PRE-SESSION READING FOR CLASS TEST [ BUSINESS & INDUSTRY/ SEM

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Excerpts from Note released by IIM, Bangalore - Agriculture in India

Backbone of Indian economy
Growth and sustainability of economy
Technology interventions
Irrigation infrastructure
Agricultural Credit
Modern agricultural practices
Employs 58.2% of total work force
Essential link in the supply chain of manufacturing sector
Market for industrial products [Farm equipments, Tractors]

Trends & Developments in agriculture

Growth of 5.2 5.7% [ depending on rainfall]

Share of agricultural exports increased to 10%
Guar gum - Indias largest item of agricultural export [Rajasthan, Haryana, Gujarat]

Guar gum used in fire retardant, pharmaceutical, textile, paper, explosive industry,
cosmetics, mining ; Higher tea output from Assam and West Bengal, Increase in coffee
consumption

The foreign direct investment (FDI) inflows in agricultural services and machinery sector
during April 2000November 2013 stood at US$ 1,666.49 million and US$ 338.01 million
respectively,

NABARD - loans for warehouses

Kirloskar Tata collaboration for largest circulating water pumping system at
Mundra, Gujarat
Indian Council of Agricultural Research (ICAR) has sought Rs 5,700 crore (US$
915.03 million) to strengthen Krishi Vigyan Kendras (KVK) in the 12th Five Year
Plan.

Government Initiative

Increased investment

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 Improve farm practices
Set up rural infrastructure
Credit
Use of technology & improved farming practices
100% FDI under automatic route in storage and warehousing of agricultural
products with cold storage
100% FDI for development of good quality, high yielding seeds
Chilli park at Haveri in Karnataka
Promotion of agricultural research
Development of horticulture in Andhra, North East and Himalayan states

Automatic route approval no approval of RBI needed.

Future

Growth of QSRs Quick Service Restaurants

Cold chain - growth 15-25%
QSR market to grow from Rs.3400 crores [2012-13] to Rs. 7000 crores [2015-16]
Surplus in wheat production
Contract farming boost in food grains, egg and milk production.

The agriculture sector that did well in 2013-14, owing to a good monsoon, is
expected to witness a sharp deceleration in growth to 1.8 per cent in 2014-15
from 3.8 per cent in 2013-14. Unlike last year, the monsoon is expected to be
weak in 2014, as El Nino conditions are expected to develop. El Nino refers to
changes in the direction of winds and the flow of warm water currents that raise
the surface temperature of parts of the Pacific Ocean. It affects rainfall in different
parts of the world. In India, in the last one decade, it coincided with droughts in
2002, 2004 and 2009. The deficient rainfall and high base of last year, is expected
to pull down the growth of the agricultural sector in 2014-15.

PROBLEMS FACED BY INDIAN AGRICULTURE

What are the critical issues in Indian agriculture?

Knowledge deficit

Infrastructure deficit problems of irrigation infrastructure, market infrastructure,

transport infrastructure

Lack of delivery mechanisms

In India, agriculture is dependent on the weather.

Greater support needed from Govt

Inefficient management of water bodies how much water stored, how much used for
irrigation.

Water use efficiency poor in India.

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Those who have better abilities to extract groundwater take away more than their share
of groundwater.

In coastal areas, groundwater can be mixed up with sea water. In some other areas,
groundwater levels go down drastically and wells become dry. Even drinking water
becomes difficult to have access to.

In India, tendency to focus more on wheat and rice. Less focus on producing coarse
cereals.

India, despite being an agrarian economy, has not been able to achieve self sufficiency
in foodgrains because we do not have adequate storage facilities and transportation
facilities. So there have been situations when foodgrains rot mainly because of failure of
delivery mechanism.

Ensuring food security has become the biggest challenge for India.

Failure of institutional arrangements set up by Govt to improve agriculture

Institutional arrangements to improve the state of agriculture in our economy have

failed. Making them work is a big challenge. With support of NGOs, the Govts effort in
running the Krishi Vignan Kendra has been successfully. NGOs have better organization
ability and scientists from Krishi Vignan Kendra have been able to collaborate well with
NGOs.

Reason for failure of institutional initiatives in agriculture in India

The problem lies primarily in our culture. It is said that ten Indians are equal to one
Japanese when it comes to executing plans. We have a democratic setup which allows a
lot of bureaucracy creeping into the system. Moreover, it has been observed that we are
inefficient especially when it comes to collective effort. It is a general perception that
cooperatives do not work well in capitalist nations, but we have seen a number of
cooperatives work efficiently in America. In contrast, Anand milk cooperative is the only
successful cooperative in our country. The solution probably lies in education.
There is no point in protecting agriculture jobs if we want cheaper food. With NREGS
rural wages have gone up including areas where there are fast growing urban centre.
With higher wages there is no incentive to produce agriculture crops and so for cheaper
food and cheaper agricultural produce the only option is to go for mechanization. It is
correct to the extent that it releases people from rural to urban areas which require more
people. Of course, there are problems associated but we need to see if it is alright if food
is expensive and either pay higher wages or leave it to the market to decide what food
prices should be. These are difficult choices and the balancing that needs to be done
involves a trade off between the long run and short run outlook. In the long run if we say
its okay to have higher food prices because we assume that with the current income
growth rate the per capita income will go up and food being a small part of income it is
not very important. However, in the short run we cant do that because there are a lot of
poor people. Hence we need to encourage mechanization. Also, it is increasingly very
difficult and expensive to rear animals even in the rural areas. There are no common
resources available any longer such as common forests or grazing lands so farmers have
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to go for confined feeding that means higher costs hence it is not feasible at all. Hence
animal husbandry is no longer feasible except the milch animals and that too in some
places. With all these changes mechanization is required.

around 73% farmers still depend to a large extent on informal channels for
credit.
Need for long term policy with respect to credit that allows some flexibility. For example
Govt can waive interest rate in a drought year. But as policy is uncertain, institutions
shirk away from getting credit to agriculture. Instead they give to poultry sector as they
can get returns quickly. Credit policy is vague and this creates a problem. Insurance is
an issue for farmers when his reimbursement is delayed for a long period of time. People
take time to understand new institutional mechanism.

Way forward
The critical issues in Indian agriculture are related to knowledge and infrastructure.
India has to become better at managing big systems. Need for private sector
participation and harnessing indigeneous knowledge to improve performance. Need for
making credit and insurance more accessible to small farmers.

What institutional reforms can be taken to increase the role of private sector
entities in the agriculture sector?

One aspect is the government rules and regulations. Either there is no legislation or
there exists a multitude of legislations. Getting through these complicated set of rules is
difficult and poses a big problem for private players. Even simple things like a warehouse
receipt system is a complicated issue in India. Ideally there should be a legislation which
helps people to come forward and offer these services with ease. Private players want
quick returns and this is not possible as returns in agriculture are slow to materialize.
Legislation is one major area the government that can be looked at to improve public
private partnership in the agriculture sector.

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