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Lead from the Centre

To invest more in agriculture, Union government has to reorient food and fertiliser subsidies by moving to cash transfers.

Written by Ashok Gulati |
Updated: March 30, 2015 11:19:55 am
narendra modi, niti aayog, india agriculture, land acquisition bill, land bill, bjp, nda, modi land bill, narendra modi column, indian express column, ashok gulati column Prime Minister Narendra Modi has been talking about cooperative federalism. Agriculture is the prime candidate to show how it will work.

Indian farmers are under stress this year. Earlier, many of them lost their crops in the kharif season, which was almost a drought with monsoon rains falling 12 per cent below their long-period average. Now unseasonal rains have impacted them adversely in the rabi season. Agri-GDP growth this year, expected to be a meagre 1.1 per cent before the unseasonal rains, may fall flat to just zero, if not negative.

While various agencies are applauding India as the fastest-growing large economy, with overall GDP expected to grow at 7-7.5 per cent this fiscal, what meaning does this hold for the masses engaged in agriculture? Remember, almost half of India’s workforce is still engaged in agriculture, and an even larger share is still dependent on it, despite the gradual diversification of income to non-farm sources. It will be a big mistake to celebrate India’s economic performance as an instance of “India shining” when its agriculture is limping. It should instead serve as a wake-up call for policymakers.


One often hears in the corridors of policymaking at the Centre that agriculture is a state subject, and so what can the Centre do? The finance minister has already announced the enhancement in the states’ share of Central tax revenue from 32 per cent to 42 per cent. And therefore, from now on, agricultural performance depends upon the performance of states. We are not sure how much extra allocation is going to the states under this arrangement, as the allocations for many Central schemes within agriculture, like Rashtriya Krishi Vikas Yojana, have been drastically cut. My question, however, to policymakers is: Was the Green Revolution in wheat and rice or White Revolution in milk brought about by the states? These were Central initiatives that involved many states but were led by the Centre. So, if the Centre has clear vision and confidence, agriculture can be uplifted.

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Prime Minister Narendra Modi has been talking about cooperative federalism. Agriculture is the prime candidate to show how it will work. Can NITI Aayog steer this cooperative federalism to usher in a second green revolution, waiting to

be harvested in the eastern belt? Can it devise a strategy to ensure at least 4 per cent agri-GDP growth at the all-India level (the 12th Five Year Plan target)? So far, the first three years’ growth in the 12th Plan period has been pathetic, at less than 2 per cent per annum.

Agriculture needs massive investment, for irrigation, agri-R&D and to build faster and more efficient value chains between farmers and retailers. Irrigation alone may need more than Rs 3,00,000 crore if it has to be provided to every farmer. But the ministry of water resources was allocated only Rs 4,232 crore for FY16, less than the revised estimate of Rs 6,009 crore for FY15. States may pitch in through borrowings from the Rural Infrastructure Development Fund, but at this pace and with such allocations, irrigation for all farmers by 2022 — promised to them by the PM — looks like a distant dream. A major shift in strategy is needed to mobilise resources to invest in agriculture, akin to that required in infrastructure.

Interestingly, the overall public resources going to the agri-food space are not paltry. If one adds the allocations of the five concerned ministries (agriculture, chemical and fertilisers, consumer affairs, food and public distribution, food processing industries, and water resources) for FY16, it is roughly Rs 2.3 lakh crore. The problem, however, is that more than 85 per cent of this budgeted allocation is directed towards food and fertiliser subsidies. This percentage would be much higher if one counted food subsidy (about Rs 50,000 crore) and fertiliser subsidy (about Rs 40,000 crore) arrears, which are not shown in the Union budget. This is the biggest tragedy of Indian policymaking — putting the cart before the horse! It is well known that the return from investment is five to 10 times higher than through subsidies.

Policymaking at the Centre, therefore, has to reorient food and fertiliser subsidies by moving to cash transfers to identified beneficiaries. As the PM often says, we need not cut the level of subsidies to poor consumers or farmers, but change the form in which they are given, by using an income policy rather than a price policy. This alone will help reduce leakages, bring efficiency in the use of resources, and save around Rs 40,000 crore annually, which can be ploughed back into agriculture as investments in water, agri-R&D, rural roads, etc.

The Economic Survey discussed effecting this change through JAM (Jan Dhan, Aadhaar and Mobile). The system is moving towards that in the case of the cooking gas subsidy and several minor payments. But the real gains will come only when food and fertiliser subsidies are also routed through it. Admittedly, there are some operational problems — opening bank accounts for beneficiaries, linking them to Aadhaar, identifying beneficiaries for food and fertiliser subsidies, streamlining land records — but they are not impossible to solve. If there is commitment and clarity at the highest level of policymaking, these operational problems can be sorted out in a span of one to two years. And it would be worth prioritising that, given the potential gains.

Without such a bold move, agriculture will keep getting lip service, policymakers will continue to pass the buck to the states, and farmers will keep looking to the sky for “achhe din” to arrive someday.

The writer is Infosys Chair professor for agriculture at Icrier.

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