Financial Daily from THE HINDU group of publications
Friday, Jan 30, 2004
Agri-Biz & Commodities - Insight
Farm sector III
Walking away from the problem
The share of agriculture in the total GCF at 1993-94 prices has halved from 15.44 per cent in 1980-81 to 7.08 per cent in 2000-01. Government investment came down from Rs 7,301 crore (at 1993-94 prices) in 1980-81 to Rs 4,992 crore in 1990-91 and declined further in the 1990s to Rs 4,520 crore in 2000-01. With this, the share of public investment in gross capital investment in the sector has also halved from 51.30 per cent in 1980-81 to 23.24 per cent in 2000-01. Which simply means that we are either walking out of this sector or walking away from the problem, take your pick.
The share of agriculture and allied sectors in total Plan outlays has been declining since the Fourth Plan when the sector accounted for 14.7 per cent of the total Plan outlay. This declined progressively to touch 4.9 per cent in the Tenth Plan. A similar declining trend is reflected in Plan outlays made for irrigation, under the heads of major and medium irrigation, minor irrigation and irrigation institutional finance, over the years. The share of irrigation in the total Plan outlays has halved from 15.31 per cent in the Fourth Plan to less than 6.77 per cent in the Tenth. Another distressing feature of irrigation spending is that the bulk of the Plan allocation is made to major and medium irrigation projects rather than minor irrigation projects, which are considered more cost-effective.
According to the data from the Ministry of Water Resources, the cost of creating irrigation potential for one hectare during the Eighth Plan through large and medium irrigation projects was Rs 98,495 against just Rs 10,051 for small irrigation projects. The gap is certain to have widened. It, therefore, makes more economic sense to focus more on minor irrigation schemes to get more out of the limited budget. But it seems that economic sense makes little sense anymore, particularly as it affects the interests of big contractors for whom the politicians and bureaucrats have a special fondness, for we continue to deploy most of our decreasing irrigation outlays on major irrigation rather than on minor irrigation. With few exceptions major and medium irrigation projects have accounted for more than three-fourth of the funds allocated to irrigation through the entire planning period.
The continuous decline in outlays on both agriculture and irrigation has meant that their combined share in the total Plan outlays has come down from 31.04 per cent in the Fourth Plan to just 10.63 per cent in the Tenth. If this trend was sought to be reversed by keeping the spending share identical to what it was in the Fourth Plan, the sector should have been allocated Rs 4,73,558.34 crore against the actual planned amount of just Rs 1,62,248 crore. The government's somewhat panicky and hasty announcement of the gargantuan Rs 5,16, 000-crore river linking project only makes sense when seen in this light
The distortion does not end with this, for most of what is claimed to be spent on irrigation is actually for power generation. Considering that the farm sector consumes only 28.8 per cent of the nation's generated power, to say it is for irrigation is quite an exaggeration. We also see that irrigation is something left entirely to the States to support.
Most of the amount being spent in the Plans on irrigation has been on long delayed ongoing projects. Delays in completion of 162 major, 240 minor and 74 other irrigation projects have resulted in spillover costs of Rs 79,321 crore. This and the irreversibly diminishing shares of irrigation in Plan outlays have resulted in the almost complete absence of the state in creating new irrigation potential in the 1990s.
The entire increase in irrigated acreage in the last decade has been facilitated by mostly private investments in tube-wells and wells. Consequently, the share of government canals and tanks in total net irrigated area has come down from 45.54 per cent in 1980-81 to just 35.39 per cent in 1999-00. Tube-wells and wells, which accounted for 45.70 per cent of total net irrigated area in 1980-81, accounted for as much as 58.76 per cent of total net irrigated area in 1999-00.
One direct consequence of this is the fall in the water-table and depletion of subterranean water resources. According to International Water Management Institute estimates, in many areas of the country, water-tables are falling at rates of 2 to 3 meters per year due to the growing number of irrigation wells around one million per year.
In addition to the fall in employment, another consequence of this neglect of the farm sector is in the precipitous decline in the growth of production in the last decade. In foodgrains, the production of rice and wheat taken together registered an annual growth rate of 2.27 per cent in the 1990s against a much higher growth of 3.59 per cent in the 1980s.
Production of pulses showed a perceptible decline (-0.58 per cent) in the 1990s compared to a growth rate of 1.52 per cent in the 1980s. As a result, the growth of total foodgrains slumped to 1.66 per cent in the 1990s compared to 2.85 per cent in the 1980s. The growth of all crops taken together slid from 3.19 per cent in the 1980s to 1.73 per cent in the 1990s.
Not only has there been a declining trend in growth, there has been a declining trend in productivity as well. The yield of rice and wheat, taken together grew at an annual rate of just 1.42 per cent in the 1990s compared to 3.15 per cent in the previous decade. Pulses fared worse, as their yield growth rate plummeted to 0.27 per cent in the 1990s, which was one-sixth of the level it attained in the 1980s (1.61 per cent). The decline in the annual growth rates of both food and non-food crops resulted in a decline in the yield growth rates of all crops taken together, which came down from 2.56 per cent in the 1980s to 1.02 per cent in the 1990s.
The picture looks even grimmer when the Indian agricultural productivity is benchmarked against other countries, India, which has the maximum area in the world under rice and wheat, ranks second in their production. However, India ranks 52 and 38 in terms of yields of rice and wheat respectively.
As if things were not bad enough, they are compounded by another crisis. This is the growing fragmentation of farm holdings. Over the years, the proportion of marginal holdings, that is less than one hectare, has been increasing sharply. They have gone up from 50.60 per cent in 1970-71 to 59.40 per cent in 1990-91.
The latest data on this from Census 2001 are not yet available, but we must get ready for further marginalisation. What is even more worrisome is that 34.26 per cent of holdings were smaller than 0.20 hectares.
Overall, the average size of holdings has gone down from 2.30 hectares in 1970-71 to 1.55 hectares in 1990-91 and the average size of marginal holdings has fallen from 0.41 hectares to 0.39 hectares. This trend has no doubt contributed to the decline in productivity. But the state has not responded to the challenge with any scheme to encourage the purchase of adjacent land holdings to facilitate their consolidation into economically viable sizes, even with land ceiling restrictions in place.
The prospects are grim and running away from the problem is no longer a policy option. The only long-term solution to our economic problem is to bring down the number of people employed in the farm sector. Paradoxically, the only way to do this is by increasing agricultural production and productivity which, in turn, requires huge increases in investment on infrastructure.
This enhanced spending will lead to greater employment for cultivators/marginal farmers in other sectors. The solution does not lie as much in bringing down agriculture's share in GDP, as much as agriculture's share in employment.
(The authors are with the Centre for Policy Alternatives, New Delhi, an independent think-tank. For a copy of the full report, please write to firstname.lastname@example.org)
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