EMPOWERING INDIA'S AGRICULTURE.

Agriculture is the backbone of the Indian economy, supporting around 50-60% of the workforce and contributing about 17-18% of GDP. Despite its crucial role, the sector faces deep-rooted challenges, including limited irrigation, price volatility, low productivity, and inadequate income for farmers. Recently, efforts to address these issues culminated in the 2020 Farmers' Law, but its implementation stirred significant protests, highlighting a need for further improvement and clarity. These issues not only hamper farmers’ livelihoods but also threaten the country’s overall food security and economic growth.

This article discusses the implications of all three acts on farmers, the farm sector, APMCs, the MSP regime, consumers and the future of agriculture, agriculturists and related aspects. It is also important to inform the public why the Centre had to bring about these acts.

WHY THE FARMER'S BILL FOCUS ON MARKET LIBERALIZATION

The 2020 Farmers' Law, included three main legislations intended to modernize India’s agricultural sector by improving market access and removing outdated restrictions. The three key reforms were:

The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020:

• This act allowed farmers to sell their produce outside the Agricultural Produce Market Committees (APMCs), also known as mandis. Previously, farmers were largely restricted to selling their crops within APMCs, where prices were often regulated and middlemen played a significant role.
• The law intended to create a “One Nation, One Market” system, where farmers could sell directly to private buyers, exporters, or food processing companies, bypassing the APMC structure. The hope was that greater competition would result in better prices for farmers.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020:

• This law established a framework for contract farming, allowing farmers to enter agreements with companies or individual buyers to sell crops at pre-determined prices. The idea was to provide farmers with price assurance and a reliable market before they began the production cycle.
• Supporters of this act argued that it could reduce the income volatility that many farmers face due to fluctuating market prices. By engaging in contract farming, farmers could secure an assured income.

The Essential Commodities (Amendment) Act, 2020:

• This act removed essential commodities like cereals, pulses, and onions from government-controlled stock limits, allowing private entities to store larger quantities without restrictions.
• The rationale was to encourage private investment in cold storage, supply chains, and food processing infrastructure, thus reducing post-harvest losses and stabilizing prices for consumers.

Farmers’ Concerns and Reasons for Protests

Despite these intended benefits, the Farmers' Law faced widespread opposition. Farmers from several states, particularly Punjab, Haryana, and Uttar Pradesh, protested due to various concerns:

Fear of MSP Removal:

• A major concern was that the reforms would lead to the phasing out of the Minimum Support Price (MSP) system. Although the government stated that MSP would continue, many farmers worried that the laws would gradually shift focus to private markets, reducing government procurement and, ultimately, the reliability of MSP.
• MSP serves as a safety net for farmers, especially for staple crops like wheat and rice. Without a legal guarantee of MSP, farmers feared they would be left at the mercy of large corporations who could exploit their bargaining power.

Weakening of the APMC System:

• Many farmers felt that allowing private markets to operate outside the APMC structure could erode the system entirely. Farmers rely on APMCs for regulated pricing, and the presence of middlemen often ensures a certain level of income security.
• The concern was that private buyers, initially offering attractive prices, might lower these prices once the APMC structure weakened or was dismantled, making it harder for farmers to get fair prices.

Contract Farming Risks:

• Contract farming raised concerns around fair treatment and exploitation, especially for small farmers. Farmers feared that, without strong oversight, large corporations might impose unfair terms, delay payments, or pressure them into disadvantageous agreements.
• The provisions around dispute resolution were also criticized, as many farmers were unsure of the legal support and protection they would receive if a dispute arose.

Lack of Consultative Process:

• The laws were passed quickly, with limited consultation with farmer groups and stakeholders. Many farmers felt excluded from the decision-making process, contributing to their distrust of the laws and increasing the perception that the reforms primarily benefited corporations.

What Can India Do to Fix Its Agricultural Problems?

To address the numerous agricultural challenges and align with the progress seen in countries like China, India needs a multifaceted approach. Below are some key strategies:

Expand Irrigation Coverage:

• India's irrigation coverage currently extends to approximately 65 million hectares of farmland, covering about 45% of the total cultivable area. Despite significant advancements in canal and reservoir infrastructure, 55% of farmers remain reliant on monsoon and other traditional water sources. The increasing threat of climate change and soil erosion further exacerbates the challenges faced by farmers in safeguarding their livelihoods.

• 60% of farmers still employ traditional methods and in states like Bihar, Rajasthan, and Punjab they don't even have the basic water reservoirs to maintain their water scarcity issues. To address this issue and improve agricultural productivity, the government should implement a comprehensive plan to promote advanced irrigation techniques and ensure sustainable water usage.
• The government must invest in modern irrigation systems, such as drip irrigation and micro-irrigation, especially in regions with water scarcity. Implementing large-scale canal networks and promoting rainwater harvesting can also help reduce dependency on monsoon rains and ensure a more reliable water supply.
• Water management practices should be enhanced to avoid the over-extraction of groundwater, as seen in states like Punjab and Rajasthan.

Improve MSP and Market Linkages:

• India's MSP program, designed to protect farmers from price volatility, places a major fiscal burden on the government. Expanding MSP to cover all eligible crops could cost up to ?13.5 trillion or $163.18 billion, roughly 4% of the GDP and 6% of the agricultural sector's output.

Currently, MSP mainly supports wheat and rice, which represent about 6% of farm output, limiting funds for crop diversification and infrastructure. Legalizing MSP for all 22 crops would add an estimated annual cost of ?11 trillion or $131.5 billion, disrupting budget allocations. Proposed reforms include direct farmer compensation or incentivizing private procurement to ease government spending.

India produces approximately 100 to 110 million metric tonnes of wheat, which is equivalent to 1000 to 1100 million quintals. With the government's Minimum Support Price (MSP) for wheat set at around Rs 2,275 in 2024, this translates to a total value of approximately Rs 2.27 lakh crore to Rs 2.5 lakh crore, or around $28 billion to $30 billion. This amount represents roughly 0.74% to 0.8% of India's GDP. Each year, this significant sum is allocated solely to wheat procurement.

• The MSP system needs to be expanded and modernized. This includes better coverage of more crops, timely procurement, and better price support. Digital platforms such as eNAM (National Agriculture Market) should be fully utilized to ensure that farmers have access to wider markets and can get fair prices for their produce.
• The government should ensure that the market infrastructure at local levels is improved to reduce reliance on middlemen and that cold storage facilities are more widely available.

Incentivize Technological Adoption:

• As a share of the value of agricultural production at the farm gate, Brazil’s public sector expenditures on agricultural R&D were the largest in 2019–2021 at 0.9%, compared with 0.7% in the United States, 0.4% in China, and 0.3% in India. So, we have to raise our investments in R&D as well as in other technologies to compete with the international markets.

• India must invest in agricultural R&D to drive innovation and adopt modern technologies. Government-backed initiatives to promote precision farming and smart irrigation systems will help increase yields, reduce input costs, and enhance sustainability.
• Promoting the use of drones, AI, and machine learning for monitoring crops and improving pest control could also revolutionize Indian agriculture.

Rural Development and Financial Support:

India’s Union Budget estimate for 2024 is Rs 48.21 lakh crore (approximately $581 billion). Within this budget:

The allocation for rural development is 5.58%, amounting to Rs 2.65 lakh crore (around $32 billion), representing roughly 0.86% of India’s GDP.

The agriculture budget allocation is 3.21% of the overall budget, totalling Rs 1.52 lakh crore (approximately $18 billion). This amounts to 0.49% of GDP and is about half of the rural development budget.

• There must be a greater focus on rural infrastructure development, including roads, electricity, storage facilities, and market access. This would help reduce post-harvest losses and improve farmers' income.
• Financial inclusion through low-interest loans and subsidies for farmers should be a priority, especially for small and marginal farmers, who often lack access to affordable credit.

Promote Sustainable and Climate-Resilient Agriculture:

• India should invest in sustainable agricultural practices that focus on reducing environmental impact. This includes encouraging organic farming, agroforestry, and water conservation methods.

• These government initiatives are commendable, as they help farmers mitigate risks from climate change and other calamities. However, it's essential to allocate more funds to ensure that insurance payouts reach farmers promptly and without delay, enabling a smoother transition and greater financial security and build trust.
• Climate-resilient crops should be promoted to address the growing threat of climate change, and insurance schemes like PMFBY (Pradhan Mantri Fasal Bima Yojana) should be strengthened to provide greater coverage.

WHAT TO CONSIDER

The Agricultural income as well as the production of labourers has deteriorated over the years. The agricultural sector's contribution to India's GDP has declined from around 35% in the early 1990s to approximately 15% by 2022-23, as industrial and service sectors grew more rapidly. Agriculture, however, remains essential, employing over 42% of India’s workforce and supporting food security and rural livelihoods.

Government policies, such as crop insurance, price supports, and productivity programs, have aimed to stabilize and boost agricultural growth, which averaged around 4.18% annually over the past five years. However, growth is projected to be slower in 2023-24, around 1.4%, due to challenges like erratic weather patterns and many other issues.

The majority of farmers engaged in cropping are not poor. The kind of returns they seek from the market is often unrealistic. A significant portion of their additional income from farming is spent on labour-intensive, non-tradable goods and services within the large rural, non-farm sector. Labelling Indian farmers as poor is misguided; instead, the focus should be on ensuring fair and sustainable returns for their efforts.

Amartya Sen's findings reveal that famine, hunger, and poverty are primarily caused by a lack of income among the poor, rather than a shortage of food in the economy.

According to research by CAADP in 2010, governments should allocate at least 10% of their total expenditure to agriculture. With India's projected total budget for 2025 estimated at around ?48.21 lakh crore (or $581 billion), this would mean a minimum of $58 billion should be invested in agriculture. However, the current allocation stands at only $18.3 billion, or 2.7% of the total budget, highlighting a significant gap in agricultural investment.

If we focus on increasing the per capita income of rural India, we can automatically boost our foreign direct investment (FDI). This would eliminate the need to seek foreign aid or external investments, as the improved economic condition of rural areas would attract sustainable private sector funding and growth.

As of the latest data for 2023-24, India's per capita Gross National Income (GNI) is estimated to be around ?122,110, while the per capita Net National Income (NNI) stands at approximately ?106,134 at current prices.

Unfortunately, farm income is unequally distributed among agricultural households in India. In some states, less than 30% of agricultural households earn more than the national average of ?13,661 per month. In other states, 75–90% of agricultural households earn less than ?10,000 per month.

Now, a farmer in Andhra Pradesh, earning a meagre Rs 10,480 annually, is burdened with a staggering debt of Rs 2,45,000. Even if the farmer were to allocate their entire income towards debt repayment, they would only be able to cover a mere 5% of the total amount owed. Rest you can do the math.

INVESTMENT IN LOGISTIC INFRASTRUCTURE

Given the global competition, India will be required to sell 20–25% of the incremental agri-food production in overseas markets in the coming years. This is not possible in the “business as usual” setting, which involves a long chain of intermediaries, small market lots, and high transaction costs.

The country is witnessing the accumulation of a large surplus of grain and sugar, which is getting increasingly difficult to dispose of in the overseas markets due to the poor price competitiveness of our produce. We need to reduce the logistics cost––which is about 14%––to at least half, to make our products competitive.

The key concerning issues are, that most of these farmers lack scale, resources, and the ability to take price risk to go for high-value crops. It is not economically viable for them to take a few kilos of fruit and vegetables to the market as these crops mature in lots. If such farmers get markets close to production, like milk collection centres, and have price assurance, they will be encouraged to diversify towards high-value crops.

The only thing that could bring growth to food processing needs and accelerate is through,

(i) match with the rising demand;

(ii) pull agri-diversification; and

(iii) create more jobs in the rural economy.

For this, processors need raw materials of the desired quality and at the desired time. Buying so many small lots of different quality in scattered markets adds to the cost of raw materials. This requires new arrangements and partnerships between processors and producers.

TOTAL PRODUCTION

India has a total arable land area of approximately 156 million hectares, yielding around $515 billion in agricultural production, with only 42 tractors per 100 km2. In contrast, China, with 119 million hectares of arable land, produces $1.5 trillion worth of agricultural products and has 105 tractors per 100 km2.

TECHNOLOGY

For sustainable and efficient development in agriculture, India should focus on a combination of technologies that address current challenges such as climate change, water scarcity, labor shortages, and low productivity. Key technologies India should opt for include:

Precision Agriculture Technologies

• AI and Machine Learning: To predict weather patterns, monitor crop health, and optimize resource usage like water, fertilizers, and pesticides.
• Drones and Remote Sensing: For real-time crop monitoring, pest detection, and precision application of nutrients or pesticides.
• IoT Sensors: Smart irrigation and soil moisture sensors can help optimize water usage and improve crop yield.

Vertical and Urban Farming

• As urbanization grows, vertical farming can optimize land usage in cities, reduce dependency on large land areas, and utilize minimal resources like water and energy.

Blockchain for Supply Chain Transparency

• Blockchain can ensure transparency, traceability, and fair pricing in the agricultural supply chain, helping farmers access better markets and reduce exploitation by middlemen.

Biotechnology and Sustainable Fertilizers

• Biofertilizers and Biopesticides: Reduce reliance on chemical fertilizers, promoting organic farming and improving soil health.
• Microbial Solutions: Enhance soil fertility and increase plant resistance to pests and diseases.

Solar and Renewable Energy

• Solar-powered irrigation systems and cold storage solutions can help reduce reliance on grid power, improve sustainability, and reduce operational costs for farmers.

WHAT I MAINLY RECOMMEND IS INDIA SHOULD OPT AND AGGRESSIVELY PUSH

• Government Support and Policies: India should invest in R&D, incentivize adoption of agri-tech, and provide subsidies for technology adoption among small farmers.
• Partnership with Startups: Collaborate with agri-tech startups to develop and scale innovative solutions.
• Education and Training: Provide training to farmers on the use of modern technologies and digital tools to improve adoption rates.

In my view, what is India doing wrong in the agricultural sector? What are the key issues, and what factors are impacting this sector?

1. Over-reliance on Minimum Support Prices (MSP) and Procurement

• Issue: The MSP system, intended to provide a safety net for farmers, has led to a disproportionate focus on certain crops like rice and wheat. These crops receive high levels of procurement and support, which skews crop patterns.
• Impact: This focus on a narrow set of crops discourages crop diversification and leads to over-exploitation of soil and water in states like Punjab and Haryana, where rice is grown in water-scarce regions.

2. Inefficient Irrigation and Water Management

• Issue: Although almost half of India’s arable land is irrigated, traditional irrigation methods (such as canals and wells) are highly water-intensive and inefficient. There is also a heavy reliance on monsoons for rainfed agriculture, making crop production vulnerable to erratic weather.
• Impact: Over-extraction of groundwater in states like Punjab and Haryana has led to severe water table depletion. Inefficient water usage contributes to drought and water scarcity problems.

3. Fragmented Landholding Structure

• Issue: India’s smallholder farms average just over 1 hectare, making it difficult for farmers to achieve economies of scale or adopt advanced machinery and technology.
• Impact: Small, fragmented farms result in lower productivity and higher costs per unit of production. Smallholders struggle with mechanization, and larger investments become impractical.

5. Limited Mechanization and Technology Adoption

• Issue: Although mechanization has advanced in certain regions, much of Indian agriculture still relies on traditional practices due to small farm sizes and high costs of equipment.
• Impact: Low mechanization leads to inefficiencies and lower yields. Labor-intensive practices limit productivity and make it difficult to meet growing food demands.

6. Inadequate Market Access and Supply Chain Issues

• Issue: India’s agricultural marketing infrastructure is underdeveloped, with limited direct access to markets and reliance on intermediaries. Farmers often lack real-time price information, leading to exploitation by middlemen.
• Impact: This results in lower profits for farmers and significant post-harvest losses due to inadequate storage and transportation facilities. It also reduces farmers’ motivation to improve productivity or diversify crops.

7. Overdependence on Monsoon and Climate Vulnerability

• Issue: India’s agriculture is highly dependent on the monsoon, with almost half of its cultivated area relying on seasonal rainfall. This makes it vulnerable to climate variability and extreme weather.
• Impact: Erratic rainfall, droughts, and floods disrupt crop cycles, lead to production volatility, and increase the risks for farmers.

8. Inadequate Agricultural R&D and Extension Services

• Issue: Investment in agricultural research and development (R&D) is relatively low, resulting in limited advancement in crop improvement, pest management, and climate resilience.
• Impact: Farmers often lack access to the latest knowledge on productivity-boosting techniques, pest control, and resource management.

9. Environmental and Sustainability Concerns

• Issue: Current practices, such as overuse of groundwater, monocropping, and excessive fertilizer use, are depleting resources and degrading the environment.
• Impact: These unsustainable practices harm soil health, reduce biodiversity, and contribute to water scarcity, posing long-term risks to agricultural sustainability.

CONCLUSION

India's agricultural sector is at a pivotal point, where embracing technological innovations can significantly transform its productivity, sustainability, and resilience. By adopting precision agriculture, AI, IoT, genetic advancements, and renewable energy solutions, India can overcome challenges such as climate change, water scarcity, and labor shortages. Additionally, integrating digital platforms, blockchain, and mobile technology can help farmers access markets more efficiently and make informed decisions.

For these reforms to be successful, strong government support, private sector innovation, and education initiatives will be crucial in empowering farmers, especially smallholders, to benefit from these advancements. With the right investments and policies, India's agricultural sector can not only meet the demands of a growing population but also emerge as a global leader in sustainable farming practices.