Agriculture can drive growth, if it is allowed to
By 2030, if the CII-McKinsey latest report is anything to go by, India could be one of the world?s top 5 exporters of agriculture and food products in the world. From a current average of around 3%, potential agriculture growth could nearly double to 5.2-5.7% per annum over the next two decades, as a result of which farmer incomes will rise nearly fourfold. While all of this sounds unreal, as CII-McKinsey point out, it is very possible were agricultural productivity levels to rise and if India processed more of its farm produce?right now this is around 10% as compared to 50% or so in developed countries. Once processing rises, as Pepsi and other companies have shown, farm productivity and farm incomes grow rapidly.
The point, however, is that everyone knows what needs to be done. CII-McKinsey provide a summary?setting up an agriculture technology mission, an agricultural sustainability mission, farmer-industry partnerships, better agricultural marketing, among many more. The fact, however, remains that while India began the process of freeing up industry in 1991, nothing of the sort has even been attempted in the case of agriculture. Agriculture markets, that are critical for any sort of price incentive to work, remain regulated and controlled by a small cartel?in the event, with farmers getting a small fraction of the final price, incentive structures get distorted. Similarly, while India needs to spend around R4 lakh crore on irrigation to fulfil the country?s ultimate potential, the government chooses to instead spend a fourth of this or more on annual fertiliser and power subsidies to the farm sector. Paddy farmers in Punjab, for instance, get R12,000 of subsidies per hectare per year for power and fertilisers?as a result of free power, too much water gets drawn and the soil is left less fertile. Logically, India should be shifting crops to eastern India where water is easily available, but this requires subsidies that get used up for power and fertilisers. Technology missions are a good idea, but keep in mind that, when allowed, private seed providers have driven technological changes?India?s spectacular performance in BtCotton is a good example. Indeed, instead of speeding up the process, the government has by and large tried to slow this process. CII-McKinsey?s first recommendation should have been to ask the government to get out of the way.
