STATUS OF AGRICULTURE IN INDIA

STATE OF AGRICULTURE IN INDIA

INSIGHTS

The agriculture sector employs nearly half of the workforce in the country. However, it contributes to 17.5% of the GDP (at current prices in 2015-16).
Over the past few decades, the manufacturing and services sectors have increasingly contributed to the growth of the economy, while the agriculture sector’s contribution has decreased from more than 50% of GDP in the 1950s to 15.4% in 2015-16 (at constant prices).
India’s production of food grains has been increasing every year, and India is among the top producers of several crops such as wheat, rice, pulses, sugarcane and cotton. It is the highest producer of milk and second highest producer of fruits and vegetables.
In 2013, India contributed 25% to the world’s pulses production, the highest for any one country, 22% to the rice production and 13% to the wheat production. It also accounted for about 25% of the total quantity of cotton produced, besides being the second highest exporter of cotton for the past several years.
However, the agricultural yield (quantity of a crop produced per unit of land) is found to be lower in the case of most crops, as compared to other top producing countries such as China, Brazil and the United States.
Although India ranks third in the production of rice, its yield is lower than Brazil, China and the United States. The same trend is observed for pulses, where it is the second highest producer.

Agricultural growth has been fairly volatile over the past decade, ranging from 5.8% in 2005-06 to 0.4% in 2009-10 and -0.2% in 2014-15.

Such a variance in agricultural growth has an impact on farm incomes as well as farmers’ ability to take credit for investing in their land holdings.
Key issues affecting agricultural productivity include the decreasing sizes of agricultural land holdings, continued dependence on the monsoon, inadequate access to irrigation, imbalanced use of soil nutrients resulting in loss of fertility of soil, uneven access to modern technology in different parts of the country, lack of access to formal agricultural credit, limited procurement of food grains by government agencies, and failure to provide remunerative prices to farmers.
Some of the recommendations made by committees and expert bodies over the years include bringing in agricultural land leasing laws, shifting to micro-irrigation techniques to improve efficiency of water use, improving access to quality seeds by engaging with the private sector, and introducing a national agricultural market to allow the trading of agricultural produce online.

State of Agriculture

Agricultural productivity depends on several factors. These include the availability and quality of agricultural inputs such as land, water, seeds and fertilizers, access to agricultural credit and crop insurance, assurance of remunerative prices for agricultural produce, and storage and marketing infrastructure, among others.
As of 2009-10, more than half of the total workforce (53%) of the country, i.e. 243 million persons were employed in agriculture.
The share of population depending on agriculture for its livelihood consists of landowners, tenant farmers who cultivate a piece of land, and agricultural labourers who are employed on these farms.
Agriculture sector’s contribution to the Gross Domestic Product (GDP) decreased from 54% in 1950-51 to 15.4% in 2015-16, while that of the services sector increased from 30% to 53%.3,2 While the agriculture sector’s contribution to GDP has decreased over the past few decades, the contribution of sectors such as manufacturing (employing 10.5% of the population) and services (employing 24.4% of the population) has increased.

Agricultural production and yield

Total production of food grains increased from 51 million tonnes in 1950-51 to 252 million tonnes in 2015-16.
According to the second advance estimate by the Ministry of Agriculture, food grains production is estimated to be 272 million tonnes in 2016-17.
The production of wheat and rice took off after the green revolution in the 1960s, and as of 2015-16, wheat and rice accounted for 78% of the food grains production in the country.
The country’s requirement for food grains in order to provide for its population is projected to be 300 million tonnes by 2025. The estimate of food grains production in 2015-16 is 252 million. This implies that the crop output needs to grow at an annual average of 2%, which is close to the current growth trend.
Agricultural yield of food grains has increased by more than four times since 1950-51 and was 2,070 kg/hectare in 2014-15. However, India’s yield is low when compared to countries such as China, Brazil and the USA.

Food security and nutrition

Besides providing for the livelihood of farmers and labourers, the agricultural sector also addresses food security for the nation.
The Food and Agricultural Organisation (FAO) of the United Nations defines food security as a situation where all people have, at all times, physical and economic access to sufficient, safe and nutritious food that meets the dietary needs and food preferences for a healthy and active life.
Despite high levels of production in the country, 15% of the population continues to be under-nourished, as per 2014 estimates.
India enacted the National Food Security Act in 2013. The 2013 Act aims to provide food and nutritional security to people by ensuring access to adequate amount of quality food at affordable prices. Under the 2013 Act, persons belonging to certain categories are provided with food grains (wheat, rice and coarse cereals) at subsidised prices. As of 2015, 68% of the population, i.e. 81 crore persons (of which 77% are in rural areas and 23% in urban areas) are covered under the Act.
Over the past few decades, with increasing per capita income and access to a variety of food groups, the consumption pattern of food in the country has been changing. Dependence on cereals for nutrition has decreased and the consumption of protein has increased.

Agricultural trade

Major commodities imported to India are pulses, edible oils, fresh fruits and cashew nuts. Major commodities exported by India are rice, spices, cotton, meat and its preparations, sugar, etc.
Over the past few decades, the share of agricultural imports in total imports has increased from 2.8% in 1990- 91 to 4.2% in 2014-15, whereas the share of agricultural exports has reduced from 18.5% to 12.7%.
India’s trade policy is affected by factors such as domestic availability of commodities, cost of production as well as global price levels.
However, frequent changes in trade policy, such as reducing the import duty on a commodity in response to a shortage in supply or decreasing minimum export price of a commodity to facilitate its exports, may have an adverse effect on the development of the agro-processing sector.

Factors affecting agricultural productivity

Increase in small land holdings

140 million hectare of land is used as agricultural area, as of 2012-13. Over the years, this area has been fragmented into smaller pieces of land. The number of marginal land holdings (less than one hectare) increased from 36 million in 1971 to 93 million in 2011. Marginal and small land holdings face a number of issues, such as problems with using mechanisation and irrigation techniques.
Since smaller land holdings are either fragments of larger holdings which have been passed on within the family or have been informally leased by a large holder, farmers who cultivate these holdings often do not have a formal lease agreement.
The absence of such land records does not allow these farmers to access formal credit or be eligible for government benefits such input subsidies or crop insurance schemes.

Land records and informal leasing

Of the total agricultural area under operation, 10% of land has been given out on agricultural leases, with the percentage of leased out land varying across states.21 34% of the land in Andhra Pradesh, 25% in Punjab, 21% in Bihar and 18% in Sikkim has been leased out.
In the past, states such as Karnataka and West Bengal have attempted to provide legal rights to tenant farmers by forming electronic records of land holdings and giving tenant farmers the right to their produce.
Currently, laws of tenancy of agricultural land vary across different states. States such as Kerala, Jammu and Kashmir and Manipur completely prohibit the leasing of agricultural land.
Others such as Bihar, Karnataka, Uttar Pradesh, Telangana and Odisha allow land leasing only by certain categories of land owners.
On the other hand, states such as Gujarat, Maharashtra, and Assam do not explicitly prohibit leasing, and allow the tenant to purchase the land from the owner after a specified period of tenancy. In Andhra Pradesh, Tamil Nadu and West Bengal, there is no legal ban on leasing land.
Different states also have different ceilings on the area of land which may be leased.
The NITI Aayog proposed a Model Land Leasing Law to provide for the legalisation of land leasing. This would ensure that land-owners have the security of ownership rights, and land tenants are secure in their tenancy.

Access to agricultural credit and insurance

Access to agricultural credit is linked to the holding of land titles. As a result, small and marginal farmers, who account for more than half of the total land holdings, and may not hold formal land titles, are unable to access institutionalized credit.
Farmers may require credit for short term uses such as purchasing inputs, weeding, harvesting, sorting and transporting, or long term uses such as investing in agricultural machinery and equipment, or irrigation.
Farmers with land holdings of less than a hectare primarily borrow from informal sources of credit such as moneylenders (41%), whereas those with land holdings of two or more hectares primarily borrow from banks (50% or more).
Other major sources of agricultural credit include shopkeepers, relatives or friends, and co-operative societies.
Key issues relating to agricultural credit are lack of access to formal credit owing to unclear land records, skewed ratio between short term and long term agricultural credit, and inadequate access to crop insurance.
Some persistent issues with the crop insurance system include (i) unawareness about insurance schemes, (ii) inadequate coverage of insurance schemes, (iii) assessment of the extent of damages in case of crop losses, and (iv) timely settlement of claims.

Availability of water

Currently, about 51% of the agricultural area cultivating food grains is covered by irrigation.
The rest of the area is dependent on rainfall (rain-fed agriculture).
Sources of irrigation include ground water (wells, tube-wells) and surface water (canals, tanks).
There is a need to improve the efficiency of water use, especially in agriculture. Irrigation currently consumes about 84% of the total available water in the country.
Nearly 65% of the irrigated land holdings use ground water sources such as tube wells and wells for irrigation.
The past few decades has led to an overuse of ground water sources in states, especially those growing water intensive crops such as rice. For instance, in Haryana and Rajasthan, 40%-75% of the ground water units are over-exploited, and the situation is worse in Punjab, where 75%-90% of ground water units have been over-exploited.
The Commission for Agricultural Costs and Prices has recommended that quantitative ceilings should be fixed on the per hectare use of water.
In addition, farmers using lesser water than the ceiling fixed should receive money equivalent to remaining units of water at the current domestic costs.
In 2011 and 2013, the government released Model Bills for Ground Water Management, based on which states could formulate their own laws.
It also launched a Policy in 2012 relating to water demand management, efficiency of water usage, and pricing.
More recently, the Ministry of Water Resources circulated a Model Bill for Groundwater, 2016.
The Bill provides an institutional framework for the protection and management of groundwater. It states that groundwater is a common resource of all persons, and ownership of the land over a groundwater resource should not deprive others from accessing it. It also states that industrial or bulk usage of groundwater will be priced.

Micro-irrigation techniques

The Economic Survey 2015-16 observed that India largely uses the technique of flood irrigation, where water is allowed flow in the field and seep into the soil.
This results in the wastage of water since excess water seeps into the soil or flows off the surface without being utilised.
It has been recommended that farmers should move from flood irrigation to the drip or sprinkler irrigation systems (micro irrigation).

Soil and fertilizers

Soil is one of the most important factors in the productivity of agriculture. Indian soil consists of primary nutrients such as nitrogen, phosphorous and potassium, secondary nutrients such as sulphur, calcium and magnesium, and micro-nutrients such as zinc, iron, and manganese.
While the levels of food production have increased over the past few decades, it has also led to issues such as an imbalance of nutrients in the soil, decline in the water table as well as the quality of water, and overall depletion of soil health.
The Ministry of Agriculture has noted that the quality of Indian soil is deteriorating.About 5.3 billion tonnes of soil gets eroded annually, at a rate of about 16.4 tonne/hectare.
Imbalance in the use of fertilizers in soil may also result in a loss of fertility.
The Soil Health Card scheme was launched by the central government in 2015. Under the scheme, all farmers are issued soil health cards, once every three years.
The manufacture, sale, and distribution of fertilizers in the country is regulated by the Ministry of Chemicals and Fertilizers, under the Essential Commodities Act, 1955.
There are three major types of nutrients used as fertilizers: Nitrogen (N), Phosphatic (P), and Potassic (K).
Of these, the pricing of urea (containing N fertilizer) is controlled by the government, while P and K fertilizers were decontrolled in 1992, on the recommendation of a Joint Parliamentary Committee.
It has been observed that urea is used more than other fertilizers. While the recommended ratio of use of the NPK fertilizers is 4:2:1, this ratio in India is currently at 6.7:2.4:1.6
An imbalanced use of urea may lead to a loss of fertility in the soil over a period of time, affecting productivity.
Although the ratio of N, P, and K fertilizer usage across crops has increased, the quantity of fertilizers used by India is still lower as compared to other countries.
To promote the use of fertilizers by farmers, the central government provides a fertilizer subsidy to the producers of fertilizers. Currently the amount of subsidy to be given is determined based on the cost of production of the fertilizer company. Companies with a higher cost of production receive greater subsidies. This reduces the companies’ incentive to reduce their cost of production. Although the consumption of urea has been increasing over the past decade, no new domestic production capacity has been added in the past 15 years.
The consumption of chemical pesticides in the country has increased over the past few years, from 55,540 tonne in 2010-11 to 57,353 tonne in 2014-15.54 Over this time period, the imports of pesticides also increased from 53,996 tonne to 77,376 tonne.
Issues with regard to the use of pesticides include use of low-quality pesticides, and a lack of awareness about pesticide use.
Quality seeds is another input necessary for agricultural productivity, and good quality seeds account for 20%-25% of increased crop productivity.
Seeds are regulated by the Seeds Act, 1966. The Act regulates the quality, production, and sale of seeds. The Seeds Control Order, 1983 regulates the licenses to sell, export and import seeds. Three varieties of seeds commonly used are (i) farm-saved seeds, which account for 65%-70% of the total seeds consumption, (ii) commercially produced seeds of the breeder, foundation and certified varieties, and (iii) genetically modified and hybrid seeds.
Some of the challenges identified in the development and distribution of quality seeds are (i) access to quality seeds, and (ii) inadequate research support.

Agricultural machinery

Mechanization is another aspect with a significant impact on agricultural productivity. The use of agricultural machinery in agriculture enables agricultural labour to be used in other activities.
It makes activities such as tilling, spreading of seeds and fertilizers and harvesting more efficient, so that the cost of inputs is offset. It can also make the use of labour in agriculture more cost-effective.
The status of mechanisation in agriculture varies for different activities, although the overall level of mechanisation is still less than 50%, as compared to 90% in developed countries.
The highest level of mechanisation (60%-70%) is observed in harvesting and threshing activities and irrigation (37%).
The lowest level of mechanisation is found in seeding and planting.

Post-harvest activities

Storage facilities: The quantity of food which is wasted during the harvest and post-harvest processes in the country has increased over the past five years. The highest losses are observed in the case of fruits and vegetables (4.6%-15.9% of production in 2015), pulses (6.4%-8.4%) and oilseeds (5.3%-9.9%). Food wastage occurs at all levels of farming- the farmer, transporter, wholesaler and retailer. Some of the reasons for this wastage are crop damage, improper harvesting techniques, poor packaging and transportation, and poor storage. Some of the issues with the state of storage facilities in the country are inadequate capacity and poor conditions of storage. Some challenges identified in the development of cold storage in the country are delays in the process of changing land use from agriculture to industrial use, lack of tax exemptions accrued to cold storage for agricultural commodities, availability of power, and accessibility to farmers.
Agricultural Pricing: Procurement of agricultural commodities is the purchase of food grains by the central or state governments. The Food Corporation of India is responsible for the purchase, storage, movement, distribution and sale of agricultural produce. Minimum Support Prices are the prices at which the government purchases food grains from farmers. The largest procurement at MSPs is for rice and wheat. About a third of the wheat and rice produced in the country is procured by the central government.
Minimum Support Prices (MSPs): MSPs are the prices at which the central government purchases food grains from farmers. MSPs are fixed by the central government in order to ensure remunerative prices to farmers. Factors taken into consideration in determining MSPs include costs of cultivation and production, productivity of crops, and market prices. High MSPs of crops provide incentives to farmers to adopt modern technologies and farming practices, to increase the overall productivity of their crops. The government announces MSPs for 22 crops (and a fair and remunerative price for sugarcane), but the Public Distribution System, for which grains are procured, primarily distributes wheat and rice to its beneficiaries. Since procurement is mainly carried out for wheat and rice, farmers have focused on the cultivation of these crops over other crops such as pulses and oilseeds. Although MSPs are declared for various crops, procurement at these prices mainly happens for wheat, rice, sugarcane and cotton, in a few states. As a result, in procuring states, farmers focus on cultivating these crops over other crops such as pulses, oilseeds, and coarse grains. Other issues with the implementation of the MSP regime include long distances to the procurement centres, increasing cost of transportation for farmers, irregular hours of the procurement centres, lack of coverage storage godowns and inadequate storage capacity, and delays in the payment of MSPs to farmers.
Agricultural markets: The production, supply and distribution of certain commodities comes under the purview of the Essential Commodities Act, 1955. These commodities include food grains, oilseeds, cotton and woollen textiles, jute, and coal, among others. Under the Act, the central government may control the price at which any essential commodity is traded. It may also regulate licenses for its storage, transport, distribution, disposal or consumption. Agricultural markets in the country are regulated by state Agricultural Produce Marketing Committee (APMC) laws. Under these state Acts, farmers are required to sell their produce at state-owned mandis. Over the years, several issues have been highlighted in this system. For instance, APMC mandis currently levy a market fee on farmers who wish to sell their produce in the mandis. This makes it expensive for farmers to sell at APMC mandis. In addition, farmers have to arrange for their produce to be transported from their farms to the nearest mandi, which brings in costs such as transport and fuel. In transporting the produce from the farm to the store, several intermediaries are involved. These intermediaries are all paid a certain proportion of the price, as commissions. Thus the market price which the farmer receives for his produce is significantly lower than the price at which his produce is sold to the retailer. The central government had released a Model APMC Act in 2003, to be enacted by states. The Model Act (i) provides for the direct selling of produce through contract farming, (ii) permits private persons, farmers and consumers to establish agricultural markets, (iii) levies a single market fee on the sale of the commodity, and (iv) replaces licences with registration of market agencies so that they can operate in more than one market, among other things. In April 2016, the central government launched the National Agricultural Market in 8 states districts, and integrated wholesale mandis in these areas to create a common platform.