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Monday, June 28, 2004

The beauty of a democracy is that every election gives us an opportunity to reexamine policies and change course. The agriculture sector which was untouched by economic reform, is now in grave crisis. The recent electoral reverses in most states has forced governments to focus on agriculture.

One tragic manifestation of the agrarian crisis is the spate of suicides by farmers, particularly in AP and Karnataka. Farmers facing the prospect of starvation as well as loss of land assets, sometimes resort to this extreme step. But it would be foolish to assume that this crisis is graver in AP and Karnakata, and that farmers of Bihar, Madhya Pradesh or Rajasthan are better off. Nor can it be our contention that things are worse today than they were two or three decades ago.

The focus of the media and political parties on suicides and the short-term relief to the families tends to mask a growing, long-term crisis. Gross capital formation (GCF) in agriculture, which stood at 24% of total GCF in the First plan year 1952-53, has steadily declined to reach a low 6.3% in 1995-96. Over the past seven years, there has been a modest rise, reaching 9.4% in 2001-02. GCF in public sector slipped from 14% in 1968-69 to 9.6% by 75-76. Janata government’s emphasis on agriculture increased it to 15.5% in 1977-78, but since 1990-91, it has been averaging 6.8%. In absolute terms at fixed cost, GCF in public sector has actually fallen over time. These cold numbers mean that pitifully small investments were made in agriculture making farming unproductive and uncompetitive.

This crisis is further compounded by irrational, and anti-farmer policies of governments. The compulsory procurement at below-market prices and trade barriers imposed during the heyday of license-permit raj meant that in some cases 80% of the market value was stolen from farmers, making agriculture unremunerative. At the same time, public distribution system reeked in corruption. While public good was not promoted, untold misery was heaped on farmers and agricultural workers. Storage, transport and sale of agricultural commodities was in the vicious grip of the corrupt state machinery and politicians.

Even after the liberalization of trade, farming continues to suffer grievously. The 1980 election was famously won by Mrs. Gandhi based on high onion prices. The story was repeated in 1998 in Northern states, when onion prices again helped Congress win. A sudden flurry of activity – ban of exports, trading restrictions, and imports at high prices – led to crash of prices within weeks. Three months after the elections, farmers were in deep distress, and no one bothered to take steps to enhance demand and improve prices for farmers.

Time and again, whenever cotton prices were showing upward trend, exports were banned, and imports were allowed even when the international price was higher than domestic prices. Millions of farmers were pauperized by insane policies and callous neglect of the interests of agriculture. And now, even a mature politician like Mr Sharad Pawar announces a strange policy of not allowing export of food grains! Liberalization and markets are good for industry, but farmers must suffer permit-raj! And then, our politicians and bureaucrats feign surprise at the decline of agriculture, and shed crocodile tears when farmers commit suicide.

Poor infrastructure, complete neglect of villages, inadequate storage, and failure to promote processing industries meant that there is no value-addition in agriculture. Kellog’s corn and wheat flakes are sold at exorbitant prices, but no processing facilities exist to process our produce. The distress of producers of perishable commodities has to be seen to be believed. In early May, tomato in AP sold at 25 paise/kg on farm. As the price could not recover the cost of plucking, many farmers destroyed the crop. A month later, tomato sells at Rs. 5 or 6 on farm, and consumers, paying Rs.10/kg cry foul! If only agro-processing units could buy tomato at Rs.2/kg when prices crash, and storage facilities exist, things would have been radically different for both farmers and consumers.

What can we do to restore health to agriculture? There are four critical issues we need to address. First, productivity must improve. India’s production of crops like rice, sugarcane, maize, cotton, banana, pulses and many others is much lower than that of Egypt, Peru, Kuwait and Israel. Large investments in irrigation are obviously needed. But we need to focus on other factors of productivity. There is overuse of Urea, as it is subsidized, and Phosporous and Potassium are underutilized. Even worse, our soils are very deficient in micronutrients like Zinc. Application of Zinc Sulphate and other micronutrients is still rare. Our soils are not even mapped for these micronutrient deficiencies. Research in new high-yielding, disease-resistant varieties is flagging. In spite of impressive infrastructure, research is under-funded and poorly directed. Our extension machinery is inept and generally ignored by farmers. All these need to be set right to enhance productivity and make our agriculture competitive.

Second, a proper and healthy credit system is the necessary prerequisite for sustainable agriculture. Whenever credit institutions are doing an outstanding job, farmers’ distress is minimal. Take for instance Mulkanoor Cooperative Bank in Karimnagar district of AP, the excellent thrift societies promoted by Cooperative Development Foundation in Warangal-Karimnagar belt of AP - in none of these villages is there acute distress despite severe droughts. In their eagerness to get short-term accolades, politicians should not destroy the credit institutions through misplaced sympathy, adhocism and tokenism. Devi Lal’s indiscriminate debt relief scheme, and omnibus moratoria did incalculable, long-term damage. Our credit cooperatives must be freed from government control, and nursed back to health.

Third, proper marketing facilities are the key to agricultural prosperity. Horticulture farmers in many states, fish farmers in Bengal and Northeast, and other producers are fleeced by mafias controlling local markets. The Mandi Act enacted in Punjab under the leadership of Pratap Singh Kairon and Choutu Lal made a signal contribution to agriculture. New marketing mechanisms, removal of all internal and external trading restrictions, freedom to establish alternative markets, proper storage facilities, and promotion of contract farming with market tie-ups – all these are critical for the future of agriculture.

Fourth, value addition needs to be promoted assiduously. This is particularly vital in respect of perishable commodities. Infrastructure building, research and development, technology transfer, promotion of processing industry through special incentives, new mechanisms to ensure input supply, proper storage and transport facilities and easy credit for agro-industry are all necessary to transform medieval agriculture into modern, vibrant economic activity.


Sympathy, short-term sops, and populism are not substitutes to sensible policies, efforts and well-considered actions. Huge investments are needed to boost agriculture along with non-monetary inputs which can help farmers dramatically. Parties and policy-makers must focus on these practical, long-term solutions and implement them with sustained focus. That is the much-needed corrective in our economic decision-making.