The state of Indian agriculture under Modi regime
It is widely believed that the performance of the Indian farm sector has been poor under the Narendra Modi-led NDA-II regime. As the condition of Indian agriculture has become a major issue during the 2019 Lok Sabha elections, it would be of interest to examine the performance of the agriculture sector in the last five years of the NDA-II regime compared to the UPA regime. One hardly finds a convincing analysis on this notwithstanding the noisy public discourse on the topic. In my recent work, I found that contrary to popular perception, the condition of the Indian agriculture sector was not bad under the NDA-II regime. Let me elaborate.
A major part of the NDA-II regime experienced climate-induced agrarian risk. The first two years (2014 and 2015) had witnessed drought. There was below-normal monsoon and devastating floods in 2017 and 2018, respectively. Despite this, agricultural Gross Value Added (GVA) grew at a healthy 4.03 per cent in the NDA-II regime compared to 3.57 per cent recorded under the UPA regime. Notably, in the ten years of UPA rule, drought conditions were prevalent only in two years (2009 and 2012).
The performance of the UPA and NDA regimes was mixed in terms of the growth of output of crops. The growth of production of cereals, pulses, oilseeds, tea, milk, egg and fish has improved under the NDA-II regime over the UPA regime. But output growth of sugarcane, cotton, coffee, vegetables, fruits, and the meat was higher during the UPA regime.
There was significant diversification of the production basket towards high-value agricultural products, namely pulses, oilseeds, and milk under the NDA-II regime. Also, higher productivity growth was achieved during the same regime in the cultivation of cereals, pulses, oilseeds, tea, and sugarcane. On the flip side, the decline in the growth of production of cotton, vegetables, and fruits during the NDA-II regime was caused by a fall in the growth of both area and yield. This is a cause for concern.
The growth of MSP of the majority of the farm products was lower during the NDA-II regime compared to the UPA regime. Interestingly, the slow growth of MSP offered for cereals, pulses, and oilseeds during the NDA-II regime did not adversely affect their production. The relatively lower growth in MSP under the NDA-II regime has helped to control food prices.
The average food articles and food products inflation rates recorded during the UPA regime was 10.07 and 6.30 per cent, respectively. In contrast, during the NDA-II regime, the figures were 2.76 and 2.46 per cent, respectively, for food articles and food products. This must have caused welfare losses to the farmers and gains to the core support base of the BJP, namely urban consumers, and middle and upper-middle classes.
Ideally, lower food prices should also benefit the vulnerable sections of society such as agricultural labourers and landless rural households, because these sections are generally net food buyers. However, as subsidised staple food has been supplied to these sections through the public distribution system in an efficient way after the implementation of National Food Security Act, 2013, lower food prices have limited relevance in influencing the welfare of the vulnerable sections.
The agricultural credit to agricultural GVA ratio has increased significantly over the years from 23.58 per cent under UPA-I to 41.26 per cent under NDA-II. This implies that agricultural credit has become less effective in delivering agricultural growth over time. The key drivers of agricultural growth in India, therefore, seem to be non-credit factors.
It turns out that higher productivity growth; improved road infrastructure; increase in agricultural exports; targeting of fertiliser subsidy and increased budgetary expenditure on agriculture, rural development and irrigation were the key drivers of agricultural growth in the last five years of NDA-II rule. The fact that the agriculture sector has become less efficient in using institutional credit over time also suggests that farm loan waivers are not the answer to the farm sector’s problems.
The higher budgetary expenditure on agriculture and allied services during the NDA-II regime was majorly due to the significant increase in the expenditure of the state governments. This happened due to the significant upward revision in the quantum of Central transfers to the states from 2014-15.
Tax devolution from the Centre to the states increased from 32 per cent of the divisible pool to 42 per cent as a result of the implementation of FC-XIV recommendations. This landmark reform together with the restructuring of Centrally sponsored schemes reduced the fiscal space of the Centre and increased the capacity and autonomy of the states to finance development schemes on their own.
Thus, the role of the Centre in influencing the course of agricultural development through public expenditure has diminished since 2014-15. Still, excessive focus is given to the policies of the Centre in shaping the destiny of India’s agriculture sector. It is high time we give more attention to the role of states in promoting agricultural growth. As agriculture is a state subject as per the Indian Constitution, the states need to be held accountable for their performance in developing Indian agriculture.
Sthanu R. Nair
Associate Professor of Economics at
Indian Institute of Management Kozhikode
Email: srn@iimk.ac.in