Sunday, June 12, 2011

India as a Super-Economy: Need for Agro Revolution?

The last few months have been somewhat of concern to well-wishers of the Indian economy. The estimates of GDP growth rate are being revised down wards to 8 percent. Manufacturing output has been erratic, and has in fact halved in April 2011 to 6.5 percent. Agricultural produce has been affected by unseasonal rains in various regions, affecting net agricultural output which otherwise could have recorded a greater high. Oil subsidy continues to be high despite periodic hikes in petrol and diesel prices. Foreign direct investment has shown deceleration. Continued inflation has forced the Reserve Bank of India (RBI) to mop up excess liquidity and raise interest rates. State Bank of India (SBI), India’s biggest bank suffered a steep fall of 99 percent in profitability due to unusual provisions. Most importantly, the automobile industry, especially the truck and bus sector, which is the established bell-weather of the Indian economy, whether of growth or recession, has shown distinct signs of serious slowdown.
On the governance front, controversies seemed to have numbed the governments from undertaking fresh policy reforms or liberalization measures. Infrastructure, widely expected to benefit from policy reforms, has not seen the dramatic policy push that was expected. In particular, power, roads, railways, airports, transportation, housing, irrigation, healthcare, education, and several other infrastructure sectors continue to be in need of greater policy thrust. Major public undertakings are consequently awaiting a leg-up in orders for infrastructure equipment. In the established industrial sector, design and manufacturing competitiveness is affected by a lack of innovative research and development as well as process upgrades. Export oriented units and special economic zones do not seem to have retained the favor of the policy makers. The stock markets have been trading 15 to 20 percent lower than the previous highs. The European debt contagion and the US public debt constraint continue to cast shadows over global recovery. The questions that should trouble the policy makers in India are whether the Indian economy is sufficiently insulated, has encountered a temporary speed-breaker or has entered a slow deceleration phase. 
Growth fundamentals
Fortunately, whichever way one analyzes the Indian economy, the growth story is intact in its fundamentals. There are no major emerging economies that offer the kind of investment landscape that India offers; the land space, the people resources, the factor advantages and the market potential. There is tremendous potential for a virtuous cycle of investments in all sectors of the economy, agriculture, manufacturing and mining and services, investment in each sector impacting the other sectors synergistically. There is every reason for global multinationals to invest in India not merely for cost arbitrage but also for value arbitrage.  The changing demographics in favor of the youth provide more working hands and higher purchasing power, with an opportunity to absorb several new product lines.
Liberalization, however, has also resulted in concentration of development in cities and in consumption sectors for the relatively well placed. The growth in city malls, multiplexes, posh offices, high end automobiles (largely imported), luxury residential apartments, galloping land prices are symptomatic of an economy growing to cater to the wealthy few. Although the theorists of top-down growth may argue that the cascade would soon reach the uncovered sectors, the progress seems to be agonizingly slow. Seventy percent of India’s population still lives in its 660,000 villages without proper connectivity. The produce of the rural economy seems to be at the mercy of nature and exploited for more sophisticated urban living, if at all. Modernization of agriculture and dovetailing of food processing industry with agriculture as in the United States, Israel or Japan seems to be woefully inadequate in India. In an economy faced with high inflation in food prices, millions below the poverty line not having access to adequate food and a growing consumerist society demanding multiple food choices, agriculture, rather than industry or retail, must rank in priority to lay solid foundations for sustainable economic growth. 
Growth equation
It is hypothesized that if the Indian agriculture grows at 8 percent per annum, industry and services grow at 12 percent per annum each and gross investment perks up to 40 percent of GDP, the Indian economy would coast to a comfortable and sustainable double digit growth trajectory. However, agriculture has been the Achilles’ heel of the economy, with average growth rates hovering around 2 percent per annum in some years. A completely rain dependent agricultural sector with small farm holdings, indigent farmers and lacking productivity techniques has little leeway to post higher growth rates. The alternative hypothesis that if India attracts greater industrial and infrastructural investments it would lead to a trickle-down effect on the rural economy has not been borne out. In fact, it has led to the opposite in terms of migrant labor leaving chronically poor rural areas to seek a living in urban, infrastructural and industrial construction. Research has established that while this trend may have provided short term alleviation from rural penury it has also impoverished the rural economy in terms of capable farm hands and has also resulted in disturbed social conditions both in rural and urban areas.
In order for agriculture to post robust rates of growth, economic development must squarely target the rural economy. Decades ago, the rural economy used to be a self-sufficient, regenerative economy based on farm animals, farm holdings and sharing of farm and agricultural produce. That model has become twisted over the last few decades with growth of urban agglomerations sucking out the rural produce as well as pulling out the rural labor, without commensurate reinvestment in the rural economy. The ‘Amul’ Gujarat Cooperative Milk Marketing Federation has been striking example, in the post-independent India, of how fruits of development could be collaboratively created and shared within the rural economy, leveraging the urban demand. National Dairy Development Board has been another example. Various state governments, thereafter, started their own dairy units. However, all of these are based on collectivizing the farm products for urban marketing. There is a need to broad-base agricultural economy beyond milk and milk products. Such a broad spectrum agricultural strategy needs to have six essential components.
Agro irrigation
The fundamental requirement for a sustainable agricultural revolution is the creation of huge water reservoirs. India has water resources which are much higher than those possessed by several countries; however, retention and utilization of water resources has been woefully inadequate. After the Bhakra Nangal, Hirakud and Nagarjuna Sagar dams of the 1950s and 1960s India has not been home to major agricultural dams. In contrast, the giant Three Gorjes dam in China demonstrates the continuing efforts by China to deploy new technologies to harness river water resources even more sweepingly than ever. India has at least ten major river systems and twenty medium river systems that lend themselves to a new wave of agricultural reservoir construction. Unfortunately, inter-state disputes have stalled progress on this very vital need. Successive river water tribunals have taken several years to resolve any of the inter-state disputes, with little beneficial impact.
Clearly, there is a need for a different approach to build new agro reservoirs on an expeditious basis. Two options could be considered. The first is to place 50 percent of all river water resources as national resources with equal distribution to all the riparian states, regardless of the upstream or downstream nature of individual states, and the balance 50 percent being available as state resources to be shared between upper and lower riparian states in a titrated ratio. The second approach is to establish a common agricultural grid of all the riparian states with equal sharing of all river dam construction costs, equal sharing of all river water resources and pooling of all agricultural produce with equalized prices. Each agricultural grid should have an inter-state agricultural authority to administer and adjudicate on the river water and riparian issues. Short of connecting all the rivers of India into one grid which could take several decades of negotiation and several subsequent decades of civil construction, the above two approaches would yield more immediate results.
Agro technology
Technology in the agricultural sector has been largely limited to the production side in terms of fertilizers and pesticides on one hand and tractors and farm implements on the other. Even here, as the controversies over the long term impact of fertilizers and pesticides, and more recently on the poisonous impact of Endosulfan shows, a much greater level of science and technology must be applied to make artificial soil enrichment and crop protection friendly towards soils, crops and humans. Even on tractors and farm implements, there is a need to design and manufacture products that are more ideally suited to small farm holdings and the varied soil conditions that are encountered in India. On a different but related plane, each mandal or panchayat must have a soil science and technology centre which tests and analyzes the soil conditions, pre-tilling and post-harvesting to recommend the right crops to be grown, the right seeds to be chosen, and the right fertilizers to be applied. These centers should ideally be run by the governments, offering services free of charge to the farmers. The investments would be more than recovered by enhanced farm productivity.
The role of agricultural technology exists acutely in the product side. There is a need to upgrade the harvesting, drying and milling technologies of food grains so that  rice and pulses are protected from the vagaries of nature and also  are classified scientifically in terms of calorific value and nutrition content. Science and technology, for example, can devise milling technologies that can provide rice with varying levels of polish, to suit different palates and different nutritional needs. Similarly, pulses and oil seeds can be put through technological filters for developing finished products catering to balanced and customized nutrition. As the recent contamination of bean sprouts and cucumbers in Europe shows, modern quality control and biological testing methods are required to ensure that agricultural produce meets the stringent requirements of human consumption. With the application of science and technology, the nutritional and medicinal properties of day to day agricultural products can be well characterized and applied as a first line approach to boosting human immunity. Agro technology can veritably lead to agro-driven human health revolution.
Agro logistics
Apart from product and process domains, the Indian agriculture needs a major improvement in logistics. The entire agricultural supply chain, from procurement of seeds to delivery of finished agricultural produce, is subject to many vagaries of weather, vicissitudes of input availability and prices, unpredictability of transportation, inadequacy of storage facilities, and above all an acute dependence on the governments for minimum support prices and seed distribution policies, and on banks and financial institutions for loans. Production of seasonal and value adding fruits is constrained by lack of cold chain transportation and cold chain storage facilities. In addition, lack of timely advice and access to communication facilities clouds farm level decision making. The governments have been making efforts to address these by strengthening the food corporation of India and the public distribution system on one hand, and establishing Kissan Call Centres on the other. However, these infrastructure facilities need to be modernized and expanded to meet an 8 percent growth target in agriculture. Priority must be on modern space management, pest and rodent proof containment and electronic tagging and retrieval systems.
Given the success of cooperatives in the dairy industry and private corporations in oil, spice and condiment industries, as well as the unique success of ITC in its eChoupal initiative it could be appropriate to forge public-private partnerships and joint ventures in agro logistics. While the governments could bring in land as their share of capital, private corporations could bring in technology and management. Such participation could be particularly valuable in cold chain technologies, including storage and distribution. Alternatively or as a supplemental initiative, a new corporation could be floated for cold chain logistics (on the lines of Container Corporation of India). It would appear that much of the attention of the governments has hitherto been on crop production and financing. It is time therefore that agro logistics comes in for attention in the plans of agriculture ministries, and within the ambit of the Central Government’s five year plans and annual union budget as well as the state budgets.
Agro business    
A significant value addition could accrue to the agriculture sector by bringing in agro business as an integral part of agriculture.  Apart from encouraging farmers to stay with farming through modernization and incentives, it would be appropriate to encourage the younger generation of the farmer community to take up agro business ventures. These ventures should ideally focus on food processing and development of packaged foods. Big corporations in the food processing industry and major retail chains can do their bit by outsourcing their requirements on such farm extension ventures. Given the urban preferences for convenience packaging and the retail interests in unitizing supplies, such ventures could extend from supply of packaged food grains, pulses and spices to cut vegetables.
A total transformation of the agricultural sector would, however, be possible if agricultural entrepreneurship, what may be euphemistically called “agropreneurship”, takes root in the Indian social psyche and economic environment. Entrepreneurship in business, and even in agro business, is seen as an urban phenomenon. Ministry of Agriculture, together with banks and financial institutions, should promote intensively say, for a period of 10 years agricultural entrepreneurship through competitive schemes, advisories and grants/low cost loans. Entry of big corporations in agriculture based business including retailing of agricultural products, must be mandated on encouraging agropreneurship to cover at least 5 percent of the turnover in the first five years and 10 percent of the turnover in the next five years. With these measures agropreneurship would become a self-sustaining movement in a period of ten years. 
Agro studies
As with any other sector, a dedicated educational and research base committed to development of agriculture backed by high quality infrastructure would support modernization of agriculture. Starting of agricultural colleges in the 1950s provided the first seeds of such movement. Unfortunately, compared to other streams such as commerce or pharmacy, specialized agricultural education has virtually languished in the country. With agriculture contributing to over 50 percent of employment and nearly 20 percent of the GDP in the Indian economy, and with the application of organized science, technology and management offering great potential it is time that agriculture should have its own specialized institutions. In contrast to this dire need, it is ironic that products of a few agricultural MBA programs are being lapped by industry and business.
Part of the solution could lie in creating a world class agricultural curriculum with a good blend of foundation courses (such as crop sciences, soil sciences, seed sciences, irrigation sciences and so on) and providing a superstructure of vertical specializations (such as agricultural forecasting, farm supply chain management, food processing technologies, agricultural biotechnology, crop genetics and so on). Simultaneously, fundamental and applied research in various aspects of agriculture would need to be specially funded and results of such research patented. It is difficult to envisage that agro studies would grow in scale and stature without such explicit support from the governments, private corporations and reputed universities. Perhaps, the Indian Institute of Management Ahmedabad which has pioneered management courses in agricultural management could be asked to propose a more holistic and forceful thrust for agricultural education.   
Agro governance
Despite the criticism that is often levied against the Indian model of governance, there is no doubt that but for certain concerted policies, initiatives and actions by the specially constituted ministries of agriculture and rural development, agriculture in India could have been in worse shape. The pioneering vision and commitment of Late C Subramaniam who championed the cause of agriculture as the minister for food and agriculture in the Indian Central Government in the 1960s and 1970s and the path-breaking work undertaken by eminent agricultural scientists such as Dr MS Swaminathan in ushering in the Green Revolution are striking examples. It needs to be debated if a sector as vast as agriculture can make do with only one ministry and a few institutions. For example, in the beginning of the blog post, it has already been mentioned that the state governments need appropriate intra-state and inter-state governance mechanisms to achieve an optimal utilization of India’s water resources.
Each of the initiatives mentioned here, namely agro irrigation, agro technology, agro logistics, agro business and agro studies need separate ministries both at central and state levels. In the event separate ministries cannot be constituted, the agriculture ministry itself should be elevated to the level of a super ministry with each of the departments as above also accorded the status of super departments. A new agricultural transformation vision which steps up the growth rate in agriculture and allied sectors to 8 percent, together with a renewed emphasis on, and enhanced allocations for, agriculture in the five year and annual plans would be feasible with a stronger ministerial and bureaucratic structure as suggested.
Indian farmers, resilient fighters
Despite the vagaries of weather, dependence on monsoon, vicissitudes of policies, poverty of farming community, the Indian farmers have been an ever-optimistic, gutsy society of growers. In fact, in 2010-11, thanks to their efforts, India has achieved a record production of food grains (236 million tonnes), pulses (17 million tonnes) and cotton (339 lakh bales). The agricultural and allied sectors have recorded an increase of 6.6 percent in performance for the year. Surely, the governments did their bit by increasing the minimum support prices, enhancing seed availability, providing advisory services, increasing loans and reducing interest rates to benefit farmers. With an aggressive growth vision and transformational agenda as outlined herein, the Indian agriculture could potentially scale up to an annual growth rate of 8 percent, assuring double digit growth rate for the economy. India’s quest for super economic power status would verily get its support from a resurgent farm economy.
Posted by Dr CB Rao on June 12, 2011   






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