Assessing Policies for Sustainable Agricultural Development
Food grain production in India has increased from just 52 MMT 1951- 52 to 315.7 MMT in 2021-22 with per capita net food grain availability increasing from 144.1 kg per year in 1951 to 187.8 kg per year in 2021-22
As India gears up for its parliamentary elections in 2024, there are several issues that the incoming government will face. In the field of agriculture, environmental sustainability is one such issue. A government committed to the well-being of farmers and the agricultural sector needs to craft such policies that promote resource-efficient farming practices, while augmenting farmers’ incomes. The incoming government, therefore, needs to demonstrate the political will to navigate this path.”
As we see the course of agriculture development in India, the country’s agri-food support provided by the government has played a major role in attaining self-sufficiency in food grain production as well as achieving food security for the growing population of the country. India has experienced a remarkable transformation since independence from being a ‘begging bowl’ to a food sufficient and food surplus economy. Food grain production in India has increased from just 52 MMT 1951- 52 to 315.7 MMT in 2021-22 with per capita net food grain availability increasing from 144.1 kg per year in 1951 to 187.8 kg per year in 2021-22 (Agricultural Statistics at a Glance, 2022).
However, these policies have been criticized for putting burden on state exchequer and also posing severe environmental challenges. This article provides an analysis of the national level agri-food support in the country in terms of input subsidies and safety net, especially fertilizers for farmers and food subsidy for consumers.
Input Support through Fertilizer Subsidy
In order to boost productivity and meet the increasing demand for food, the government offers fertilizers, power, water for irrigation, etc., at subsidized rates. India is a global player in the fertilizer market, both as a producer and importer. Since 2000, India has been the second largest producer of nitrogenous fertilizers after China (producing 10-11 percent of world production) and the third largest producer of phosphatic fertilizers after China and the USA (producing around 8- 12 percent of total world production). India is also the second largest consumer of fertilizers in the world after China, and the fourth biggest consumer of potassic fertilizers after China, Brazil, and the US (8 percent of world consumption in 2020) (Fertilizer Statistics, 2021-22). The consumption of phosphatic and potassic fertilizers is met by imports.
Over the years, the volume of fertilizer subsidy has steadily increased, and stood at Rs 2,252.2 billion in 2022-23. The subsidy on urea constitutes around 70 percent of the total fertilizer subsidy. Fertilizer subsidy has a positive impact on the productivity of output as consumption of nutrients significantly increased. As production increased, cheaper food was available for the mass. So, fertilizer subsidy worked not only as input subsidy for the farmers but also as support for the consumers. In absolute terms, consumption of total nutrients has increased from 16.7 MMT in 2000-01 to 32.5 MMT in 2020-21. However,the fertilizer subsidy policy could not accelerate domestic production enough and import dependency has increased steadily. This has resulted in burgeoning subsidy burden in India. On the basis of per hectare of gross cropped area, government spends Rs.7274 in 2021-22 through fertilizer subsidy.
However, at the state level, huge disparity is observed in the consumption of nutrients even though support is provided by the Centre. The level of fertilizer consumption per hectare of gross cropped area is much higher than allIndia average (144.6kg/ha) for states of Punjab (247.9kg/ha), Haryana (214 kg/ha), and Uttar Pradesh (196.4 kg/ha) in TE 2021-22 (Fertilizer Statistics, 2021-22). This implies huge subsidy Going to these states in TE 2021-22.
This high level of subsidy is not only a burden on the state exchequer but also hampering soil health of these states. Due to heavily subsidized urea, the ratio of nitrogen (N), phosphorous (P), and potash (K) is far from ideal use in these states. Chand (2015) has estimated the all-India ideal ratio as 2.6:1.4:1 and he also stated state-wise ideal ratios in the study. According to the paper, ideal ratios of NPK for Punjab and Haryana are 4.1:1.6:1, and 4.0:1.7:1 respectively. Compared to that in 2019-20, the NPK ratio in Punjab and Haryana were 34.8:8.4:1 and 28.2:8:1.
According to a study by FAO (2005), India’s soils are lacking nitrogen; phosphatic nutrient content is low to medium, and over time, the deficit of potassic nutrients has also become widespread. The nitrogen use efficiency (NUE) of Indian soils is also low. Proper and rationed application of fertilizers, is overdue and highly subsidized urea is obstructing balanced application of nutrients.
Food Subsidy
Agricultural price policy played a crucial role in attaining growth and equity in Indian economy in general and the agricultural sector in particular. The idea of food rationing is derived from the British initiative in 1939 which eventually laid the foundation of PDS that was developed in 1942. The death of 1.5 million people during Bengal famine in 1943 gave the legitimacy to the PDS. In the present time, the system is ensuring food security for 800 million people across India.
The scheme was adopted with the dual objectives of protecting both the producers and consumers by achieving food security of majority of the population and augmenting production, employment, and income of the farmers. Currently, the price policy consists of three instruments: procurement prices/ Minimum Support Prices (MSP), buffer stocks and public distribution system.
Minimum Support Price and Procurement
Through MSPs for products and guaranteed procurement, the government established an environment to remove uncertainties for farmers during harvesting period while, at the same time, shielding consumers against price fluctuations. Food subsidy is the largest component of government’s subsidy bill in India. The food subsidy bill has risen steeply to Rs.2871 billion in 2022-23.
One of the key challenges with a long established procurement-backed MSP policy is that the central government may announce MSPs for 24 commodities (including fair and remunerative price (FRP) for sugarcane) on paper, but their implementation remains largely concentrated in implementation. Only wheat and rice are procured by the FCI on a continuous basis, and that too from a few selected states, while procurement mechanisms for other crops – pulses, oilseeds, sugar, and cotton – are mostly insufficient.
Farmers respond to the price signals provided by the MSPs and grow principally crops which ensure them best price. Procurement at MSP was adopted primarily for wheat and paddy to ensure remunerative prices to farmers for their produce which worked as an incentive to produce rice. This has been successful in states like Punjab and Haryana. In the recent years, states like Madhya Pradesh, Chhattisgarh, Telangana, Odisha have entered the game. Punjab and Haryana together produce around 14 percent of rice and 27 percent of wheat production in India respectively in 2020-21. However, these two states together contributed 28 percent of rice and 73.6 percent of total wheat procurement in 2022-23.
In terms of percentage share of production, entire produce was procured by government agencies in Punjab, and around 85 percent of the production was procured in Haryana (Figure 2). As a result of open-ended procurement, the cropping pattern in these states have shifted towards production of paddy. The major crops grown in Punjab were wheat, rice, maize, cotton, sugarcane, and horticulture. However, owing to lower market risk in rice compared to other competing crops, farmers moved towards rice cultivation.
Farmers’ preference for paddy cultivation is due to assured MSP, which is fixed at 1.5 times the cost of production incurred by the farmers. For instance, MSP of common paddy was fixed at Rs.2183/quintal in kharif 2023. Because of very high procurement as a percentage of state production, wholesale price of paddy in private markets reached as high as Rs.2634 and Rs.2239 in Punjab and Haryana in the harvest months respectively. On the other hand, in West Bengal, where there is hardly any procurement by the government, wholesale price (Rs.2126/Quintal) remained lower than MSP.
Without a well-functioning procurement mechanism, paddy is not as lucrative a crop in states where it is environmentally sustainable for cultivation.
In Punjab, wholesale price of maize (Rs.1305) remained very low in the kharif marketing season of 2023 compared to its MSP (2090). Similarly, in Haryana, wholesale price of moong (Rs.8057) hovered below the MSP (Rs.8558) in the marketing season (AGMARKNET). The crop-specific and regionspecific procurement operation has distorted the cropping pattern of these states. The need of the hour is to incentivize diversification away from rice through crop-neutral support for farmers.
Way Forward
Currently, fertilizer and food subsidy together constitute 10.9 percent of agriculture GDP in 2021-22. With agriculture being the backbone of the nation, there is a pressing need to reorient policies towards long-term environmental and socio-economic viability without hampering the productivity.
(1) The urgent need to revisit procurement policy
Current MSP policy generates highly skewed incentive structure in favour of wheat and rice. While there is shortages of pulses and oilseeds, their prices often remain below MSP without any effective price support. Moreover, trade policy works independently of MSP policy, and pulses are often imported at a price lower than MSP. This disincentivizes diversification. It is highly desirable that the country has crop-neutral incentive structures. That way, pulses and oilseeds need to get a similar support as wheat and rice.
(2) Revamp Public Distribution System
GoI can revamp the public distribution system by launching food coupons for the poorest population. Ration shops can be converted into nutrition hubs where all the ingredients of a balanced meal will be available. The female heads of the BPL households should be provided with food coupons which could be used at these ration shops. This will provide them with the option to purchase nutritious food at a subsidized rate, expanding access to healthier options. This will serve the objective of incentivizing crop diversification and improve nutritional status of the population.
(3) Direct Benefits Transfer
India’s agriculture is heavily dependent on monsoon rain, making it vulnerable to droughts and inconsistent rainfall patterns. Hence farmers, especially the small and marginal farmers, will always require government support. To deal with inefficiencies of the current subsidy structure government can adopt direct benefit structure. This will help create a crop-neutral incentive structure.
(Ashok Gulati is Distinguished Professor,Indian Council for Research on International Economic Relations (ICRIER) and Ranjana Roy is a fellow at ICRIER)
