Whither India’s Farm Sector Under NDA? 

by Sthanu R Nair - May 1, 2019 12:33 PM +05:30 IST
Whither India’s Farm Sector Under NDA? A paddy field in Mandya district, Karnataka (Pic: Hemanth Gowda)
  • Contrary to peddled theories, the farm sector under NDA-II performed reasonably well, despite punishing climatic conditions.

    Interestingly, under UPA, one of the high performers was meat, while under the NDA, it was milk.

One of the major economic issues that hogged the national limelight in the last five years of the Narendra Modi-led National Democratic Alliance-II (NDA-II) government is agrarian distress. The Opposition political parties and farmer organisations allege that the development of the farm sector has been ignored under the NDA-II regime.

For improving their livelihood, among others, the farmers have been demanding a remunerative price for their produce, farm loan waivers, debt relief, better crop insurance scheme, and improved irrigation facilities. In support of these demands, mass farmer protests have erupted in different parts of the country.

As a consequence of these protests and high-decibel campaigns by the Opposition, a perception has been created that the performance of the farm sector was better during the earlier United Progressive Alliance (UPA) than under the NDA-II regime.

The Congress party has promised that if elected to power in the 2019 Lok Sabha election, the party would waive farm loans in all states. The Bharatiya Janata Party (BJP), on the other hand, has been arguing that its policies are aimed at bringing a fundamental transformation in the farm sector by way of addressing farmers’ problems relating to agricultural inputs, irrigation, prices, storage, and market access and of promoting allied agricultural activities such as animal husbandry and fishing.

Amidst all these developments, one hardly finds a decent answer to the critical question: How did the Indian agriculture sector perform in the last five years of the NDA-II regime compared to the earlier two UPA regimes? In my recent paper titled ‘India’s Agrarian Performance: A Comparative Analysis of UPA and NDA Regimes,’ this question was examined in detail.

The paper demonstrates that, contrary to popular perception, the Indian agriculture sector performed pretty well during the NDA-II regime. The following excerpt from the paper elaborates this key finding.

Agricultural Growth

Despite the adverse climatic condition prevalent during the major part of the NDA-II regime, agricultural Gross Value Added (GVA) grew at a healthy 4.03 per cent in the NDA-II regime compared to 3.57 per cent recorded in the entire UPA regime. The first two years (2014 and 2015) of the NDA-II regime had witnessed drought followed by below-normal monsoon and devastating floods in parts of India in 2017 and 2018 respectively.

In contrast, in the 10 years of the UPA regime, only two years (2009 and 2012) experienced drought. Thus, except 2016, all the other years under the NDA-II regime experienced climate-induced agrarian risk. Despite this, the agricultural sector has grown at the targeted rate of 4 per cent. This is commendable.

Growth In Food Output

The performance of the UPA and the NDA regimes was mixed in terms of the growth of output of major agricultural crops. The growth of production of cereals, pulses, oilseeds, tea, milk, egg and fish has improved in the NDA-II regime over the whole UPA regime. On the other hand, output growth of sugarcane, cotton, coffee, vegetables, fruits, and meat was higher during the whole UPA regime compared to the NDA-II regime.

An encouraging feature of agricultural growth during the NDA-II regime was the diversification of the production basket towards three high-value agricultural products namely pulses, oilseeds and milk. There was a remarkable increase in the growth of production of these food commodities during the NDA-II regime.

MSP And Food Prices

The growth of MSP of the majority of farm products was lower during the NDA-II regime compared to the UPA regime. However, the growth rate of MSP of the two important crops namely paddy and wheat declined sharply in the UPA-II regime over UPA-I, and the same trend continued under the NDA-II regime.

But, the rate of decline in growth during the NDA-II regime was only marginal compared to the UPA-II regime. The slow growth of MSP offered for cereals, pulses, and oilseeds during the NDA-II regime did not cause an adverse impact on the production of these crops. This implies that the production of these crops was not driven by the changes in MSP in the NDA-II regime, but by other factors such as area and productivity growth.

The relatively lower growth in MSP recorded during the NDA-II regime has helped to control the rise in food prices. This should have caused welfare losses to the farmers and gains to urban consumers. The welfare effect of lower food prices on the vulnerable sections of society such as agricultural labourers, landless rural households and female-headed rural households is complex to gauge due to two offsetting factors, namely falling growth of rural wages and subsidised supply of food through the newly improved Public Distribution System (PDS).

Credit And Non-Credit Support

The growth rate of total direct institutional credit delivered for the agricultural sector was considerably lower during the NDA-II regime compared to the UPA regime. However, the agricultural credit-to- agricultural GVA ratio has increased significantly over the years from UPA-I and UPA-II, to NDA-II, implying that agricultural credit had become less effective in delivering agricultural growth overtime. Viewed from this angle, the lower agricultural credit growth doesn’t seem to have adversely affected agricultural growth during the NDA-II regime.

The factors that contributed to healthy agricultural growth during the NDA-II regime are higher productivity growth in cereals, pulses, oilseeds and tea, improvement in road network, increase in agricultural exports, and higher overall budgetary expenditure on agriculture and allied services, rural development and irrigation.

It seems the falling growth of agricultural credit under the NDA-II regime was compensated with gains through higher productivity, improved road infrastructure for farmers, increase in agricultural exports and increased budgetary expenditure on agriculture. Also, there are signs of more focused institutional credit flow to the agriculture sector under the NDA-II regime.

An encouraging feature of agriculture development under the NDA-II regime is the higher public expenditure on agriculture and allied services, rural development and irrigation. This was achieved mainly due to the significant increase in the budgetary expenditure of state governments on these heads.

As a percentage of agricultural GVA, the central government’s budgetary expenditure on agriculture remained at the same level both under the UPA and NDA-II regimes. One notable achievement of the NDA-II regime was the reduction in fertilizer subsidy burden. This seems to be the outcome of the important reforms initiated in the fertilizer sector since 2014. The reforms include the supply of neem-coated urea, gas-pooling, and the introduction of Direct Benefit Transfer (DBT) in fertilizer subsidy.

Role Of States

The paradigm shift in the domain of public expenditure on agriculture from the central government to the states was caused due to the significant changes introduced in the system of central government fund transfers to the states starting from 2014. Following the recommendations of the Finance Commission-XIV, the tax devolution from the centre to the states increased from 32 per cent of the divisible pool to 42 per cent.

This landmark reform together with the radical restructuring of Centrally Sponsored Schemes (CSS) reduced the fiscal space of the centre and increased the capacity, flexibility, and autonomy of the states to finance schemes according to their development priorities. This is evident from the significant upward revision witnessed in the quantum of central transfers to the states starting from 2014-15. And it is this increase in the central transfers that has translated into a remarkable increase in the budgetary spending of the state governments in the agriculture sector.

Thus, from the point of view of developing India’s agriculture sector through the important public policy instrument namely public expenditure, the role of the central government has diminished after the recent reforms introduced in the centre-state transfer mechanism. It is high time the stakeholders involved in the Indian agricultural system including the policymakers give equal or more attention to the role of state governments in promoting agricultural growth and farmers’ welfare.

In the current public debate, excessive focus is given on the role of the central government in shaping the destiny of India’s agriculture sector. This should change in the larger interest of the agriculture sector and farmers’ well-being. After all, as per the Indian Constitution, Agriculture is a State subject. In the light of the increased fund allocation to the states under the centre-state transfer scheme and the expected higher revenue flow to the states under the Goods and Services Tax (GST) system, the state governments share greater responsibility in developing India’s agriculture sector.

Therefore, the states also need to be held accountable for the performance of the agriculture sector in India instead of focusing excessively on the impact on the centre’s policies on agriculture.

Sthanu R Nair is Associate Professor of Economics at IIM Kozhikode. 

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