4 Summary of "Towards Inclusive Agricultural Development"

1. Macro Concerns: Agriculture and Development

Agriculture is a cornerstone of India's economy, employing about half the
workforce but contributing only 15% to GDP. In economically weaker states, its
role in employment and state domestic product is even more significant. Low
agricultural productivity has concentrated poverty in this sector, but improving
productivity can drive growth and reduce poverty by expanding domestic
markets for industry and stabilizing farmers' incomes. Unlike East Asian
countries, where labor shifted from agriculture to manufacturing, India's
structural transformation has been uneven. The agricultural share in GDP has
declined sharply, but the workforce remains heavily agricultural, with slow
growth in labor-intensive manufacturing and a dominant service sector
employing skilled labor. This has led to an expansion of low-paying informal
employment.
In some Asian countries, mechanization and diversification from food to
commercial crops have reduced agricultural employment and spurred rural non-
farm sectors. In India, however, agricultural employment decline is recent and
slow, exacerbated by inadequate rural infrastructure, leading to urban migration
and slum growth. Agricultural growth significantly impacts poverty reduction,
particularly in low-inequality settings with decent wages. Historical models
suggest a 10% increase in agricultural output boosts industrial output by 5%,
benefiting urban workers through employment and price deflation. However,
market fluctuations, especially in cereal prices, can destabilize the economy and
harm the poor, necessitating public intervention for price stabilization.
2. Agricultural Growth Performance
Before independence, Indian agriculture stagnated, with per capita output
declining from 1911 to 1941. Post-independence, the government prioritized
agriculture through agrarian reforms, irrigation, and infrastructure investments.
From 1949-50 to 1964-65, food grain production grew at 2.98% annually,
breaking structural stagnation. The Green Revolution (mid-1960s to 1980s)
achieved near self-sufficiency in food grains, with the 1980s marking peak
productivity growth (4.99% for food grains). The 1990s saw a decline to 3.1%
growth, and the 2000s and 2011-17 periods further slowed to 1.8% and 1.5%,
respectively. Food grain growth was particularly weak at 1.64% from 2011-17.
Cereal prices, which declined in the 1980s, rose in the 1990s and post-2000s,
hurting the poor. High-value crops like fruits and vegetables also saw slower
growth, signaling widespread agricultural stagnation across states, which
aggravates rural-urban disparities.
3. Agricultural Investment
Gross capital formation (GCF) in agriculture has declined relative to total GCF,
dropping from 18.4% in 1980-81 to 7.1% in 2010-11. Public investment in
agriculture, which once crowded in private investment, weakened over time.
Private GCF rose significantly from 1998-99 due to labor scarcity, favorable
agricultural prices, and expanded bank credit, yet this did not accelerate
agricultural growth, possibly due to labor-substituting investments increasing the
capital-output ratio. From 2011-17, total GCF in agriculture as a percentage of
agricultural GVA fell from 18.2% to 15.5%, reflecting a slowdown in investment
that needs urgent attention.
4. Agricultural Employment
In 2011-12, agriculture accounted for 47.5% of the workforce but only 14.1% of
GDP, highlighting low productivity. The service sector, with 58.5% of GDP,
employed just 27.9%, while manufacturing showed a balanced employment-GDP
ratio. Agricultural employment declined from 56.3% in 2004-05 to 47.5% in
2011-12, with a net fall of 33.3 million workers, including 27.2 million rural
female workers, partly due to male workers accessing better non-farm
opportunities. Rural non-farm employment rose from 19% in 1983 to 36% in
2011-12, driven by construction, trade, and services. Rural wages grew faster
post-reform, but urban wages remained higher. Mechanization, crop
diversification, and programs like MGNREGA have reduced agricultural labor
demand, while slower population growth and increased education have
constrained labor supply.
5. Productivity Convergence
Globally, high-income countries show converging agricultural and non-
agricultural labor productivity. In India, however, the productivity gap widened
from 1971 to 2011, with non-agricultural productivity six times higher than
agricultural by 2011. Long-term convergence requires improving land
productivity and facilitating labor mobility to non-agricultural sectors through
labor-intensive growth and skill development for farm youth.
6. Well-being of Farming Community
From 1993-94 to 2011-12, agricultural households declined from 68% to 55% of
rural households. Self-employed agricultural households saw moderate
improvements in monthly per capita expenditure (MPCE) and poverty reduction
but lagged behind non-agricultural households. Agricultural labor households
matched national MPCE growth but had lower absolute MPCE. Poverty declined
faster among non-agricultural self-employed households (4.66% annually) than
agricultural households (3.44% for self-employed, 3.11% for labor). States like
Punjab and Kerala, with high agricultural productivity and income diversification,
showed better outcomes. Factors like irrigation, road density, and urbanization
positively affect MPCE and poverty reduction, but low education and skills hinder
farmers' mobility to non-farm sectors.
7. Agricultural Incomes and Institutions
Farmers receive significantly lower prices than retail due to high middlemen
margins and capital-intensive marketing, limiting small farmers' market access.
The 2017 Agricultural Produce and Livestock Marketing Act aims to enhance
market efficiency through private markets, e-NAM, and direct marketing.
Initiatives like ITC e-choupals, Kerala's marginal farmers' markets, and
Maharashtra’s fruit cooperatives show promise in improving farmers’ bargaining
power. Land markets, distorted by outdated records and high transaction costs,
require reforms to encourage leasing and sales to small farmers. Credit access
for tenant farmers is limited by oral leases; solutions include registering tenancy
and organizing tenants into self-help groups. Zero Budget Natural Farming
(ZBNF) offers an eco-friendly alternative to chemical farming, reducing costs and
improving soil health, though its efficacy needs further validation.
8. Towards Inclusive Agricultural Development
East Asian countries reduced poverty through land reforms, infrastructure
investment, and human development, unlike India, where such reforms were
limited. Rights-based programs like MGNREGA and the National Food Security Act
offer incremental progress. Inclusive growth requires boosting agricultural
productivity, diversifying rural non-farm sectors, and promoting collective
institutions like self-help groups and producer cooperatives. Kerala’s Vegetable
and Fruit Promotion Council demonstrates the success of organizing marginal
farmers into federations, enhancing market access and bargaining power.
Addressing regional inequalities, improving governance, and ensuring political
commitment are critical for sustainable agricultural development.
9. Concluding Remarks
Agricultural growth has decelerated, with stagnant food grain yields and
declining commercial crop production. Low investment and rising farmer
indebtedness exacerbate distress. Transferring small farmers to productive non-
farm sectors, improving land productivity through technology, and maintaining
favorable terms of trade are essential. A bottom-up approach, as seen in Kerala’s
models, and collective institutions can empower farmers, ensuring inclusive
growth and poverty reduction.