India's Mandate for Agricultural Reform

Date:10-17-2019


India’s prime minister Narendra Modi and his Bharatiya Janata Party returned to power last May with overwhelming support from across most of India. While his government faces many challenges including a currently faltering economy, the mandate it received provides an unparalleled opportunity to bring about historic reforms.  High on the list of needed reform is India’s agricultural sector which directly affects the livelihoods of half the population, the nutritional needs of all Indians, and the nation’s long-term food security.

Today Indian agriculture is far removed from the successes of the Green Revolution. The sector has suffered major setbacks in recent years. These range from diminishing productivity gains in staple crops wheat and rice and stagnant farm incomes to volatile weather including back-to-back droughts across much of the country in 2015-16 and 2016-17. Recurring sudden price swings due to over- and under-production, and the persistence of hostile policies framed for another era have deepened the sector’s distress.

Responding to the mounting agrarian crisis, Prime Minister Modi took some important steps during his first term. In 2016 he announced the focus of central government agricultural policies would shift from increasing production per se to improving farmer incomes, with the goal of doubling those incomes by 2022.  He launched policies intended to reach the goal by increasing farmers’ access to working capital, providing crop insurance against weather and other risks, enabling farmers to realize higher prices for their produce through a national electronic marketplace (eNAM), and early this year initiating a direct benefit transfer policy for small farmers.

As welcome as these initiatives have been, their impact has been limited. While a good monsoon this year will likely mean larger harvests, farmer incomes will still have registered only small gains over the last four years. Minimum support prices are accessible primarily to wheat and rice farmers and are effective only in the few regions where government procurement takes place. Small farmers remain largely dependent on local money lenders and traders for access to production credit.  The crop insurance and eNAM schemes have been poorly implemented and reached few farmers.  Just this week the government showed little concern for farmer livelihoods when it banned onion exports after prices for the essential ingredient spiked in the cities.

The direct benefit transfer payments promised by the government still have not reached many farmers, and it is not clear whether the program will continue next year. The Government of India has not yet reduced the incentive-distorting fertilizer and power subsidies, a step many believe is essential to make the transfers program affordable. After the election the new government expanded the program to include all farmers, suggesting it views it as a give-away rather than a new approach.

Putting Indian agriculture on track to achieve sustainably high growth in production and incomes over the long term can only be achieved through fundamental reforms; reforms as potentially transformative as those that ushered in the Green Revolution but moving far beyond them.

Reforms in four areas should be the priority if the current government’s agenda of doubling farmer incomes is to be accomplished in the coming years.  First, the focus of agricultural policies must shift from production to farmers’ livelihoods. Second, policies to improve the allocation and efficiency of land and water are essential if these critical resources are to be conserved. Third, reforms are needed to help farmers cope with the growing risks of weather and price volatility. Fourth, agricultural markets must be opened to greater competition and provided with better infrastructure if farmers are to realize better returns for produce, without trading-off the nutritional security for low-income consumers.

The key steps the government should consider are: reduce or eliminate price supports for rice and wheat and encouragement of cultivation of less water-intensive and more nutritious crops such as pulses and millets; remove controls on the stocking, trading and export of all commodities; reduce and eventually eliminate subsidies for fertilizer, power and water in agriculture; allow farmers to sell to whom they want to sell, when they want and where they want; invest in marketing infrastructure and incentivize transportation options; allow easier leasing/renting of agricultural land for other uses.

To be effective these reforms must consider two critical realities.

First, in India agriculture is a state subject but the central government has a large role. The central and state governments must find ways to work together if the reforms are to succeed. With the BJP now in power both at the center and in nearly half of the states, this government has the political power to bring about needed cooperation.

Second, India needs to start thinking about agriculture policies in the context of natural resource management. Land and water are scarce resources. Low productivity in agriculture traps farmers whose land would be more valuable for other uses in precarious lives. Water scarcity is beginning to impinge on life across India, such as the city Chennai whose reservoirs ran dry earlier this year.  Agriculture accounts for 80% of all water use in the country and poses the greatest threat to and the greatest opportunity for water conservation. Climate change will greatly increase the pressure on India’s water resources.

If properly framed and implemented, these reforms have the potential to achieve sustainable and broadly distributed agricultural growth, reduce India’s high burden of malnutrition, add to India’s GDP, increase export earnings, help conserve increasingly scarce resources of land and water, and enable the orderly movement of labor out of agriculture and into other productive sectors.

Fifty years ago, the Government of India responded to a crisis of hunger and famine with fundamental and far reaching reforms to agriculture. Today the challenges are different but the urgency and opportunity for reform are comparable. Prime Minister Modi can bring about a lasting transformation of India’s agriculture if he only chooses to do so.