Begin dawn in Agriculture Sector

In the recent past, India had raised ourselves to the 5th position in the World Economic status.

I recall a quote from a modern thinker which I read as “Economy is a too serious matter to be left to Economist.” While being perplexed at the outset, later introspection led me to really believe this. These were those days when we recently come out of license Permit raj in 1993 when I was a student at Manchester University. I always used to wonder why the New Industrial Policy was announced and why not a dedicated Agricultural Policy. At this very same period of my life, another interesting observation I read in a book by Professor Jagdish Bhagwati (India in Transition: 1994). He had expressly echoed the above statement in the book, stating that the Indian Economy hitherto (before 1991) had failed because there were too many economists handling it. In this context, please be assured that I do not hold any rancor or derision against the economists per se or those economists in the Indian system. My refrain was why the structure had never hit the headlines or agenda for major structural reforms.

Present structure of GDP

At the outset, before the COVID-19 pandemic stuck, our erudite Finance Minister had announced the target of $5 Trillion economy as the target. Further in the recent past, we had raised ourselves to the 5th position in the World economic status. I am profoundly proud of this achievement. Notwithstanding it is my humble submission here that to achieve the target we need to indeed undertake a radical change in our policies, economic agenda, and economic thinking. The vice and hindrances have to be overcome. The economy had to be made to gallop. The present over-reliance on service structure as a contributor to GDP has to change. The primacy to have to be accorded to value-added goods to replace the present overwhelming focus on the service sector. The contribution of industries including the mining sector and agriculture and the related sector has to increase. They should contribution a healthy robust 50-55% to the GDP. This should be an underlying premise. In 2005 the National Manufacturing Strategy had in some form identified this.

In their bid to make a fast profit these institutions compromise due diligence in spite of all regulatory provisions for lending and we have cases of Mallya’s and Choksis to attended to besides huge volumes clogging the Debt Recovery Tribunal. 

Legacy

Actually the rapid growth and development after the new Industrial Policy 1991 had certain distortions built into it. Firstly the reluctance to build big manufacturing capacities had met with a big mental block from industrial houses. This is on account of our Constitutional Provisions under which under Part IV had if overall interpreted stated the national goals self-reliance and social justice. This had been the spirit of Industrial Policy Resolution of 1948 and 1956, operating under the legal teeth of Industrial Development Regulation Act 1951 which contained the draconian provision under Section 19 which vested with powers to government officials to enter premises seek information, etc., which in retrospect exposed itself as a fountainhead of corruption. To remind you, the industry is on the state list (Entry 24) of Schedule VII of the Constitution of India.

Risk and capacity phobia

Besides, there was risk wariness amongst the investors a legacy they had inherited. In the pre-liberalization as a World Bank report of 1989 -90 or so stated that “several Nylon Filament Plants had been established at 7 to 13% of the capacities compared to plants in other parts of the World.” Hence that wariness has never taken up addressed. In this situation, the investors started investing in lower gestation period projects which is getting further validated by the fact that many of the top industrial houses of those times are found to be involved in real estate projects, retailing, etc. Hence at some point in time, an ecosystem to bring some level of parity through investment equalization instruments need to be introduced between high investment longer gestation big-ticket projects and shorter cycle projects is required. In fact, we have reached the situation of even institutional financers fading away and shifting to retail financing, In their bid to make a fast profit these institutions compromise due diligence in spite all regulatory provisions for lending and we have cases of Mallya’s and Choksis to attended to besides huge volumes clogging the Debt Recovery Tribunal. The institution of Board of Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction India {AAFIR) for financial reconstruction which has ceased to exist was never allowed to be chaired by a financial professional but by retired Bureaucrats. These are issues to be addressed immediately.

Agriculture bottom of the Pyramid

One of the sectors of the economy which is the bottom of the pyramid both in the national agenda and the mind of the administrators has been the agriculture and related sector. The perception of poor farmers continues even after 73 years of Independence. The root cause of this is the Constitution of India. What was an existential situation in respect of the sector that has been incorporated in the Constitution of India? The proscription clauses under Article 269 of the Constitution of India is the biggest give away till any amendment to the Constitution the farmer will always remain poor. This has been the agenda of governance to get further accentuated by virtue of express provisions of Income Tax Section 10. The import of this is the farming community should always spread their palms for bounties from the government in the form of minimum support prices, fertilizers, and other subsidies, crop insurances procurement issues. Hence farming was always made sustainable, even in the case of cash crops like cotton, jute, etc. we have the Article 270 or the Minimum support prices and all sorts of bounties, notwithstanding the fact these handouts have not to make them sustainable economically. No one has thought about this sector in an out of box manner. We had a Planning Commission established in 1951 by a non-statutory resolution. Per se, it has no status except that of an attached office and grantee institutions. Mostly used as a post-retirement sinecure for retired officers. Now in its new avatar that in National Institution for Transforming India (NITI) the same set of stakeholders has converted it into one. Readers may kindly confirm the profile of the CEO or principal advisor of NITI to corroborate this.

Ecosystem to keep the farmer poor

Recalling from the scale wariness or phobia of the industrialist, let me share that the position in the Agricultural sector is, even more, alarming with concomitant consequences. The skill required in farming is much. However, since it is handed over from generation to generation with no formal ranking it is generally understated. Most importantly as a consequence of lower returns, there is migration from this sector which is perpetually happening. Besides the real estate lobbies which are getting powerful day by day are enabling policy changes or even land use declaration from agriculture to non-agriculture in collusion with our politicians and bureaucracy who do not envision the macro impacts and its vicissitudes. The case studies of many hinterland areas to big cities will reveal the shrinking areas under agriculture and the irresponsible lifestyle of the beneficiaries of land compensations. Even the land pooling which under implementation in Delhi and surrounding areas is an indicator of this. At the same time, rural to urban migration is taking place uncontrolled. The recent ruckus over migrants in several cities in this time of pandemic is also a cause of this.

The case studies of many hinterland areas to big cities will reveal the shrinking areas under agriculture and the irresponsible lifestyle of the beneficiaries of land compensations. 

Possible mitigation steps

Why no one ever thought building capacity of scales in this sector. We have heard a lot about farm indebtedness and rural indebtedness while growing up. But after many years there has been mitigation. Hence, a new era should be introduced. Through corporatization and other such endeavor let the landholdings be aggregated. The minimum size of a farm should be 300 acres. The contributing farmers are engaged by the same corporates as farmworkers with a fair wage equivalent to that of an industrial worker in a city. If required make the Minimum Wages Act sector-neutral. His inherent skills are harnessed and given proper up-gradation from time to time. Provide urban amenities in rural areas. I remember a paper that was introduced in 2005 by former IIT Director Prof. P.V. Indiresan which never got the attention it deserved. Let this theme be reinforced. The corporate should also provide for all amenities like housing, children’s education, medical insurance for the farmworkers, and also build capacity for cold storage and warehousing in the same 300-acre parcel. Concurrently related economic activities like poultry, piggery, sheep rearing, slaughterhouses, aquaculture, and fisheries, etc also are allowed in the same farmland. The said corporate may also be permitted to sell these and export the products under a brand name like Godrej Basmati or Aashirwad pulses or Tata Chicken. Introduce international quality certification facilities in rural areas.

Legislative changes required

In addition to the above policy initiatives, we also need to make suitable amendments in the legal framework like Article 260, 270, Land Reforms Act of several states, etc.

Potential spinoffs

1. The spinoff to the national economy will be unlimited. I have listed some of them.
2. The plight of farmers will improve economically.
3. Agriculture will again begin attracting human resources.
4. There will be a huge employment generation.
5. Less dependence on government handouts and resulting in attendant fiscal benefits.
6. No blackmailing by the large mills like in the sugar or jute industry.
7. Arrest migration to urban areas.
8. Citizens and the food processing industry will get quality produce.
9. Agriculture will be a major contributor to GDP cake as well as Tax kitty.
10. Incentivize farm innovation for higher yield, eco-farming, productivity improvement, etc.

Note:
1. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.