Doubling of farmers’ incomes will require large-scale changes in the output that India currently produces and how it goes about producing it. India will gain massively by shifting focus to pulses and horticulture and by moving people out of agriculture, says a report
Prime Minister Narendra Modi on Wednesday strongly defended his government’s ambitious promise to double farmers’ income in five years that was doubted by the opposition. He said the plan was possible if farmers start using novel agricultural practices and value-add their products. However, this requires a radical rethink of Indian agriculture, including a decisive break from the past and move from cereals to pulses and horticulture, says a research report.
In the report, Kotak Institutional Equities Research says, “…doubling of incomes will require large-scale changes in the output that India currently produces and how it goes about producing it. India will gain massively by shifting focus to pulses and horticulture for local consumption, export and import-substitution and by moving people out of agriculture.”
According to the research note, there are two ways for doubling agricultural income, one increasing the actual income and two, making farming less labour-intensive activity. It said, “There are two ways to think about the Finance Minister’s commitment to double the incomes of farmers by 2022. One is to think about doubling the incomes such that (current and future) farmers make 2 times the incomes they make currently. The other is to make farming less labour-intensive such that the farmers that remain get 2 times the income that they currently make. India will need to pursue policies that embrace both these dimensions. It is important to note that what will eventually matter are the ‘real’ increases in incomes. India recently had a disastrous run with wide-spread inflation partly stemming from large nominal increases in food crop prices.”
The oft-quoted statistic of half of India’s population contributing only a sixth or less of its GDP highlights the poor state of affairs of farmers and agriculture. The chart below shows that the average income of a household associated with agriculture is half that of those in the services sector.
Indian agriculture continues to remain labour-intensive and accommodates many disguised unemployed. India’s output of about 500 million tons of cereals, pulses and horticulture is less than half the output of the US grown over similar 150 million hectare (ha) of cultivated area; also US has only around three million farmers, compared to about 250 million people in India associated with agriculture. New jobs, as the chart below shows, are all expected to be created outside of agriculture. A move out of agriculture is required both by the Indian agri-economy and its non-agri counterpart, the report says.
India needs to produce more agriculture products, the research note says, adding, “India’s agricultural output has been shaped by the various support structures put in place by the government including minimum support prices and procurement infrastructure. The focus of both of these has been meaningfully skewed towards cereals like wheat and rice. India now over-produces cereals for its requirements but significantly under-produces cereals and vegetables. Typically, farmers end up realizing around Rs15 a kg for cereals; pulses and vegetables, however, can fetch them between Rs20 and Rs40 per kg at farm-gate prices, fruits, in some cases, higher.”
The rebalance in output that India requires for its own consumption over the next decade, based on the ideal calorie requirements of the country’s population in 2025. “Even as India rebalances – and increases – its output for its own consumption, it should look at global markets for its produce by dramatically increasing yields. A corollary advantage of exporting to the world by meeting stringent phytosanitary conditions of global trade is that it will improve the overall quality of Indian produce, even for local consumption. Exports will help build capital in the agri sector similar to the trends seen in manufacturing and services,” the report says.
According to Kotak Institutional Equities Research, India needs to focus on building the processing infrastructure and marketing linkages for pulses and horticulture. “Farmers gain comfort and confidence if they can see others around them producing a commodity and making money – creating pulses and horticulture zones with processing capacities can convince farmers to shift their cropping pattern. Opening up of foreign direct investment (FDI) in the food processing sector is hence a positive. Coupled with mechanisation and high-yielding seeds, growth in topline can manifest in even stronger bottom-line growth. The goal of two times farmer income is achievable – we just need to break from the past in our approach,” it concluded.