Wednesday, March 25, 2015

Budget 2015: All is not well with farming

Budget 2015: All is not well with farming
By: Ashok Gulati
Finance minister wants to take India on a high-growth trajectory of double digits, surpassing China, in a year or two. He says it is India’s time to fly, as is also noted by The Economist. His focus is on infrastructure and industry, especially through the Make-in-India initiative. Other sectors don’t seem to be as central to his strategy. The poor can be taken care of through JAM (Jan-Dhan Yojana, Aadhaar, and Mobile services) and by reducing leakages in subsidies, and not cutting these. Will this strategy work? Let us look at China in the early stages of its reform process, to see if there is something to learn.

If India wants to compete with China on growth and poverty reduction, there is at least one lesson that it should have learnt long back. China started its reforms with agriculture, and attained 7.1% annual growth in agri-GDP in thefirst six years, 1978-84. China also liberated its agri-prices, apart from replacing the commune system by household responsibility system. The results were dramatic: farm incomes grew by 14% per annum (due to price liberalisation), poverty halved in six years, and it gave political legitimacy to the reforms process to be carried out further and faster.

India’s reforms started with stealth. It started with trade and industrial sector reforms (ending of the Licence Raj). India also halved its poverty — but in 18 years (1993-2011), not six. Agriculture kept limping for most of the time with a long-term growth of around 3.3%. It was never at the centre of reforms strategy. But some states like Gujarat, Madhya Pradesh and Chhattisgarh did registermore than 7% growth per annum in agri-GDP during the first decade of the millennium. People of these three states rewarded the respective chief ministers by returning them to power three times! No one understands this better than the Prime Minister himself, who has lived with this and benefited from this strategy tremendously. It also helped reduce rural poverty quite fast.

Then why is agriculture not a central part of this reformist Budget of the Modi government? If India’s overall GDP is growing at 7.5%, and if agriculture is limping at 1.1% in FY15, should it not be a cause for worry? The FM admitted this is a challenge as agriculture is under stress; but where is then the big dose of reforms for agriculture? Would the injection of R5,300 crore under the Pradhan Mantri Gram Sinchai Yojana be enough? Or would the setting up of some corpus under Nabard for a Rural Infrastructure Fund be sufficient? These cannot move Indian agriculture to any respectable level of growth. Agriculture needs a bitter booster dose to get back on its feet.

The overall resources going to the agri-food space are not less. They account formore than R2.5 lakh crore, between the ministries of agriculture, food, fertiliser, water resources and food processing. But it is a pity that more than 80% of these resources go as subsidies on food and fertilisers, with much lower rates of return in terms of agri-growth or poverty alleviation. This was the time to bite the bullet, and rationalise subsidies and boost investments in agriculture, which would have raised productivity and farm incomes in a sustainable manner and reduced rural poverty, making it a win-win situation politically and economically. But this Budget stops much short of that and, I am afraid, agriculture will keep limping, and farmers will be at the receiving end.

By Ashok  Gulati, Infosys Chair Professor at ICRIER

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