India Economic Survey 2021-2022, Agriculture - A Practitioner's Perspective

The past two years have been difficult for the Indian economy as was the case across the world on account of the COVID-19 pandemic. Multiple waves of infection, repetitive restrictions on mobility hence trade, lead to supply-chain disruptions, falling employment or quality of employment and, more recently, inflation is creating an environment of uncertainty and leading to challenging times for businesses (especially marginal, small, and medium businesses), policy-makers, and the general public at large.?

Advance estimates suggest that the Indian economy is expected to witness a real GDP expansion of 9.2 % in 2021-22 after contracting 6.6% in 2020-21. The overall economic activity has recovered to the pre-pandemic levels. Almost all indicators show that the economic impact of the “third wave” in Q3 was lesser than the?“second wave” in Q1 which itself was much smaller than that experienced during the full lockdown phase in 2020-21 even though the health impact was more severe in “second wave” when compared to preceding and succeeding "waves".?

Advance estimates suggest that the GVA of Industry (including mining and construction) will rise by 11.8 % in 2021-22 after contracting by 7 % in 2020- 21. The Services sector has been the hardest hit by the pandemic, especially segments that involve human contact including hospitality, tourism, and aviation to name a few. This sector is estimated to grow by 8.2 % this financial year following last year’s 8.4 % contraction. However, while the other two sectors bleed, the bright spot was the Agriculture sector. The sector has experienced buoyant growth in the past two years. The sector, which is the largest employer of the workforce, accounted for a sizeable 18.8 % of Gross Value Added (GVA) of the country in 2021-22, registering a growth of 3.6 % in 2020-21 and 3.9 % in 2021-22. Growth in allied sectors including livestock, dairying, and fisheries has been the major drivers of overall growth in the sector. Allied sectors are steadily emerging to be high-growth sectors. The livestock sector has grown at a CAGR of 8.15 % over the last five years ending 2019-20. As revealed by the latest SAS, the sector has been a stable source of income across groups of agricultural households accounting for about 15 % of their average monthly income.

Gross Capital Formation (GCF) in Agriculture

Investment is critical to the growth of a sector. The Gross Capital Formation (GCF) in agriculture and allied sectors relative to GVA in the sector has been showing a fluctuating trend. Fluctuation in the GCF in the sector arises mainly because of wide fluctuations in private investment in agriculture and allied sectors. While public investment has remained stable between 2-3 % over the years, the private investment has fluctuated and the total agricultural GCF has moved in sync with variation in private investment.

Agriculture Production

As per Fourth Advance Estimates for 2020-21, total foodgrain production in the country is estimated at a record 308.65 million tonnes which is 11.15 million tonnes higher than that during 2019-20. The production of rice, wheat, and coarse cereals has increased at compound annual growth rates (CAGR) of 2.7 %, 2.9 %, and 4.8 % respectively during the last six years i.e. 2015-16 to 2020-21. The CAGR for pulses, oilseeds, and cotton has been 7.9 %, 6.1 %, and 2.8 %, respectively during the same period. The oilseed production in India has steadily increased since 2016-17 onward after showing a fluctuating trend before that. The oilseed production in India has grown by almost 43 % from 2015-16 to 2020-21. The oil production in India has however lagged behind its consumption necessitating the import of edible oils.

Agriculture Credit

The agriculture credit flow for the year 2020-21 was ? 15,75,398 crore against the target of ? 15,00,000 crore for the year. The agriculture credit flow target for 2021-22 has been fixed at ? 16,50,000 crore and till 30th September 2021 against this target a sum of ? 7,36,589.05 crore has been disbursed. As of 17th January 2022, banks have issued KCC to 2.70 crore, eligible farmers. Apart from this, to address the credit needs of animal husbandry and fish farmers, the Government of India in 2018-19 extended the facility of KCC to fisheries and animal husbandry farmers to help them meet their working capital needs. In pursuance of this, a total of 67,581 KCCs have been issued to fishers and fish farmers by 17th December 2021 and over 14 lakh fresh KCCs were sanctioned for animal husbandry and dairying farmers by the 10th of December, 2021.

Agriculture Irrigation Infrastructure

Agriculture accounts for about 80 % of the current freshwater use in the country. The share of net irrigated area accounts for about 49 % of the total net sown area in the country and out of the net irrigated area, about 40 % is irrigated through canal systems and 60 % through groundwater. The overall stage of groundwater development (ratio of annual groundwater draft and net annual groundwater availability) in the country is 63 %. This ratio is very high (more than 100 %) in the states of Delhi, Haryana, Punjab, and Rajasthan. Himachal Pradesh, Tamil Nadu, Uttar Pradesh, and UTs of Chandigarh. As of 01.12.2021, projects with loans under Micro Irrigation Fund (MIF) amounting to ? 3970.17 crores have been approved for 12.81 lakh ha of Micro Irrigation area. Under Pradhan Mantri Krishi Sinchayee Yojana (PMKSY-PDMC) from 2015-16, as of 14.12.2021, the total area of 59.37 lakh ha has been covered under micro-irrigation in the country from 2015-16.

Agriculture Marketing

Wholesale agricultural marketing is undertaken by the network of 6946 regulated wholesale markets, set up under the provision of the respective State Agricultural Produce Market Committee (APMC) Act. Government of India's National Agriculture Market (e-NAM) Scheme launched in 2016, with the objective to create an online transparent competitive bidding system to facilitate farmers with remunerative prices for their produce, has as on 1st of December 2021 integrated 1000 mandis of 18 States and 3 UTs.?Wholesale agricultural marketing is undertaken by the network of 6946 regulated wholesale markets, set up under the provision of the respective State Agricultural Produce Market Committee (APMC) Act. Government of India's National Agriculture Market (e-NAM) Scheme launched in 2016, with the objective to create an online transparent competitive bidding system to facilitate farmers with remunerative prices for their produce, has as on 1st of December 2021 integrated 1000 mandis of 18 States and 3 UTs. The Government of India has launched a Central Sector Scheme of “Formation and Promotion of 10,000 Farmer Producer Organizations (FPOs)” to form and promote 10,000 new FPOs till 2027-28. Under the scheme, as of January 2022, a total of 1963 FPOs have been registered.

Agriculture Produce Storage Infrastructure

The total storage capacity available with FCI and State Agencies for storage of foodgrains as of 31st December 2021 was 961.73 LMT, comprising covered godowns of 792.81 LMT and Covered and Plinth (CAP) facilities of 168.92 LMT. Out of the total available storage capacity of 961.73 LMT, the capacity of 463.24 LMT was with FCI and 498.49 LMT with State Agencies. Moreover, as of 31st December 2021, a capacity of 144.34 LMT has been created under the Private Entrepreneurs Guarantee Scheme in which construction of godowns is undertaken in PPP mode.

Farmer's Income

National Statistical Office (NSO) in its 77th round of the survey, conducted during the period 1st January 2019 to 31st December 2019, surveyed “Land and Livestock Holdings of Households and Situation Assessment of Agricultural Households” (SAS) in the rural areas of India. The Report was released in September 2021 and the previous SAS was published in 2014. The SAS, 2021 reveals that the average monthly income per agricultural household, as per the paid-out expenses approach, works out to be ? 10218. The average monthly income per agricultural household was ? 6426 as per the last SAS Report of 2014 estimated by the same approach.?

The average size of household ownership holdings has declined from 0.725 hectare in 2003 to 0.592 hectare in 2013 and further to 0.512 hectare in 2019.?

Policy Recommendations

The Agriculture and Allied Sectors have shown that it is not just vital to the Indian economy from a food security and livelihood perspective but also as a buffer during current times of uncertainty.?The target we need to have for the growth of the sector for the next ten years needs to be upward of 8% in net terms.?The sector has the potential to make India an economic superpower due to reasons well known but still repeating, a large number of eco-climatic zones, the largest number of farmers, and upward of 150 million hectares of cultivated/cultivable land. To achieve the same below are some policy recommendations in brief

1. Public investment in Agriculture and Allied sector to increase from current 2-3 % of total GCF to 5-6 % of total GCF. Public investment must be targeted towards Storage Infrastructure, Micro-Irrigation Infrastructure, Decentralized Electrification, Digital Agriculture Infrastructure, and modernization & increase in the number of APMCs.
2. Incentivization of crop diversification. As the current cost of production of various crops is unviable for competition in global commodity markets, while we continue to overproduce them (sugar, grains to name a few), it is important we shift to more remunerative crops especially the fruit and vegetable segment. Until we shift the crop patterns through a conducive policy environment we are walking towards the barrel of the gun.
3. Revamp the current MSP regime. While this will need tight ropewalk the time has come where we need to address it with ultimate urgency. Multiple models can be looked at to find the balance to ensure remunerative prices to the farmer as well as the government not bleeding by providing unwarranted subsidies.
4. The agriculture credit ecosystem is not tenable for vibrant agriculture and allied sector. On one hand, it is accessible to a very small number of the targeted beneficiaries at the same time highly risky and inefficient for financial institutions. We need to move away from asset-based funding to transaction-based funding. As the cost of acquiring, servicing, and mitigating risk on farm loans is high it will not be feasible to unlock the credit to the sector by mere force or subvention schemes.
5. The aggressive incentive to the private sector for creating robust value chains. Encourage SMEs to create more food aggregation, food processing, and ancillary capacities closer to farm gate while encouraging larger global players to create economies of scale to make Indian food products globally competitive.
6. Relook at the current subsidy regime which is leading to unsustainable agriculture including those on fertilizers and electricity. Subsidies need to be in form of incentives for those farmers who are doing farming by deploying Good Agriculture Practices in Environmentally Sustainable Manner.
7. Create better risk mitigation (read as insurance) strategy by looking at incomes not productivity as a key goal. We need to protect farmers not only from production losses but also from income loss due to weather, pest attacks, and other uncertainties.

The current government is surely walking the talk but needs to do MORE and need to do it NOW.

Source: https://www.indiabudget.gov.in/economicsurvey/

About Author

DEEPAK PAREEK, CEO, AgriWatch, Technology Pioneer & Expert – Digital Transformation, World Economic Forum??

Deepak is CEO of AgriWatch a consulting firm that provides market intelligence, research, and advisory services across the agribusiness value chain. AgriWatch is bridging the information and insight gap that exists in various sub-sectors of the agricultural economy in general and agricultural commodities trade in particular through access to lakhs of farmers and thousands of traders. Deepak has 22 years of diverse experience working across 34 countries on various projects.