Agriculture Brief

Poverty in India is predominantly a rural phenomenon. About 70% of the population, and about 75% of the poor, live in rural areas and most depend on agriculture. Agriculture provides livelihood to 60 percent of the rural people and remains vital for food security. In recent years, the slowdown in agricultural growth has become a major cause for concern.     

 

The Government of India places high priority on reducing poverty by raising agricultural productivity. The World Bank too is assisting the country to build a solid foundation for a highly productive and diversified agricultural sector.

 

KEY CHALLENGES

 

Slowdown in Agricultural Growth.  In the past decade (1995/96-2004/05) India's agricultural growth rate slowed down to less than 2 percent per year, compared to about 3.5 percent per annum in the preceding decade.  In the poorest states, such as Madhya Pradesh, Orissa, and Rajasthan, growth in the last decade was below 1 percent per year. The stagnation of agriculture, the high proportion of poor dependent on it, and the widening rural-urban income gaps are the major concerns of the Government of India (GOI).

 

Low Agricultural Productivity.  With the fixed availability of land and water, higher agricultural growth can only be achieved by increasing productivity through effective use of better technology.  Yields of major crops (foodgrains, oilseeds, other cash crops) in India are lower than in many other countries - for example, rice yields in India are one-third of China’s and about half of those in Vietnam and Indonesia. Average yields are well below those attained in crop trials within India itself.  Moreover, yields in many of India's poorest states (Bihar, Orissa, Rajasthan, North-east states) are far below those of the richer states (Punjab, Haryana, Tamil Nadu). The virtual collapse of the agricultural extension system in most states limits farmers' access to better technologies and practices.  The effectiveness of the public agricultural research system is undermined by weaknesses in the agricultural research system such as a bias towards irrigated agriculture, weak prioritization and the proliferation of programs, top-down programs, and weak cost effectiveness.

 

Increasing Natural Resource Degradation.  The sustainability of land and water resources is at risk with increasing soil degradation and the overexploitation of groundwater in many areas.  In addition to erosion, salinity and alkalinity, soils are also losing carbon and micronutrients due to unbalanced fertilizer use.  Nearly 30 percent of the blocks in the country are presently classified as semi-critical, critical or overexploited as groundwater use exceeds the rate of groundwater recharge.

 

Subsidies are Crowding out Investments.  Public expenditures on agricultural subsidies such as for power, irrigation and fertilizers, have crowded out productivity-enhancing investments for irrigation development, agricultural research and extension, rural roads and electrification.   According to the Planning Commission, budgetary subsidies in agriculture increased from around 3 percent of agricultural GDP around the late-1970s to about 7 percent in the early 2000s.  During the same period, public investment in agriculture declined from 3.4 percent of agricultural GDP to 1.9 percent. 

 

GOVERNMENT PRIORITIES AND PROGRAMS

 

The Government of India's (GOI) goal is to raise the agricultural growth rate to 4 percent per year in the 11^th Plan period. To achieve this, the Plan aims to:

 

• Accelerate the expansion of irrigated area and improve water management in rainfed areas
• Bridge the knowledge gap through effective research and extension
• Foster diversification to higher value horticulture, fisheries, and animal husbandry
• Increase foodgrain productivity for food security
• Facilitate farmers' access to credit at affordable rates
• Improve farmer access to markets.

These issues are discussed in more detail below:

 

Water Resource Management and Irrigation. Water is a critical input for achieving higher agricultural growth and ensuring greater food security. Only about 40 percent of cultivated area in India is currently irrigated.   The GOI is putting emphasis on the more effective use of existing irrigation potential, as well as the expansion of irrigated area, and better water management in rainfed areas. The GOI’s Accelerated Irrigation Benefits Program aims to assist states to finish the construction of uncompleted major and medium irrigation schemes. Many states, however, lack the policy, regulatory, and institutional framework for efficient, sustainable, and equitable allocation and use of water, or for articulating the environmental costs of inefficient use. Many states often do not allocate sufficient public funds for the operations and maintenance of canals. This leads to the rapid deterioration of irrigation canals and reduces the availability of water to farmers. Limited cost recovery also limits funds for operations and maintenance and undercuts farmer incentives to use water more efficiently, leading to waterlogging and salinity problems in some areas. Some states have adopted participatory irrigation management on a wide scale to improve the management and sustainability of surface irrigation systems.

 

Free power to farmers by some states or highly subsidized power encourages the excessive use of ground water.  This has led to an increase in the over-exploited areas in the country and large fiscal costs to state governments. The political economy of power sector reform however impedes progress in this area.

 

Rainfed areas, where large numbers of poor live, cover 60 percent of cultivated area in India.  Watershed management, rainwater harvesting and ground water recharge can help augment the availability of water in rainfed areas. The GOI recently established the National Rainfed Areas Authority to develop an action plan for rainfed areas. In moving forward, some challenges that would need to be addressed include: (i) the multiplicity of programs and agencies (Ministry of Agriculture (MoA), Ministry of Rural Development (MoRD), Ministry of Environment and Forests (MoEF), donors) and the lack of consistency among programs within the state (scope, community participation, contributions); (ii) weak coordination among various agencies; and (iii) weak local institutions to ensure effective implementation.

 

Bridging the Knowledge Gap.  The GOI is providing additional resources for the National Strategic Research Fund. However, it would be critical to improve the governance and implementation structure of the Indian Council of Agricultural Research to improve its research effectiveness.  The Ministry of Agriculture (MoA) is seeking to improve the effectiveness of extension services by scaling up the Agricultural Technology Management Agency (ATMA) approach which builds on a bottom-up approach to extension planning and implementation.  It would be important to build on the successes of the ATMA pilots. These include decentralized decision making and funds flow, priority to institutional capacity building and training of extension staff on the new bottom-up approach to extension planning and implementation, and ensuring convergence of funds from the various departments at the district level. 

 

The GOI is also encouraging states to develop district plans for agricultural development based on agro-ecological potential. These district plans will be the basis for the formulation of the state agricultural development plans which would be supported under the proposed additional central assistance of Rs. 250 billion announced by the Prime Minister in May 2007.  Ensuring adequate stakeholder consultation and community participation in the development of these plans would strongly influence the success of this program.

 

Diversification of Production and Income Sources.  Rising incomes are driving the increased demand for higher-value fresh and processed agricultural products in domestic markets and globally. This opens new markets and income opportunities for farmers. Many of these commodities, however, are highly perishable and inadequate rural infrastructure (markets, rural roads, electrification) and services (market information, risk management) increase farmers' losses and inhibit the more rapid expansion of high value production.  The GOI recently launched the National Horticulture Mission -- the single largest agriculture plan scheme -- to promote increased horticulture production. The Bharat Nirman Program, which supports the expansion of irrigation, rural roads, electrification and telecommunication, will help reduce losses and marketing costs and improve the competitiveness of local products.  The MoA is also encouraging states to amend their Agricultural Produce Marketing Committee (APMC) Acts to liberalize the marketing of agriculture produce at the state level and improve farmer access to markets. So far, 11 states have adopted the amendments. In addition, the MoA is also promoting public-private partnerships to develop markets and is providing investment grants to encourage investments in agro-processing and marketing.

 

Ensuring Food Security. While pursuing crop diversification, an emerging concern is the stagnation in foodgrain production which is raising food security concerns.  The 11^th Plan approach paper notes that to achieve the goal of a 4 percent overall agricultural growth rate per year, foodgrain yields per hectare need to increase by at least 2 to 3 percent per year to compensate for the possible shift in cultivated area from foodgrains to high value crops.  To enable this, a concerted effort is needed to raise the relatively low foodgrain yields, particularly in Eastern and Central India.

 

Improving Public Expenditures.  In recent years, the GOI and state governments have exerted greater effort to cap the amount of various subsidies, while increasing expenditures on more productivity enhancing investments. The latter includes several centrally sponsored programs, such as the National Horticulture Mission, the Bharat Nirman rural infrastructure program, and the National Rural Employment Guarantee Scheme.  Participation of the poorest states in these programs is hampered, however, by lack of capacity to develop appropriate plans and implement them effectively.

 

Improving the Rural Investment Climate. Continuing trade and domestic regulatory reforms are encouraging increased investments in rural areas. These include the removal of most domestic marketing controls – for storage, movement of produce, credit, wholesale marketing, and food processing.  However, reforms of the institutional and policy framework for land are needed. Many states have computerized their land records/registration, but reforms of the institutional and data structures are essential to reduce the cost of land transfers and enhance tenure security in rural and urban areas (for example, eliminate overlapping property claims and facilitate access to credit). The bans or restrictions on land leasing limit the access to land by poor and landless rural households and drive tenancy underground. They also limit the productivity of land use.

 

Fostering Rural Non-Farm Growth. Diversification of incomes through rural non-farm activities is an important element of the overall strategy to address rural poverty.  More rapid growth of the rural non-farm sector is, however, constrained by government interventions in labor, land, and credit markets, as well as inadequate and poor quality infrastructure and services.  To improve access to credit in rural areas, the GOI is supporting reforms of the credit cooperative system.

 

WORLD BANK ASSISTANCE

 

The World Bank’s current agriculture portfolio consists of 21 projects for a total of $3.4 billion.Projects focus on:

 

Improving agriculture productivity and competitiveness

 

·         Water resource management, irrigation system rehabilitation and modernization, strengthening institutions (WUAs) and regulatory framework (allocation and mgt)

•   Strengthening agricultural research and extension system
  
•  Improving market infrastructure and services

Improving natural resource management

 

• Support for improved watershed management, participatory forest management,      

Fostering institutions of the poor

 

• Build institutions for the poor (SHGs), facilitate access to credit and links to markets

Recent analytical studies include:

 

• Re-energizing the Agricultural Sector to Sustain Growth and Reduce Poverty
• Land Policies for Growth and Poverty Reduction
• Unlocking Opportunities for Forest Dependent People
• Taking Agriculture to the Market
• India’s Water Economy: Bracing for a Turbulent Future
• State agricultural sector reviews