeholders  need to deliberate  on this,  since it will also increase  demand for tractors.

The promotion of appropriate  farm equipment which are durable, light weight  and low cost, region, crop and operation specific using  indigenous/ adapted technologies need to be made available for small and marginal farmers to improve  productivity.

The basic inputs for increasing productivity  in agriculture is seed. It is estimated  that the quality  for seed accounts for  20-25 per cent  of productivity  (DAC&FW, 2015).
The issues that require immediate  attention  are:

(i)                 Affordability:

Seeds which are open pollinated verities can be developed  by farmers from  their own harvested crops.  However,  for high-yielding  hybrid verities, the farmer has to depend on the market for  each crop.\

(ii)                Availability:

                        Another concern is shortage in the supply of quality seeds. While there is a demand for banning  non-certified seeds, certification per-se does not ensure  quality seeds Ideally, facilitating  more  players (private and public) and competition in the market for seeds would improve availability  of quality  seeds at lower/comprehensive prices.

(iii)             Research and technology  for seed development.

Inadequate research and genetic engineering has been a constraint  in the development  of seeds/ seeds technology  in major crops during  the past few decades in India.  There is need to encourage  development  of seeds/ seed technologies  in both private and public sectors to initiate another round of Green revaluation. This development  should cover a all agriculture segments/ corps-cereals, coarse cereals, fruits and vegetables, pulses, oilseeds, animal husbandry  and pisciculture—simultaneously.

(iv)             GM crops and seeds:

                        Concerns  about affordability  of hybrids  and GM seeds, environmental and ethical issues  in cultivation of GM crops, risk to the food chain, dieses spread and cross pollination have resulted in their non-introduction . These issues needs to be debated, tested, evaluated, so that introduction of hybrids is facilitated in the next six months. The adoption of hybrid and HYV seeds is one definite pathway to raising productivity in  Indian agriculture.


                        Fertilizers is a critical and expensive input required to improve agricultural output.  To facilitate and promote the use of fertilizers in order to improve  productivity, the  Government  has been providing  fertilizer subsidy  to farmers. The fertilizer subsidy is around 10 per cent of the total agriculture  GDP in 2013-14.

There is a need to rationalize fertilizer subsidy in an input, crop and region neutral format and minimize diversions. The disbursal of subsidy on fertilizers should shift to DBT, the benefits of which will be maximized, if all controls (including imports) on the fertilizer industry/outputs are lifted simultaneously. In the case of P and K fertilizer subsidy, with the Nutrient Based Subsidy (NBS) scheme, a fixed amount of subsidy will be given on each grade based on their content.

Crop-responsive, balanced use of fertilizers:

It is important to facilitate the optimal use of fertilizers depending on the soil health and fertility status.  Linking the soil health card to provide profile of the soil and fertilizer on the basis of the same profile utilizing fertilizer, even if not subsidized can improve the yield of crops.

Micro nutrients and organic fertilizers:

Indian soils show deficiency of micro nutrients like boron, zinc, copper and iron in most parts of the country, which limits crop yields and productivity. According to agronomic trails conducted by the Indian Council of Agricultural Research (ICAR), fertilizers  which supplement  micro nutrients the range of 0.3 to 0.6 ton per ha. The micro nutrient deficiency can be overcome if there is expansion of the use of organic fertilizer.  Moreover, it is cheaper for small farmers to adopt and use organic composting and manure.  This can help improve and retain soil fertility. With 67 % of Indian soil characterized by low organic carbon, there is great scope for enhancing the use  of  organic fertilizers.

Nutrient Management:

Judicious use of chemical fertilizers, bio-fertilizers and locally available organic manures like farmyard manure, compost, vermin compost and green manure based on soil testing is necessary to maintain soil health and productivity.

Regional disparity in fertilizer consumption:

There are wide regional disparities in the consumption of fertilizers. These disparities in fertilizer consumption may be attributed to  the  availability  of irrigation facilities  in the high consuming  state since irrigation  is  a requirement for proper absorption of fertilizers.  I is necessary to reduce the disparities through appropriate   soil-testing  faculties and policy measures.


In India, the farmer’s crop yield losses range from 15 to 25 per cent owing to the presence of weeds, pests, diseases and rodents. However, the use of pesticides without following proper guidelines, use of sub standard pesticides and lack of awareness about pesticides  use are key concerns  in India. These practices have give rise to pesticide residues being found in food products in India, posing major threats to the environment and human beings.

Farmers need to be educated about the classification of insecticides on rte basis of their toxicity. They should also be advised whether specific pesticides are suitable for aerial application.

Being environment friendly, non-toxic and cost effective, bio-pesticides need to be promoted among small farmers to improve  productive  in agriculture.  There is need to address the problem of availability of credit on several fronts. In respect of high interest rates, DBT may be considered  to replace subvention  of interest rates. The intermediation and refinance model to promote agricultural credit needs to be revisited and replaced with  DBT that shall subsidize  the interest  paid by the farmer, instead of subsidizing  refinance to financial  institutions.

The ratio of agricultural credit to agricultural GDP has  increased from 10 per cent in 1999-2000 to around 38 per cent by 2012-13. However, the share of  long-term credit in agriculture or investment  credit has declined from  55 per cent in 2006-07 to 39 per cent in 201-12. The decline in needs to be arrested  and reversed.

The regional disparity in the distribution of agriculture credit also needs or be addressed.  In India, farmers can avail of crop loans up to  Rs. 3lakh at 7k per cent interest  and the effective  rate of  interest has been lowered to 4 per cent during 2015-16 for those who repay their loans promptly. These measures help farmers tide over short-term contingencies and price shocks which may affect their seasonal operations.

The small and marginal farmers with Kisan Credit Cards (KCCs) can also avail the benefit of interest subvention scheme extended  for a further period of  up to  six months (post-harvest) against Negotiable Warehouse Receipts (NWRs) at the same rate as  available  to crop loan to discourage distress sale of corps by small  farmers.

Agriculture  Extension Services

 Agriculture extension services  constitute another key input which can improve  productivity  in agriculture  by providing  timely advisory services to farmers to adopt best  practices, technology, meet with contingencies, market information etc.  In India, though there are multiple agencies offering agricultural advisory services, lack of functional autonomy, rigid hierarchal  structures  leading to lack of innovative  methods of  providing extension services  and coordination failures at multiple levels have resulted in inefficient  deliver of extension services.

There needs to be a shift to demand-driven agricultural advisory services that will cater to farmer, region and crop-specific needs. This can be done through a virtual connect, using IT (mobile and internet), integration of agricultural  extension services  with all stakeholders, their respective  hierarchy,  extension services  in other villages, blocks, agro climate  regions, largely for  sharing of information, suppliers of inputs, agro-processors, markets and their activity, especially price.

India Ranks First in Milk Production, Accounting for 18.5 Per Cent of World Production

The Economic Survey 2015-16 presented in the Parliament by the Union Finance Minister Shri Arun Jaitley emphasizes that the  Indian agricultural system is predominantly a mixed crop-livestock farming system, with the livestock segment supplementing farm incomes by providing employment, draught animals and manure. India ranks first  in  milk production, accounting for 18.5 per cent of world production, achieving an annual  output of 146.3  million  tones during 2014-15 as compared to 137.69 million tonnes during 2013-14 recording a    growth of 6.26 per cent. Whereas, the Food and Agriculture Organization (FAO) has reported a 3.1 per cent increase in world milk production  from 765 million tones in 2013 to 789 million tones in 2014.
            The per capita availability of milk in India has  increased  from 176 grams per day in 1990-91 to 322 grams per day by 2014-15. It is more than the  world average of 294 grams per day during 2013. This  represents a sustained growth in availability of milk  and milk products for the growing population Dairying  has become an important secondary  source of  income for millions of rural households engaged in agriculture. The success of the dairy industry  has resulted from the  integrated  co-operative system of milk collection, transportation, processing and distribution, conversion of the same to milk powder and products, to minimize seasonal impact on suppliers and buyers, retail  distribution  of milk and milk products, sharing of profits with the farmer, which are ploughed  back to enhance productivity  and needs to be emulated by other farm produce/producers.
In the poultry segment, the Government’s focus, besides framing suitable  policies for enhancing commercial poultry  production, is for strengthening the family poultry system, which addresses livelihood issues. Both egg and fish production has also registered an increasing trend over the years. Egg production was around 78.48 billion eggs in 2014-15, while poultry meat production was estimated  at 3.04 MT. Fisheries constitute about 1 per cent of the GDP  of the country  and 5.08 per cent of agriculture GDP. The total fish production during 2014-15 was 10.16 MT, an production during the last quarters of 2015-16 has also shown an increasing  trend  and is estimated at 4.79 MT( Provisional). There is increasing  significance  of poultry and livestock  products  in the context of diversifying  farm and non-farm activities  in the agriculture  sector to increase livelihood security.

Amidst Gloomy International Economic Landscape, India Stands as a haven of Stability

The Economic Survey 2015-16 tabled in Parliament  by the Union Finance Minister Shri Arun Jaitley presents an optimistic picture of Indian economy stating that amidst the gloomy landscape of unusual volatility in the international economic environment, India stands as a haven of stability and an outpost of opportunity. It says the country’s macro-economy is stable, founded on the government’s commitment to fiscal consolidation and low inflation. The Survey underlines that India’s economic growth is amongst the highest in the world, helped by a reorientation of government spending toward needed public infrastructure. Describing these achievements as remarkable, the Survey emphasizes that the task is now to sustain them in an even more difficult global environment.
The Survey further states that the country’s performance reflects the implementation of number of meaningful reforms. There is palpable and pervasive sense that corruption at the centre has been meaningfully addressed which has been reflected in transparent auctions of public assets. FDI has been liberalized across the board and vigorous efforts have been undertaken to ease the cost of doing business. Stability and predictability has been restored in tax decisions reflected in the settlement of the Minimum Alternate Tax (MAT) imposed on foreign companies. Major public investment has been undertaken to strengthen the country’s infrastructure. In the farm sector, a major crop insurance programme has been instituted. The Survey has highlighted creation of bank accounts for over 200 million people under Pradhan Mantri Jan Dhan Yojan (PMJDY), the world’s largest direct benefit transfer programme in case of LPG with about 151 million beneficiaries receiving Rs. 29,000 crore in their bank accounts and the infrastructure being created for extending the JAM (Jan Dhan Aadhar Mobile) agenda to other Government programmes and subsidies.

However, the Survey has expressed concern over approval of GST Bill being elusive so far, the disinvestment programme falling short of targets and the next stage of subsidy rationalization being a work-in-progress. It adds that corporate and bank balance sheets remain stressed affecting the prospects for reviving private investments. It further says that perhaps the underlying anxiety is that the Indian economy is not realizing its full potential.
The Survey states that the country’s long run potential growth rate is still around 8-10% and realizing this potential requires a push on at least three fronts. First, India has moved away from being reflexivity anti-markets and uncritically pro-state to being pro-entrepreneurship and skeptical about the state. But being pro-industry must evolve into being genuinely pro-competition. Similarly, skepticism about the state must translate into making it leaner. It emphasizes that the key to creating a more captive environment will be to address the exit problem which affects the Indian economy. Second, the Survey calls for major investments in health and education of people to exploit India’s demographic dividend to optimal extent. Third, it says that India cannot afford to neglect its agriculture.
The Survey points-out that the upcoming budget and economic policy will have to contend with an unusually challenging and weak external environment.  It suggests that one tail risk scenario that India must plan for is a major currency re-adjustment in Asia in the wake of a similar adjustment in China. Another tail risk scenario could unfold as a consequence of policy actions, to say, capital controls taken to respond to curb outflows from large emerging market countries, which would further moderate the growth. The Survey says that in either case, foreign demand is likely to be weak which requires to find and activate domestic sources of demand to prevent the growth momentum from weakening.
The Survey highlights that India stands out internationally as an investment proposition and the Rational Investor Ratings Index (RIRI) shows that India compares favourably with peer countries in the BBB investment grade and almost matches the performance of A-grade countries.

While reviewing the major developments, the Survey states that according to CSO the growth rate of GDP at constant market prices is projected to increase to 7.6% in 2015-16 from 7.2% in 2014-15. Although agriculture is likely to register low growth for the second year in a row on account of weak monsoons, it has performed better than last year. Industry has shown significant improvement on account of acceleration in manufacturing while services continue to expand rapidly. The Survey points out that even as real growth has been accelerating, nominal growth has been falling.

Among other indicators, the Survey states that low inflation has taken hold and confidence in price stability has improved. The Current Account Deficit has declined and foreign exchange reserves have risen to US$ 351.5 billion in early February, 2016. The fiscal sector registered these striking successes; ongoing fiscal consolidation, improved indirect tax collection efficiency and an improvement in the quality of spending at all levels of government. The Government Tax Revenues are expected to be higher than budgeted levels. Direct taxes grew by 10.7% in the first 9 months of 2015-16 while indirect taxes were also buoyant.

The Survey states that the aggregate capital expenditure by the government increased by 0.6% in 2015-16. This occurred both in the centre and states, with the former contributing 54% and the latter 46%.
In the economic outlook, real GDP growth for 2016-17 is expected to be in the 7% to 7.75% range. However, it cautions that if the world economy remains weak, India’s growth will face considerable headwinds. On the domestic side, two factors can boost consumption, increased spending from higher wages and allowances of government workers if the seventh pay commission is implemented and return of normal monsoon. At the same time, the Survey enumerates three down side risks – turmoil in global economy could worsen the outlook of exports, contrary to expectations oil prices rise would increase the drag from consumption and the most serious risk is combination of the above two factors.
The Survey cautions that one of the most critical short term challenges confronting the Indian economy is the twin balance sheet problem – the impaired financial positions of the Public Sector Banks (PSBs) and some corporate houses. The twin balance sheet challenge is the major impediment to private investment and a full-fledged economic recovery. Comprehensively resolving this challenge would require 4 RRecognition, Recapitalization, Resolution, and Reform.Banks must value their assets as far as possible close to true value (recognition) as the RBI has been emphasizing; once they do so, their capital position must be safeguarded via infusions of equity (re-capitalisation)as the banks have been demanding; the underlying stressed assets in the corporate sector must be sold or rehabilitated (resolution) as the government has been desiring; and future incentives for the Private Sector and corporates must be set-right (reform) to avoid a repetition of the problem, as everyone has been clamouring.

According to the Survey, the time is right for a review of medium term fiscal frame work. It adds that there are new developments in, and approaches to, medium term fiscal frameworks around the world from which India can usefully learn.
About inflation, the Survey says that increase in wages and benefits recommended by the 7th pay Commission are not likely to destabilize prices and will have little impact on inflation.

On the external outlook, the Survey says that overall exports declined by about 18% in the first three quarters. It points-out that in the last two years Indian services exports have been more affected than Indian manufacturing exports and also world service exports. Realizing India’s medium term growth potential of 8-10 percent will require rapid growth of export. To achieve trajectory similar to China, India’s competitiveness will have to improve so that its services exports, currently about 3 percent of world exports, capture nearly 15% of world market share.
On the issue of trade policy, the Survey says that introspection is overdue on five issues which are – providing support to farmers in light of WHO rules, mitigating the impact of erratic trade policy on farmers incentives, reconciling the “big but poor” dilemma that confronts India in trade negotiations, dealing with outgoing stresses brought on by the external environment, and engaging more broadly with the world on trade. The Survey underlines that India’s position in agriculture has changed, it has become more competitive and relies relatively more on domestic support. It suggests India’s WTO obligations could predominantly be based on this domestic shift away from border protection to domestic support. It further suggests that India could consider offering reduction in its very high tariff bindings and instead seek more freedom to provide higher levels of domestic support.
Stating that the trade policy is under stress also for reasons related to the ongoing turmoil in the international environment and the global demand is weak, the Survey suggests that India should resist calls to seek recourse in the protectionist measures, especially in relation to items that could undermine the competitiveness of downstream firms and industries. It also suggests that India should strengthen procedures that allow WTO-consistent and hence legitimate actions against dumping (anti-dumping), subsidization (countervailing duties), and surges in imports (safeguard measures) to be taken expeditiously and effectively.

Indian Economy making great strides in removing barriers to entry for firms, talent, and technology but less in relation to exit

The Economic Survey 2015-16 presented  in the Parliament by the Union Finance Minister Shri Arun Jaitley invokes the legend of the Charkravyuha from the Mahabharata describing the ability to enter but not exit, with seriously adverse consequences. The Indian economy has made great strides in removing barriers to entry for firms, talent, and technology but less progress has been made in relation to exit. Thus, over the course of six decades, the Indian economy has moved from ‘socialism with limited entry to “marketism” without exit’.

 The Economic Survey 2015-16  states that the case studies suggest that the challenge is more a feature of the relatively traditional sectors of the economy. It is not restricted to the public sector but is increasingly being seen in the private sector. India seems to have a disproportionately large share of inefficient firms with very low productivity and with little exit.  This lack of exit generates externalities that hurt the economy.

Impeded exit has substantial fiscal, economic, and political costs.
·         Fiscal Costs: Inefficient firms often require government support in the form of explicit subsidies (for example bailouts) or implicit subsidies (tariffs, loans from state banks).
·         Economic Costs: Misallocation of scarce resources and factors of production in unproductive uses including overhang of stressed assets on corporate and bank balance sheets.
·         Political costs: Government support to “sick” firms can give the impression that government favors large corporates, which politically limits its ability to undertake measures that will benefit the economy but might be seen as further benefitting businesses.

The Economic Survey analyses this exit problem with the help of the three I’s:
·         Interests: The power of vested interests confers greater power on concentrated producer interests in relation to diffused consumer interests. As a result it becomes difficult to phase out schemes and they become instruments of granting favors. For example, 50 percent of Central Sector Schemes that were allocated money in the Union Budget 2015-16 were 25 years old. Thus, extra vigilance is required to ensure that schemes remain relevant and useful over time.
·         Institutions: Weak institutions increase the time and financial costs of exit. For example, with rising non-performing assets, recourse to debt recovery tribunals (DRTs) has increased. The share of settled cases is becoming small and declining and the accumulated backlog of unsettled cases has increased manifold. Furthermore, inability to punish wilful defaulters questions the legitimacy of all institutions.

On the other hand, strong but inflexible institutions are unable to make risky decisions when departures from strict principles may be necessary for the economy.
·         Ideas/Ideology: The founding ideology of state-led development and socialism makes it difficult to phase out entitlements even as those intended for the poor end up accruing to the relatively better off.

The Economic Survey 2015-16 suggests five possible ways to address this problem. The first is promoting competition via private sector entry rather than change of ownership from public to private. Secondly, direct policy action through better laws like the Insolvency and Bankruptcy Code 2015 will expedite exit. Also institutions need to be made stronger but flexible by empowering bureaucrats and reducing their vulnerability.  Thirdly, increase the use of technology to remove persistent distortions by bringing down human discretion and layers of intermediaries. The fourth is increasing transparency and highlighting social costs and benefits of various schemes and entitlements. Finally, showcasing exit as an opportunity towards a newer and better tomorrow.