Prelims level : Governance Mains level : GS-II Governance, Social Justice and IR
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Why in News:

  • Ashok Gulati, chair professor for agriculture at ICRIER, talked about importance of farm- factory connect.

Background: / Important Analysis:

  • As per the last report of National Statistical Office (NSO) released on May 31, the Gross Value Added (GVA) at basic prices (2011-12 prices) for the fourth quarter (Q4) of 2018- 19 has slumped to -0.1 percent for agriculture, forestry and fishery.
  • However, Agri-GDP grew at 2.9 per cent per annum in Last five year.

China Story:

  • Dr Gulati observe that the first thing Chinese government did in 1978, when it started off economic reforms was to reform agriculture.
  • Agri-GDP in China grew at 7.1 per cent per annum during 1978-84, and because the Chinese government also liberated price controls on Agri-commodities, farmers’ real incomes increased at 15 per cent per annum.
  • China registered an Agri-GDP growth of 4.5 per cent per annum during 1978-2016
  • This helps the manufacturing revolution, which was revved up through town and village enterprises (TVEs) to cater to domestic demand from rural areas.

Indian Story:

  • India has never had any major Agri-reforms and farmers’ incomes have remained very low. It has implications not only for overall Agri-GDP growth, but also for slowing down of manufacturing growth due to sluggish demand for industrial products in rural areas Recently, Indian industry is complaining that the rural demand is collapsing. Tractor sales are down by 13 per cent, two-wheeler sales are down by 16 per cent, car sales are down by similar percentage, and even FMCG (fast move consumer goods) sales are down in April 2019 over April 2018.

Reason for low farm productivity:

  • Restrictive policies: Our restrictive policies constrain the private sector to make Indian agriculture globally competitive.
  • Our restrictive policies constrain the private sector from building direct supply chains from farms to ports, which bypass the mandi system. This leads to a weak infrastructure for agri-exports.
  • Obsessive focus on inflation targeting: An obsessive focus on inflation targeting by suppressing food prices through myriad controls works against the farmer.
  • MSPs remain largely ineffective: Normally, MSPs remain largely ineffective for most commodities in larger parts of India. But even if they are operational through massive procurement operations, a policy of high MSPs can backfire when it goes beyond global prices.
  • Take the case of rice. India is the largest exporter of rice in the world, exporting about 12 to 13 MMT of the cereal per year.
  • If the government raises the MSP of rice, by say 20 per cent, rice exports will drop and stocks with the government will rise to levels far beyond the buffer stock norms.
  • It would be a loss of scarce resources. Besides, it would create unnecessary distortions adversely impacting the diversification process in agriculture towards high-value crops.
  • Low investment in Agri-R&D and its extension from lab to land: Today, India spends roughly 0.7 per cent of Agri-GDP on Agri-R&D and extension together. This needs to double in the next five years.
  • The meagre investments in Pusa Basmati 1121 and 1509, for example, have yielded basmati exports between $ 4 and 5 billion annually.
  • Investment in managing water efficiently
  • Investment in infrastructure for agri-exports value chains.
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