Are Incentives Right for Indian Agriculture? Where is the New Deal For Rural India?

India’s Finance Minister Mr. P. Chidambaram, in his new year message to the country, noted that Indian economy would grow by about 7 % during 2006 following an investment boom particularly in infrastructure, agriculture and the social sectors.

While infrastructure and social sectors have their own problems, my immediate reaction was: are incentives right for greater investment in India’s agriculture?

As recently as in the 2005 Agricultural Summit, Prime Minister Manmohan Singh noted that there has been a neglect in agriculture in the past decade. If we must step up the rate of growth of the economy to 7 to 8%, India must accelerate the rate of growth in agriculture; unfortunately, there has been a deceleration.

While the Tenth Plan assumed that agricultural production would grow at the rate of 4%, during the first three years of the plan, the growth rate has been below 1.5%. The Prime Minister said “to reverse this neglect, his Government would give a New Deal To Rural India".

We need to know where that New Deal stands today? The "New Deal" hopes to reverse the declining trend in investment in agriculture by stepping up credit flow to farmers; increasing public investment in irrigation and wasteland development; increasing funds for agricultural research and extension; creating a ‘single market’ for agricultural produce; investing in rural healthcare and education; investing in rural electrification; investing in rural roads; setting up commodities futures markets; and, insuring against risks which are inevitable in an increasingly commercialized agrarian economy.

Indeed, an ambitious agenda! As we go along, we must take stock of how effective the implementation of this agenda is? On December 9, 2005, Agriculture Minister, Mr. Sharad Pawar told the Parliament that India could not be internationally competitive in the field of agriculture without sufficient investment! Yes, Mr. Pawar, but this “investment” will not be forthcoming unless GOI and state governments implement major policy changes in pricing of agricultural inputs (fertilizers, water and power) and outputs (especially grains), and generates incremental resources by making full cost recovery of publicly-funded inputs, which is currently as a very low level. Also, the focus should be on public-private partnership in agriculture, which has much potential, if agriculture sector must grow.

Mr. Pawar told the Parliament that the demand for foodgrain would go up in the next five to seven years and that the country would need a second Green Revolution? Let us hope, Mr. Pawar who indeed knows what rural India and agriculture, will succeed in this effort, at least in setting up the right policy environment for revitalizing agriculture on which 80% of India’s population depends for employment and livelihood.