Farm sector economics in India – 3

indian economy

Farm sector economics in India – 3

Continuing from yesterday……

I have said this earlier also, and I do mind reiterating. To bring any meaningful improvement in the fragile condition of India’s farming community, a comprehensive rural development effort is needed. Any piecemeal solution like occasional loan waiver shall have almost no sustainable impact. The traditional farmer welfare measures like periodic hikes in support prices for certain crops, farm input subsidies, interest rate subvention have not yielded the desired results.

In my view, a sustainable improvement in Indian farmers’ conditions is possible only under a comprehensive rural development mission. The mission should address the problem with structural reforms at three levels, viz., 1. Farm Level; 2. Policy Level and 3. Social Level. All reforms must be pursued “urgently, vigorously, simultaneously” and in a fully integrated fashion, for having a meaningfully sustainable impact.

Farm level reforms

At farm level farmers are struggling with a multitude of problems. The most prominent being:

(a)   Uneconomical land holdings (fragmented holdings, unclear land titles)

(b)   Low productivity

(c)    Vagaries of nature (frequent droughts & floods)

(d)   Poor price realization

(e)    Poor market access

The measures initiated so far, e.g., higher support prices, cheaper credit, crop insurance, improved irrigation, cash fertilizer subsidy, better market access (eNAM, roads etc.) have positive impact on the state of agriculture in the country. But this may not be sufficient, as it will have only some incremental impact on the sector. What we need is a set of radical reforms that would break the linearity and provide much greater impetus to growth.

The following ten steps, besides other measures, if taken immediately may help in significantly improving the conditions at the farm level:

(i)    Enforce land consolidation by linking subsidies and facilities to a minimum farm size. Village or Block level farm cooperatives should be encouraged to achieve this objective. Changes in tenancy rules and allowing large scale leasing by corporates could be misused to exploit of farmers.

(ii)   Digitize all land titles within 2years. Enforce time bound Panchayat level resolution of all title disputes preferably through mediation.

(iii)  Change government procurement system. Government should provide all inputs and technical guidance to the participating cooperatives, and take 50% of the crop in lieu of this. The balance crop should pay for the labor cost and profit. This will ensure three things: (1) Guaranteed timely supply of quality inputs; (2) No debt burden on farmer in case of crop failure. The government can take adequate insurance for recovery of its costs; and (3) Adequate profit to the farmers.

(iv)   The landowners who have never engaged in farming activity in past two decades should be forced to give away their landholdings to cooperatives at 50% discount. Anyways these landowners let out their land on crop sharing basis or nominal lease rental.

(v)    Make sure not a single drop of river water flows into the ocean from India. Develop river linking and water distribution grid on the models of roads.

(vi)   Allow corporates to develop waste and barren land for farming purposes. For example, many corporates from India and Arab world may be interested in developing Rajasthan and Gujarat desert and barren lands for growing dates, palm, aloe etc.

(vii)  Set up a price equalization mechanism through participation of private corporate sector. Encourage building large scale storage capacities for farm produce. Assure a regulated return of 10% premium on bench-mark yields, and allow bonds issued by warehouses as SLR securities PSL assets.

(ix)   Take factories to farms. Encourage industry to partner with farm cooperatives to set up food processing units at the farms. The farmers’ cooperative allots land and provides farm produce, whereas the entrepreneurs contribute capital and undertake marketing and sales responsibilities. Both share the profit in pre-agreed ratio. This should maximize profit of both the industrial enterprise as well farmers, and create ample employment opportunities close to villages.

(x)    Assist the famers in the water deficient areas to move away from water intensive crops like Paddy, Sugarcane, Banana etc. Provide them cash incentive, technical assistance, marketing & sales assistance and necessary inputs to move to less water intensive cash crops.

I shall share my thoughts and suggestions for policy level and social level reforms tomorrow.

Author: Midas Finserve

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