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June 16, 2007
Just when people have begun to look away from the services sector and start to cheer the momentum achieved by Indian manufacturing (like 15 per cent growth in April), the new story in India may be something else altogether -- agriculture. This might seem an absurd claim to make when everyone has been talking of nothing but the crisis in agriculture, and when the news coming out of India's farms has to do with stagnant yields, shortage of water, unremunerative prices, declining foodgrain availability
per head--and suicides by farmers.
But there seems to be another side to the story, one that has not received much (if any) attention. This has to do with the tell-tale signs of a change of direction in agriculture--including better production numbers, a reversal of the long-term decline of public investment in agriculture, a sharp increase in the application of nutrients by farmers, and an equally sharp increase in the bank credit flowing into agriculture. If more money is going in, and more physical inputs as well, that should be an indication of increasing output.
These new trends have manifested themselves in just the last two or three years, too short a period to warrant firm assertions that we have seen the emergence of agriculture from a 15-year slump. But it does provide hope that, if the new trends continue, the livelihood of close to half the population will see noticeable improvement in a way that has not resulted from the rapid growth of services and (more recently) manufacturing.
That happy outcome can result if the diversification of Indian agriculture is encouraged (growing flowers for the export market, and grapes for the mushrooming wineries, may have sounded like exotic activity some years ago, but they point to the way forward for farmers in many parts of the country). Then, policy has to change in many ways, including the encouragement of what might seem like an unrelated area: organised retailing.
Not only will this help reduce the price gap between farm-gate and retail counter (so that the farmer can get more without the consumer feeling the pinch of inflation), it will also facilitate investment in supporting infrastructure like cold chains and storage facilities, and the development of the food-processing industry, which is important for reducing the terrible level of post-harvest losses (estimated in some cases as high as 40 per cent). The entry of some of the biggest business houses into the field of retailing will prove to be a development of immense importance, as will become evident in a few years.
Policy-makers have to recognise, meanwhile, that the thrust of policy has frequently been to retard agriculture. For instance, the stop-go approach to agricultural exports, in the name of controlling domestic prices, is a clear deterrent to investment in exportable surpluses. Agricultural products are subject to price cycles, and if farmers are not allowed to benefit when prices are high, but have to suffer when prices are low, it becomes an unfair game. Last summer, sugar exports were banned; now, in part because of that, the sugar companies are saddled with excess stocks and this is going to have an impact on sugarcane growers.
Similarly, milk powder exports were banned a few months ago because the government feared a domestic shortage; dairy farmers will have got the wrong price signals as a consequence. Such instances can be multiplied, but the point should
be clear -- it does not help to hold farmers hostage to domestic consumers.
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