Beneath the hoopla over high prices of farm produce in retail markets and their impact on the common man, Indian agriculture is witnessing a silent but significant change which, if sustained, could alter the fundamental structure of farming in the country.
The share of investment in agriculture as percentage of farm GDP has climbed from around 16 per cent in 2007-08 to 20.3 per cent in 2009-2010 — the highest in last few decades. Independent analysts say the figure has been rising since then and has touched 21 per cent in 2011-12.
The rise, which experts believe is a direct consequence of increasing incentive — either through state support price mechanism or general trickle-down effect of retail prices passing on to growers — assumes greater significance in the context of falling public investment in agriculture.
In other words, ever since farmers have started getting good price for their produce, they have ploughed back investment heavily in farming, mainly through increased purchase of pump sets and farm machinery — the two components that form the biggest chunk of private investment in agriculture.
The last time such a steep jump took place was in years immediately after liberalisation. From 1998-99 to 2001-2002, gross capital formation (GCF) in agriculture, as percentage of agri GDP, went up from 9.2 per cent 14.6 per cent — a rise of 5.4 percentage points. “This clearly shows the need for a robust price policy to incentivise farmers to invest more in agriculture,” agriculture economist Ashok Gulati, who is chairman of Commission for Agriculture Costs and Prices, told Business Standard.
Gulati’s recommendations of a hefty increase in minimum support price of farm commodities -- mainly that of grains, pulses and oilseeds -- had come in for much flak because of its apparent role in pushing up retail price of farm commodities.
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“I can’t understand what is the need to announce MSPs (minimum support prices) for crops other than wheat and rice when there is no official procurement. It does nothing except for pushing up food inflation,” Madan Sabnavis, chief economist with Care Ratings, had said after the government announced a steep 16 per cent increase in the MSP of paddy for 2012-13 crop marketing season last month.
Between 2007-08 to 2012-13, among other crops, the MSP of paddy was raised by 94 per cent, wheat by 71 per cent, medium staple cotton by 100 per cent and jowar by 71 per cent. Gulati, in a paper presented recently, had argued that investment should be around 16 per cent of agri GDP to get 4 per cent average annual growth in agriculture (which has been the target since 10th five-year plan), assuming that capital-output ratio in agriculture is 4:1.
“But, from 1980-81 onwards till 2007-08, GCF from both public and private sectors was always below this threshold mark of 16 per cent,” the paper said.
“One wonders then why our policy markers even expect four per cent growth in agriculture when they are neither putting in enough resources from government kitty nor incentivising the private investment.”
Gulati said prices contribute around 35-40 per cent to agriculture growth and their relative share in comparison to other factors has been rising in the last 5-6 years. Now, that should be a reason enough to expect consumers to pay slightly more for the farm produce.