Crippling Effects of a Stunted Farm Sector : Daily Current Affairs

Relevance: GS-2: Issues Minimum Support Prices; Transport and Marketing of Agricultural Produce and Issues and Related Constraints.

Key Phrases: Farm sector, Farm reforms laws, Minimum Support Prices (MSP), Minimum wage, All-India Debt and Investment Survey, Rural-Urban disparity, public investment, Agriculture Science and Technology Indicators (ASTI).

Context:

It has been more than six months since the end of the 15-month-long agitation against the three farm laws.
Some of their demands were met, while their demand for a Minimum Support Prices (MSP) guarantee remains unfulfilled.
The farm sector needs reform to raise productivity, enhance farmers’ income, build market infrastructure, and address declining soil fertility.

Problems with the Agriculture sector:

Low wages:
- The latest data from the NSO reveals that the income of an average Agri-household in India was only Rs. 10,218 per month between 2018-19, which is much lower than the notified minimum wage in rural India of which, 40 percent of their income comes from wages.
- If implicit costs are included, the wage component goes up as high as 49 percent of the average income of farm households.
- The share of income that originates from cultivation alone has declined from 48 percent in 2013 to 38 percent in 2019.
Higher Debt:
- The data from the All-India Debt and Investment Survey, 2019 shows that 35 percent of rural Indian households are in debt, with about 44 percent accessing non-institutional (informal) sources of credit that charge exorbitant interest rates as high as 25 percent.
Disparity with other sectors of the economy:
- Agriculture could maintain parity with the other two sectors (industry and service) either by increasing its total factor productivity or increasing output for given inputs and/or labour productivity. It has failed on both accounts.
- The widening of the gap between agricultural and non-agricultural sector incomes, particularly since the late 1990s, and the inability of the industry to absorb “surplus” labour from agriculture, have worsened the disparity.
- Outside agriculture, the post-1990 growth spurt has been service-led.
- Today, the link between the farm sector and industry is tenuous. If the decline in profitability and productivity within agriculture has contributed to such raising disparities, the opportunities in the non-farm services sector have made farming even less attractive.
Rural-Urban disparity:
- Since the 1990s, India’s economic growth has been marked by an urban bias. The rural-urban disparity, as measured by the ratio of urban-to-rural expenditure, has gone up from 1.63 in 1993-94 to 2.42 in 2017-18.
- The decline of India’s agriculture and the rise of the urban-centric service-led economic growth has led to the widening of rural-urban disparities.
- For instance, in 1993-94, the ratio of urban-to-rural expenditure was 1.63, which widened to 1.92 in 2004-05.
- The gap stabilized to 1.84 in 2011-12 and it is unlikely that this trend would have been reversed since 2012 given policy shocks such as demonetization, stymying of MGNREGA, deceleration in real wages, and the collapse in international farm prices.
- The recently leaked data of the 75th round of NSSO for 2017-18 pegs the ratio at 2.42.
- This means that today, an average urban-dweller can consume almost 2.5 times more than an average person in a village.
Decreasing share in GDP:
- The share of agricultural output decreased in India’s GDP; it could neither sustain its level of investment in the farm sector nor could it adequately develop its public health and education infrastructure.
Decrease in investment:
- Public investment in irrigation, research and education has been declining since the 1990s.
- Most research and development initiatives in agriculture have either become redundant or lack basic infrastructure.
Agriculture industrialisation:
- Indian policymakers are attempting to industrialize (i.e., corporatize) the Indian agricultural sector by following the same trajectory as the US farm sector in the twentieth century.
- The conditions that facilitated agricultural industrialization in the US—larger farm sizes, the concentration of production in large firms, increased market penetration of inputs and services, and vertical integration of agricultural markets with the non-farm sector—do not exist in India.
- India cannot provide an equivalent amount of state support given its fiscal capacity, nor can it reallocate its labour from agriculture to manufacturing the way the US did.
- India does not have the resources or skills to adopt large-scale mechanisation like in the US farm sector as a substitute for labour shortages.
- India suffers from surplus labour in its farm sector and attempting to replicate such a pathway will not help India’s case.

India vs China:

China has increased its agricultural productivity while simultaneously enabling its peasants to transition to the non-farm sector by increasing social spending on education and health, as well as by investing in physical infrastructure and it has effectively reduced its agricultural workforce.
Farm size:
- The average holding size in India is 1.2 hectares (3 acres) as compared to 0.6 hectares (1.5 acres) in China.
Productivity:
- A comparison of yields for important food crop categories across India and China between 1961 and 2019 shows that China has consistently improved its agricultural productivity over India.
- While the yield per hectare for rice in India is 40,577 (kg/ha) as opposed to 70,601 in China, the yield for wheat is 35,334 (kg/ha) in India as opposed to 56,298 in China.
- These differences in productivity are not the result of agro-climatic conditions, since both countries share similar conditions.
- China’s increased productivity is a function of the methods and technologies used in farming and other policy factors.
- For instance, China’s water efficiency (the percentage of water applied and taken up by crops) is 53 per cent as opposed to 30 per cent in India.
Agriculture research:
- According to Agriculture Science and Technology Indicators (ASTI), India’s spending on agricultural research is 0.30 of farm GDP, half of what China (0.61 percent) spends.
On both accounts — increasing agricultural productivity and diversifying its workforce—India lags behind China.

Conclusion:

The future of farming seems bleak and the modern world of work seems out of reach.
Evidence from the Global South suggests that better agrarian transition takes place through human capital formation: health and education, along with increased farm productivity.
A successful agrarian transition results in higher productivity in both the farm and non-farm sectors, ensures food security for its urban population, and offers farm-surplus capital for investment in industries.
Other conditions for such a transformation: a concomitant industrial policy that takes into account the structural relationship between agriculture-industry that also provides urban infrastructure and social sector support, particularly investments in education and health.
Hence, the demand for equitable access to quality education and health care should complement the agriculture reform in India.