From UPSC perspective, the following things are important :
Prelims level : Agreement on Agriculture
Mains level : Paper 3- Challenges of farm subsidies and declining farm incomes
The article examines the reasons for declining farm incomes and the contribution of farm subsidies.
Contribution of agriculture
- India’s agriculture, which also supports the rural workforce, was, forever, living beyond its means.
- In 1950-51, agriculture’s share in the country’s GDP was 45%, the share of the workforce dependent on it was close to 70%.
- Today, agriculture’s share in GDP is below 16%, but almost 50% of the country’s workforce depends on this sector.
- The squeeze on the agricultural sector becomes even more evident from its terms of trade vis-à-vis the non-agricultural sectors.
- Agriculture has been facing adverse terms of trade over extended periods since the 1980s, and even during the phases when the terms of trade have moved in its favour, for instance in the 1990s and again since 2012-13, there was no distinct upward trend.
Reason for fall in farm incomes: falling investment
- The decline in farm incomes was triggered by growing inefficiencies.
- This decline, in turn, was caused by a lack of meaningful investment in agriculture.
- The share of this sector in the total investment undertaken in the country consistently fell from about 18% in the 1950s to just above 11% in the 1980s.
- In the most recent quinquennium for which data are available (2014-15 to 2018-19), the average share of agriculture was 7.6%.
India’s dismal performance in term of yields of major crops
- If one ranks countries in terms of their yields in wheat and rice — India’s two major crops — the country’s ranks were 45 and 59, respectively, in 2019.
- This ranking would go down sharply if the areas recording high yields, such as Punjab and Haryana, are excluded.
- In other words, for farmers in most regions of the country, it is an uphill battle for survival amid low yields.
Need for coherent policy for agriculture
- The lack of a coherent policy for agriculture must surely be regarded among the most remarkable failures of the governments in post-Independence India.
- Compare this failure with the United States, with less than 2% of its workforce engaged in agriculture, has been enacting farm legislations every four years since the Agricultural Adjustment Act was enacted in 1933.
- These policies comprehensively address the needs of the farm sector through proactive support from the respective governments.
Issue of the farm subsidies in India
- The subsidies are the price that the country pays for the failure of the policymakers to comprehensively address the problems of the farm sector.
- Wanton distribution of subsidies without a proper policy framework has distorted the structure of production and, consequently, undesirable outcomes in terms of excessive food stockpiling.
- And, yet, the fundamental ills of Indian agriculture are not adequately addressed.
- Members of the World Trade Organization (WTO) are expected to notify their agricultural subsidies as a part of their commitment under the Agreement on Agriculture (AoA).
- India’s latest notification, for 2018-19, shows that the subsidies provided were slightly more than $56 billion.
- In most of the recent years, the largest component of India’s subsidies ($24.2 billion, or 43% of the total) is provided to “low income or resource-poor farmers”, a terminology that the AoA uses.
- However, the designation of this category of farmers is left to individual members.
- India has notified that 99.43% of its farmers are low income or resource-poor.
- According to the agricultural census conducted in 2015-16, these are the farmers whose holdings are 10 hectares or less.
- Thus, almost the entire farm sector comprises economically weak farmers.
Comparing subsidies given by various countries
- America provided $131 billion in 2017 and the EU, nearly €80 billion (or $93 billion) in 2017-18.
- Instead of absolute numbers; the ratios of subsidies to agricultural value addition for the three countries give a much better picture.
- Thus, for 2017, India’s farm subsidies were 12.4% of agricultural value addition, while for the U.S. and the EU, the figures were 90.8% and 45.3%, respectively.
- This then is the reality of farm subsidies that India provides.
Consider the question “Indian agriculture has been contributing beyond its means since Indian independence. However, agri incomes have shown a gradual decline. What are the reasons for such a decline? How far has farm subsidies succeeded in solving the low-income problem?”
India needs a comprehensive Agri policy to deal with the distortion created by the subsidies.