Agriculture reform

SINCE THE beginning of economic planning in India, there has been a consensus among Indian policy-makers that industry must be the sector that propels growth. The reforms initiated in the 1990s were also marked by this implicit consensus. The result has been that the agricultural sector has been largely bypassed by direct reforms. That this policy has been economically shortsighted and socio-politically dangerous was acknowledged by the Prime Minister in his speech to the second Agriculture Summit on Wednesday, in which he spoke of the need for a “fundamentally new perspective on rural development and agriculture”.

It is not hard to see how important agriculture is to the development of the country. Agriculture continues to provide employment to 60 per cent of our population – which, looked at another way, is the majority of the consumer households of the country. There are sizeable inter-sector linkages – forward linkages between agriculture and agro-based industries, and backward linkages between agriculture and agricultural inputs industry. To give one numerical example, the share of inputs bought by the agricultural sector from the non-agricultural sector increased from 7.4 per cent in 1960-61 to 50.7 per cent in 1995-6 (1980-81 prices). It is not hard to see that agricultural reform is essential to not only spread the benefits of liberalisation, but to take the ongoing growth to a higher plane.

The PM’s diagnosis is correct: the rural and agricultural sectors suffer from deficits in public investment and credit, infrastructure, market economy and knowledge. To bridge these, there must be a “sustained effort” to pull subsistence farmers out of their marginal existence while propelling advanced farmers onto the global platform. The task is daunting due to its sheer scale. It is made all the more so because any meaningful agricultural reform must tackle sensitive issues of political economy, especially the issues of prices and subsidies. Offering a fair price to producers is a bitter pill that the middle class must be convinced to swallow. The politically powerful big farmer lobby must be weaned away from subsidies on fertilizers, power, irrigation, etc – which have grown to more than $12 billion annually, far more than both public and private investment in agriculture. Nonetheless, the growth and increasing affluence of the middle-class offers ample opportunity for growth and diversification of the agricultural sector. Food comprises 50 per cent of an average Indian household budget, and the consumer is demanding more variety and better quality. The government must begin by shifting the focus from subsidising production to incentivising investment by providing better infrastructure and letting the market take production decisions.