When the provisional estimates of GDP growth for FY15 were released last week, showing an overall GDP growth of 7.3 per cent but agri-GDP at 0.2 per cent, one wondered whether one should celebrate or cry, or do both simultaneously. The reason is simple: agriculture still absorbs about 49 per cent of the workforce, and an average household still spends about 45 per cent of its expenditure on food. And it is not just in FY15, but during the first three years of the abandoned 12th Plan, the average agri-GDP growth works out to a paltry 1.7 per cent, less than half of its target of 4 per cent. So, if agriculture is limping and farmers are facing deep stress, how could one realise the grand vision of “sabka saath, sabka vikas”?
Now, the official Met (IMD) has revised its forecast for the current monsoon to 88 per cent of the long period average (LPA), down from 93 per cent in the first forecast. Twelve per cent below the LPA could mean an impending drought, almost the same as experienced during the monsoon of 2014, although the government did not officially declare it a drought for reasons best known to itself. This back-to-back drought, technically a deficit of more than 10 per cent rainfall compared to the LPA, has happened only thrice since 1900 — in 1904, 1905; 1965, 1966; and 1986, 1987. This surely does not auger well for the Modi government, and could be its mega challenge.
What is it that the Modi sarkar can do in the short run, and also for the medium to long run, to put agriculture back on track and bring smiles on the faces of our farmers? The standard drill in the government is to prepare a contingency plan, asking state governments to ensure ample supply of seeds, fertilisers and fodder, and give some subsidy on seeds, diesel, fodder, etc, if need be. How much of it reaches the millions of farmers varies from state to state, but the overall situation remains grim, although the Central government says it is fully geared to face any problem resulting from drought.
The current system of crop insurance is also patchy, time consuming and corrupt. It needs a major overhaul, from raising the sum insured to at least 80 per cent of expected income to using latest technologies, from digitisation of land records to satellites, drones and all-weather stations to assess damages, and Aadhaar-based bank accounts, where compensation can be wired within days of the damage, and not 6 to 12 months, which is the current practice. The prime minister will have to lead this transformation of crop insurance with high priority, as he did for the Jan Dhan Yojana and social security schemes. Else, this will remain in limbo for years and farmers will keep suffering.
But the real answer to droughts is developing our water resources and learning to manage them well. In reality, however, the water sector is already in deep crisis, and this crisis is going to deepen unless bold and urgent steps are taken to reform it. The culture of free (or highly subsidised) water and power is depleting our groundwater fast, and surface irrigation schemes are embroiled in long delays, with a thin spreading of resources due to the paucity of funds. And whatever funds are allocated, a substantial part of that simply disappears like water disappears in sand, without any tangible increase in irrigated area. No wonder, even after spending lakhs of crores of rupees on irrigation, more than half of India’s cropped area is still rain-fed. With climate change and erratic rainfall, this rain-fed area is exposed to high risk, and this risk is going to become increasingly more intense.
But despite being water-stressed, India is a net exporter of water. One kilogram of rice uses 3,000 to 5,000 litres of water for irrigation, depending upon where it is being grown. In the Punjab-Haryana belt, it inches towards the upper limit of about 5,000 litres of water for every kilogram of rice. In FY15, India exported more than 10 million tonnes of rice, which means anywhere from 30 to 50 billion cubic metres of water. It is almost a similar story for sugar, where one kilogram of sugar uses about 2,000 litres of water. If we have to learn to use water more rationally, there has to be economic pricing of water and power. But none of the state governments will be willing to touch it, with it being a politically sensitive issue, especially in a drought year. The alternative for the Centre is to put, say, a 5 per cent tax on exports of common rice and sugar to recover a part of the subsidy that flows to these crops, and discourage exports of water-guzzler crops, in a way restricting exports of “virtual water”. But our policies are perverse, subsidising exports of sugar (read water).
Another key issue in a drought year is what happens to food inflation, and how consumers can be protected from spikes in food prices. The fundamental principle for that is to create an all-India market for all food products, keep the taxes and levies on food items to less than 5 per cent, compress the value chains by allowing direct buying from farmers, and have a liberal import policy to augment domestic supplies wherever there are shortfalls. Currently, there are ample stocks of wheat, rice and sugar. The problem is likely to emerge in the case of pulses, oilseeds and fruits and vegetables. In the short run, liberalimports can help, but in the medium to long run, we need to invest in raising the productivity of these on a per unit of land and water basis.
This is a huge agenda for reforms in agriculture. It requires massive resources, from resurrecting crop insurance to stepping up irrigation to investing in markets and value chains. And time is running out. How will the Modi government garner enough resources to accomplish these?
Humongous food and fertiliser subsidies (more than Rs 2,00,000 crore a year) hold the key to this puzzle. The management of food and fertilisers hides massive inefficiencies and leakages in the system. Streamlining these through direct cash transfers can unlock at least Rs 40,000 to 50,000 crore a year, without giving up on the objective of helping consumers and farmers. It is these savings that can be used to overcome various bottlenecks in agriculture.
Will the Modi sarkar have the time to focus and undertake these bold reforms? Only time will tell.