India’s agricultural policy debate needs to go beyond waiver of loans
Private entrepreneurship, not state push, should drive the change in agriculture.india Updated: Apr 05, 2018 08:02 IST
Speaking at the 84th plenary of the Congress, party president Rahul Gandhi promised another farm loan waiver, similar to the one given by the first United Progressive Alliance government in 2008. This raises a fundamental question. Should loan waivers be accepted as a regular policy measure to protect farmer interests? More than anything else, it is essentially an admission that agriculture is an economically unviable exercise.
Interestingly, Gandhi made these remarks just after underlining the need to carve out a different model of economic development for India, which is different from the Chinese and American models. It is to be expected that any such development model would also deal with the agricultural sector.
Agriculture accounts for less than 2% total employment in the US. The average farm size in the US is more than 1000 acres. In contrast, almost half of India’s workers are still dependent on agriculture for their livelihoods. According to 2013 (latest available data) National Sample Survey Office (NSSO) report, the average size of an operational farm holding in India is 0.6 hectares. India is closer to China in terms of how the agricultural sector is organised. According to the 2010 World Agriculture Census, the average farm size in China is less than 0.7 hectares. Agriculture still accounts for more than one-fourth of total employment in the Chinese economy.
Statistics from UN’s Food and Agriculture Organisation (FAO) suggest that Chinese farmers have been able to generate higher incomes than their Indian counterparts. This was not the case earlier. The per worker value added in agriculture in China was only 60% of the Indian value in 1980. This figure became 127% by 2016.
How did this happen? China reduced its share of employment in agriculture at a greater speed than India, which must have helped increase per worker value added. However, this is not the only reason for China’s farmers being better off than those in India. The value added in agriculture has been increasing at a much faster pace in China than India (Chart 1).
A 2015 Mint article by this author had argued that China’s recent success in agriculture was driven by state investment in agriculture. Policies such as farm loan waivers squeeze state capacity to increase investment in agriculture. Low investment can lead to deceleration in productivity gains in the long run. In the case of India and China, it can be seen in widening of yield gap for important crops (Chart 2).
One could argue that, unlike China, India is not a socialist state and therefore private entrepreneurship rather than state push should drive the change in agriculture. This brings up the question of who would actually undertake this effort. Data from a 201314 survey among farmers by CSDS, Lokniti shows that most Indian farmers would rather migrate to cities than live in villages. Only 19% of respondents thought that village life was better than living in a city (Chart 3).
Herein lays a fundamental problem of agriculture’s revival in India. Agriculture is seen as a terminal patient by both farmers and policy makers. This is why both of them are focused on administering regular palliatives to it. Unless this vicious cycle is broken, we will not go far in addressing the crisis in agriculture.