GS Paper: Agriculture and related issues

Context

In the fiscal year 2021-22 (FY22), agri-exports scaled an all-time high of $50.3 billion, registering a growth of 20 per cent over the preceding year.

What are the contributing factors?

• The all time high agri-export was made possible largely by rising global commodity prices, but also by the favourable and aggressive export policy of the Ministry of Commerce and its various export promotion agencies like APEDA, MPEDA, and commodity boards.
• Sustainability issue: From a strategic point of view, an important question that arises is how sustainable is this growth in agri-exports, given India’s resource endowments and the country’s domestic needs?
• To answer this question rationally, let us first look at the composition of agri-exports.

Composition of agri-exports

• Among the several agri-commodities exported in FY22, rice ranks first with exports of $9.6 billion in value (with 21.2 million metric tonnes (MMT) in quantity).
• It is followed by marine products worth $7.7 billion (1.4 MMT), sugar worth $4.6 billion (10.4 MMT), spices worth $3.9 billion (1.4 MMT) and bovine (buffalo) meat worth $3.3 billion (1.18 MMT) (see figure).
• Concerns with Rice and Sugar: Of these, two commodities, rice and sugar, are water guzzlers and serious thought should be given to their global competitiveness and environmental sustainability.

Competitiveness and environmental sustainability concerns with Sugar and Rice cultivation

• India’s exports of 21 MMT constituted 41 per cent of a global rice market of 51.3 MMT.
• Low export price: When most of the other commodity prices were surging in global markets, the price of rice (Thailand supplies 25 per cent) collapsed by about 13 per cent from $484/tonne in April 2021 to $429/tonne in April 2022, largely due to India’s massive exports.
• This means that India had to export a greater quantity of rice to get the same amount of dollars.
• In trade theory, it is a classic case for levying the optimal export tax of 5 to 10 per cent.
• Optimal export: India should optimally not go beyond 12 to 15 MMT of rice exports, else the marginal revenue from exports will keep falling.
• Subsidised water: Taking an average of about 4,000 litres of water per kg of rice, and assuming that half of this percolates into groundwater, exporting 21MMT of rice would mean the virtual export of 42 billion cubic meters (m3) of water.
• Sugar is another water guzzler, whose exports touched 10.4 MMT in FY22.
• Subsidies crossing WTO limits: It was backed partly by subsidies (including export subsidy) that crossed the 10 per cent limit mandated by the World Trade Organisation, bringing India into a dispute with other sugar exporting countries at the WTO.
• However, from a sustainability point of view, we must note that exporting one kg of sugar amounts to roughly exporting 2,000 litres of virtual water.
• That means in FY22, India exported at least 20 billion m3 of water through sugar exports.
• So, by exporting 21 MMT of rice and 10 MMT of sugar in FY22, India exported at least 62 billion cubic meters of virtual water.
• Much of this water is extracted from groundwater — as is being done in much of the Punjab and Haryana belt (for rice), where the water table is receding by 9.2 metres and 7 metres over the last two decades (2000-19), and in Maharashtra and Uttar Pradesh for sugar.
• This can lead to a water disaster. 
• Anthropogenic methane emission: Rice production systems are among the most important sources of anthropogenic methane emissions, contributing to 17.5 per cent of GHG emissions generated from agriculture (2021).
•  This is all because of the distortionary policies of free power and highly-subsidised fertilisers, especially urea.

Way forward: Support farmers smartly

• AWD and DSR: Innovative farming practices such as alternate wetting drying (AWD), direct seeded rice (DSR) that can save up to 25-30 per cent water and micro-irrigation that can save up to 50 per cent irrigation water, could be game-changing technologies in reducing the crop’s carbon footprint.
• Switching to other crops: The real solution lies in incentivising the farmers to switch some of the area under rice and sugar cultivation to other, less water-guzzling crops.
• Haryana has come up with two schemes, Mera Pani, Meri Virasat and Kheti Khaali, Fir Bhi Khushali.
• A closer evaluation of non-basmati rice exports brings out another interesting fact.
• The unit value of these exports was just $354/tonne, which is below the MSP of rice ($390/tonne).
• One possibility is that a substantial part of the supplies through the PDS and PM Garib Kalyan Anna Yojana (PMGKAY) are leaking out and swelling rice exports.
• Introduce the option of direct cash transfer: From a policy angle, it may be high time to introduce the option of direct cash transfers in lieu of almost free grains under the PDS and PMGKAY.
• This will help plug leakages as well as save costs.

Conclusion

The best way to tackle this upcoming environmental disaster would be to support farmers smartly, by giving them aggregate input subsidy support on a per hectare basis and freeing up the input prices of fertilisers and power to be determined by market forces and their costs of production.

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With urea and fertilizer prices shooting up in the wake of Russia’s invasion of Ukraine, the Union Cabinet approved an enhancement in subsidies on non-urea fertilisers for the upcoming Kharif crop, to ₹60,939 crore.

What is the news?

• The government fixes the retail price of urea and subsidises producers based on the difference between costs and the fixed selling price.
• It pays a subsidy to non-urea fertiliser makers on the basis of nutrient-based rates.
• The increase in the prices of Di-ammonium phosphate (DAP) and its raw material is in the range of about 80%.

Fertilizer Subsidy in India

• Subsidy as a concept originated during the Green Revolution of the 1970s-80s.
• Fertiliser subsidy is purchasing by the farmer at a price below MRP (Maximum Retail Price), that is, below the usual demand-and-supply-rate, or regular production and import cost.

How is the subsidy paid and who gets it?

• The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
• From March 2018, a new so-called direct benefit transfer (DBT) system was introduced, wherein subsidy payment to the companies would happen only after actual sales to farmers by retailers.
• With the DBT system, each retailer — there is over 2.3 lakh of them across India — now has a point-of-sale (PoS) machine linked to the Department of Fertilizers’ e-Urvarak DBT portal.

How does this system work?

• A popular example of how this system works is that of the neem coated urea fertiliser.
• Its MRP (Maximum Retail Price) is fixed by the government at Rs. 5922.22 per tonne.
• The average cost of domestic production is at Rs 17,000 per tonne. The difference is footed by the centre in the form of subsidy.
• This fertiliser has high Nitrogen content and is cheaper than usual fertilizers.
• While this may be perceived as a good thing, excess of Nitrogen can disrupt the NPK (Nitrogen, Phosphorus and Potassium) balance in the soil.

What about non-urea fertilizers?

• The non-urea fertiliser is decontrolled or fixed by the companies.
• The non- urea fertilizers are further divided into two parts, DAP (Diammonium Phosphate) and MOP (Muriate of Phosphate).
• The government pays a flat per tonne subsidy to maintain the nutrition content of the soil, and ensure other fertilizers are economical to use.

Issues with such subsidies

• A flawed subsidy policy is harmful not just for the farmer, but to the environment as well.
• Indian soil has low Nitrogen use efficiency, which is the main constituent of Urea.
• Consequently, excess usage contaminates groundwater.
• The bulk of urea applied to the soil is lost as NH3 (Ammonia) and Nitrogen Oxides. The WHO has prescribed limits been breached by Punjab, Haryana and Rajasthan.
• For human beings, “blue baby syndrome” is a common side ailment caused by Nitrate contaminated water.

Try answering this PYQ:

Q.What are the advantages of fertigation in agriculture? (CSP 2020)

1.Controlling the alkalinity of irrigation water is possible.
2. Efficient application of Rock Phosphate and all other phosphatic fertilizers is possible.
3. Increased availability of nutrients to plants is possible.
4. Reduction in the leaching of chemical nutrients is possible.

Select the correct answer using the code given below:
(a) 1, 2 and 3 only

(b) 1,2 and 4 only

(c) 1,3 and 4 only

(d) 2, 3 and 4 only

 

[wpdiscuz-feedback id=”pxjt2tbo29″ question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

 

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Context

For the Amrit Kaal (next 25 years) that the government has announced, we need to be self-reliant not just in missiles (defence equipment) but also in meals (food).

What does self-reliance in food mean?

• Its true meaning lies in specialising in commodities in which we have a comparative advantage, export them, and import those in which we don’t have a significant comparative advantage.
• Self-reliance in food does not mean that we have to produce everything ourselves at home, irrespective of the cost.
• If some protection is needed for new areas to develop (infant industry argument), that may be okay.
• But one should not aspire to be self-sufficient behind high tariff walls.

Importance of agri-R&D

• What is it that gives a country an edge over others in attaining comparative advantage?
• There is ample literature to show that agri-R&D raises total factor productivity and makes agriculture more competitive globally.
• If India wants to be fully self-reliant in food, it is generally agreed that it must invest at least 1 per cent of its agri-GDP in agri-R&D.
• The Economic Survey (2021-22) explicitly highlighted the correlation between spending on agri-R&D and agricultural growth.
• Low expenditure on agri-R&D: But the budgets of both the Union government and the states put together reveal that this expenditure on agri-R&D and education hovers around 0.6 per cent of agri-GDP.
• This is way below the minimum cut off point of 1 per cent and government policy must urgently work towards raising this substantially.
• There are some global and local companies like Bayer, Syngenta, MAHYCO, Jain Irrigation, and Mahindra and Mahindra that spend a considerable amount of their turnover on R&D programmes and developing high-tech inputs.
• The USP of these companies is that they develop technology that increases productivity while addressing the current challenges of limited net sown area, depleting water resources, vulnerability to climate change, and the need to produce nutrient-rich food.

Way forward

• Role of private sector: The private sector need to come forward and help India attain supremacy in agri-R&D and innovation systems and a hub for exports and agri-technology.
• Increase expenditure on Agri-R&D and education: The need of the hour is to focus on increasing expenditure on ARE and other development projects, which can aid in the sustainable growth of the agriculture sector.
• India’s budget allocations in the agri-food space should thrive on creating “more from less”.
• There is a need to work on building long-term sustainable solutions that have an aggressive approach to implementing relevant policies and developing new ones.
• India’s current budgetary allocation strategy and trends need to be reoriented to ensure that there is more room for R&D expenditure by the government.
• Incentivise private companies for R&D: In addition to this, the government should come out with policies that incentivise private companies to expand their R&D programmes and invest more financial resources on development projects, which have the potential to overcome the challenges of the current agrarian setup of India.

Conclusion

If India wants to be fully self-reliant in food, it must focus on agri-R&D and increase allocation in the Budget.

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Context

In her budget speech, Finance Minister Nirmala Sitharaman reaffirmed the Centre’s commitment to natural, chemical-free, organic and zero-budget farming.

No specific allocation in Budget

• No specific allocations have been made to the Ministry of Agriculture and Farmers Welfare.
•  In fact, currently-operational schemes such as the Paramparagat Krishi Vikas Yojana and the National Project on Organic Farming did not find any mention in the budget.
• The Rashtriya Krishi Vikas Yojana, which has received a 4.2-times (year-on-year) larger allocation of Rs 10,433 crore, will earmark some funds for the on-ground implementation of chemical-free farming.

Suggestions

• As the ministry plans the fund utilisation under RKVY, here are eight suggestions to scale up chemical-free farming.
• 1] Focus on rainfed area: focus on promoting natural farming in rainfed areas beyond the Gangetic basin.
• Home to half of India’s farmers, rainfed regions use only a third of the fertilisers per hectarecompared to the areas where irrigation is prevalent.
• The shift to chemical-free farming will be easier in these regions. 
• 2] Crop insurance:  enable automatic enrolment of farmers transitioning to chemical-free farming into the government’s crop insurance scheme, PM Fasal Bima Yojana (PMFBY).
• 3] Promote microenterprise producing inputs:  promote microenterprises that produce inputs for chemical-free agriculture.
• An often-cited barrier by farmers in transitioning to chemical-free agriculture is the lack of readily available natural inputs.
• 4] Leverage NGOs:  leverage NGOs and champion farmers who have been promoting and practising sustainable agriculture across the country.
• CEEW research estimates that at least five million farmers are already practising some form of sustainable agriculture and hundreds of NGOs are involved in promoting them.
• 5] Upskill workers: Beyond evolving the curriculum in agricultural universities, upskill the agriculture extension workers on sustainable agriculture practices.
• 6] Leverage community institution: Sixth, leverage community institutions for awareness generation, inspiration, and social support. In other words, the government should facilitate an ecosystem in which farmers learn from and support each other while making the transition.
• 7] support monitoring and impact studies: Such assessments would ensure an informed approach to scaling up sustainable agriculture.
• 8] Millet promotion: Dovetail the ambition on millet promotion with the aim to promote sustainable agriculture.
• Instead of the two remaining in silos, why not promote chemical-free millets and create awareness about both?

Conclusion

India’s food system needs a holistic transformation in demand, production, and supply chains. Let’s hope 2022-23 is the inflection point when we convert intent into action in our journey towards achieving a chemical-free food system.

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Context

The country faces the dual challenge of achieving nutrition security, as well as addressing declining land productivity, land degradation and loss of ecological services with change in land use. Not surprisingly, widespread concerns about poverty, malnutrition and the need for a second Green Revolution are being made in tandem.

 

Challenges for India

• Macro- and micronutrient malnutrition is widespread in India.
• 18.7% of women and 16.2% of men are unable to access enough food to meet basic nutritional needs.
• Over 32% of children below five years are still underweight as per the recently released fifth National Family Health Survey (2019-2021) phase 2 compendium.
• India is ranked 101 out of 116 countries in the Global Hunger Index, 2021.
• Although India is now self-sufficient in food grains production in the macro sense, it has about a quarter of the world’s food insecure people, a pointer to the amount of food necessary to allow all income groups to reach the caloric target (2,400 kcal in rural and 2,100 kcal in the urban set-up). 

India needs to adopt ‘food systems’ for ‘sustainability’ and ‘better nutrition’

• The UN Food Systems Summit called for action by governments in five areas: nourish all people; boost nature-based solutions; advance equitable livelihoods, decent work and empowered communities; build resilience to vulnerabilities, shocks and stresses; and accelerate the means of implementation.
• Wholistic policy approach: In the context of the intensifying economic, environmental and climate challenges and crisis, the need of the hour is a good theory of transition encompassing the spatial, social and scientific dimensions, supported by policy incentives and mechanisms for achieving a sustainable, resilient and food secure agriculture.
• Agro-climatic approach: An agro-climatic approach to agricultural development is important for sustainability and better nutrition.
• Potential for crop diversification: Data compiled in the agro-climatic zones reports of the Indian Council of Agricultural Research and the erstwhile Planning Commission of India reveal enormous potential for crop diversification and precision for enhanced crop productivity based on soil type, climate (temperature and rainfall), and captive water resources.
• The focus should be on improving farmers’ competitiveness, supporting business growth in the rural economy, and incentivising farmers to improve the environment.
• Review of agro-climatic zones: It is assumed that a meticulous review of agro-climatic zones could make smallholders farming a profitable business, enhancing agricultural efficiency and socio-economic development, as well as sustainability.
• Strengthening and shortening food supply chains, reinforcing regional food systems, food processing, agricultural resilience and sustainability in a climate-changing world will require prioritising research and investments along these lines.
• A stress status of the natural resource base — soil and water in different agro-climatic zones — will help understand the micro as well as meso-level interventions needed with regard to technologies, extension activities and policies.
• Infrastructure: Lastly, infrastructure and institutions supporting producers, agri-preneurs and agri micro, small and medium enterprises (MSMEs) in their production value chain are central to the transition.
• Alignment with national and State policies: This should be aligned to the national and State policy priorities such as the National Policy guidelines 2012 of the Ministry of Agriculture for the promotion of farmer producer organisations, and the National Resource Efficiency Policy of 2019 of the Ministry of Environment, Forest and Climate Change.

Conclusion

Clearly, science, society and policy have a lot to gain from an effective interface encompassing the range of actors and institutions in the food value-chain and a multidisciplinary and holistic approach, along with a greater emphasis on policy design, management and behavioural change.

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Context

While the overall budgetary allocation towards the agricultural sector has marginally increased by 4.4% in the Union Budget 2022-23, the rate of increase is lower than the current inflation rate of 5.5%-6%.

Agricultural Finance in India – A brief history

Phase 1 (1951-69):

• Thrust on developing primary sector since 1st FYP in 1951.
• National Credit Council in 1968 emphasized that commercial banks must increase financing to small scale industries and agriculture
• Nationalization of banks in 1969 put thrust on the opening of rural/semi-urban bank branches

Phase 2 (1970-1990)

• The decade of 1970s marked the entry of commercial banks into agricultural credit with the Lead Bank Scheme and regulatory prescription of Priority Sector Lending (PSL).
• Regional Rural Bank Act, 1976 enacted to specifically provide banking and credit facilities for agriculture and
  other rural sectors.
• National Bank for Agriculture and Rural Development (NABARD) was established in 1982 to promote agricultural and rural development, particularly by financing SHGs and MFIs.
• RBI introduced in 1989 service area approach (SAA) & Annual Credit Plan (ACP) system to increase outreach
  to rural areas.

Phase 3 (1991-onwards)

• Implementation of Narasimham Committee Report of 1991 to increase the operational efficiency of banks.
• 1st major nationwide farm loan waiver in 1990.
• Establishment of the Rural Infrastructure Development Fund (RIDF) with NABARD mainly meant for funding rural infrastructure projects.
• NABARD started a pilot project SHG-Bank Linkage Programme in 1992.

Mechanisms of Agriculture Credit in India

• Priority Sector Lending: PSL was introduced to ensure that vulnerable sections of the society get access to credit and that there is an adequate flow of credit to employment-intensive sectors like agriculture and MSME.
• Interest Subvention Scheme (ISS) was launched for short-term crop loans in 2006-07. 2% interest subvention is given to farmers, which is reimbursed to banks (through RBI and NABARD). Additionally, a 3% prompt repayment incentive (PRI) is provided for good credit discipline.
• Kisan Credit Card (KCC) Scheme, introduced in 1998, aimed at providing adequate and timely credit with flexible and simplified procedures for agriculture-related and also consumption requirements of farmer households.
• Self Help Group- Bank Linkage Programme (SHG-BLP) aimed at harnessing the flexibility of an informal system with the strength and affordability of a formal system. The SHG-BLP model accepted informal groups as clients of banks – both deposit and credit linkage & allowed collateral-free lending to groups.
• Joint Liability Groups (JLG) Scheme was initiated by NABARD in 2006 to enhance credit flow to share croppers/tenant farmers who do not have land rights.

Issues with India’s low spending in agriculture

• The UN Food and Agriculture Organization (FAO) report for 2001 to 2019 shows that, globally, India is among the top 10 countries in terms of government spending in agriculture, constituting a share of around 7.3% of its total government expenditure.
• However, India lags behind several low-income countries such as Malawi (18%), Mali (12.4%), Bhutan (12%), Nepal (8%), as well as upper-middle-income countries such as Guyana (10.3%) and China (9.6%).

Low budgetary allocation

a) Low allocation for important schemes

• Drastic slashing of funds towards the allocation towards important schemes like Market Intervention Scheme and Price Support Scheme (MIS-PSS)- ₹1,500 crores (62% less than the previous allocation of ₹3,959.61 crores in the revised estimates (RE) of FY 2021-22).
• Similarly, the Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA) was allocated just ₹1 crore for the year as against an expenditure of ₹400 crores in 2021-22.

b) Low Capital Investment

• Allocation for the promotion of rural development was 5.59% in the previous budget which has been further reduced to 5.23% for the present financial year

Other issues

a) Institutional vis-à-vis Non-Institutional Agricultural Credit: Traditionally, rural agrarian credit needs were met primarily through money-lenders, which led to large-scale indebtedness.

• According to National All India Rural Financial Inclusion Survey (NAFIS 2015), the share of non-institutional credit still persists at around 28%.
• Unavailability of credit for consumption purposes and to tenant farmers, sharecroppers, and landless labourers, who are not able to offer collateral security, further pushes them towards non-institutional sources.

b) Skewed agency share in institutional credit: Dependency on scheduled commercial banks in agricultural & allied credit is still large (~78-80% of the credit). Though co-operative institutions (~15%) and Regional Rural Banks (~5%) play a significant role in extending agricultural credit, their share is highly skewed geographically.
c) Regional Disparity in Agricultural Credit: States falling under central, eastern, and northeastern regions are getting very low agri-credit as % of their agri-GDP.
d) Poor deployment of agricultural credit to allied sectors (~6-7%) despite a share of 38-42% in the agricultural output indicates neglect of allied sectors by the banks.
e) Issues with Priority Sector Lending (PSL): Though at the aggregate level banks have been able to achieve the overall PSL target of 40%, so far they have failed to achieve the agriculture target of 18% at the system-wide level. Moreover, ~60% of Small & Marginal Farmers (SMFs) have not been covered by SCBs.
f) Interest Subvention Scheme (ISS) on short-term loans have skewed the distribution of agricultural credit in favor of production credit against crop-related investment credit, which is important for the long-term sustainability of the agriculture sector.
g) Kisan Credit Card: As per Agricultural Census 2015-16, only 45% of the farmers possess operative KCCs. Agricultural households are unable to get credit for their consumption requirements and hence, they are compelled to go-to money lenders.
h) Diversion of agriculture loans for non-agriculture purposes: In many states like Tamil Nadu, Andhra Pradesh, Kerala, etc, agri-credit is far higher than their agri-GDP, indicating the possibility of diversion of
credit for non-agricultural purposes. Diversion accentuates the problem of debt overhang, fuels a high level of indebtedness, and deteriorates credit culture in long run.

Way forward

a) Improve the Reach of Institutional Credit:

• Complete the digitization process and update land records in a time-bound manner.
• Reforming of land leasing framework by adopting policies like the Model Land Leasing Act proposed by NITI Aayog, which intends to make all lease agreements formal and enhance access to formal credit.
• Establish a federal institution in agriculture on the lines of GST Council to enable consultation with states during formulation & implementation of reforms.

b) Addressing regional disparity: PSL guidelines should be revisited for improving the credit off-take in central, eastern, and northeastern states.
c) Increasing Credit Flow to Allied Activities: Set separate targets for loans towards allied activities under Ground Level Credit (GLC) & Priority Sector Lending (PSL) guidelines.
d) Enhancing the sub-target of SMFs under PSL- Considering that the total operated area held by SMFs would amount to 51.85% by the year 2020-21, increase the share of agricultural credit under PSL to SMFs to 10% from the current 8%.
e) Agricultural Loans against Gold as Collateral: Banks should develop an MIS to flag agricultural loans sanctioned against gold as collateral in CBS in order to segregate such loans for effective monitoring of end-use of funds.
f) Utilizing Farmer Producer Organisations (FPOs): NABARD should promote women-oriented FPOs by identifying successful women SHGs. Government should expand the scope of its credit guarantee program through Small Farmers’ Agribusiness Consortium (SFAC).
g) Database for Indian Agriculture sector: Develop a centralized database capturing details related to crops cultivated, cropping pattern, output, sown/irrigated area, the health of the soil, natural calamity, etc. Besides, farmer-wise details like identity, land records, loan availed, subsidy given, insurance and details of crop cultivated, etc. should also be captured.
h) Convergence of National Highways development, Rural infrastructure, rural facilities, and increase the number of markets as recommended by the National Commission on Farmers. 

 

Consider the question “What explains India’s low score on Agriculture Orientation Index which is the ratio between government spending towards the agricultural sector and the sector’s contribution to GDP? Suggest the way forward.”

Conclusion

The intensification in government spending towards the agricultural sector is the key to attaining the sustainable development goals of higher agricultural growth and farm income.