For more private farm players

Article and Image Courtesy: The Hindu

For more private farm players 

Rajiv Kumar 

Despite the fact that terms of trade have favoured agriculture over manufacturing since 1995, private investment has not been forthcoming. One of the reasons is the pervasive government presence. This should come down to make way for private players.

The current opaque and extensive regulatory control regime generates considerable uncertainty for the investor.

Agriculture has emerged as the key constraint to achieving rapid growth and improving equity. It is also clear that while land, the principal productive asset, is almost entirely under private ownership, the sector is characterised by extensive government intervention and a visible lack of large-scale corporate investment.

As a result, the sector, except perhaps in the Punjab, Haryana and the Terai region of UP, remains backward. This is evident across the entire range of cultivation and irrigation practices, lack of use of new technology, non-existent back-end infrastructure and logistics, abysmal research generation and diffusion, and very low levels of processing of agro-output. No wonder, with 60 per cent of population, agriculture contributes a mere 17 per cent of the GDP.

This understanding must be behind the government's setting up of the Sub-Group on ‘Enhancing Agriculture Production and Food Security' under the Prime Minister's Council on Trade and Industry.

TASK CUT OUT

Amidst the rather juvenile and self destructive hullaballoo around the Commonwealth Games, the meeting of this Sub-Group last week has gone unnoticed.

The Sub-Group's prime focus is to make policy recommendations for attracting greater private investment in agriculture. Surely, the real issue should not be to only attract private corporate investment but to examine the constraints that impede the inflow of private investment in agriculture.

Therefore, the Sub-Group would do well to focus on these few critical constraints and lay down a time-bound plan of action to address them. This will be quite different from enumerating the sub-sectors within agriculture where either private corporate investment is already present, or in which it can be potentially promoted.

This latter approach, which often characterises official reports and documents, tends to assume private investment simply waits for a signal from the government to move into a particular sector or activity. We know from long experience that in the case of private supply response this assumption is invalid.

INVESTMENT IN IRRIGATION

The private sector looks principally at the prospective rate of return on its investments in conditions where risks can be managed. As the accompanying chart shows, terms of trade have been favourable to agriculture relative to the manufacturing sector almost consistently since 1995. Unless wage costs were rising even more sharply, which did not happen, favourable movement in the terms of trade for agriculture products would demonstrate relatively higher potential rates of return on investment in agriculture. On this basis, Indian agriculture should have been attracting significant investment since the mid-nineties.

Unfortunately, during the same period (1994-95 to 2008-09) investment in agriculture as a share in total national investment barely increased from 7.5 per cent to 8.4 per cent and that of private investment actually declined from 11.9 per cent in 1999-2000 to 6.4 per cent in 2007-08!

Clearly, there were some severe structural factors that negated the relative price advantage and constrained investment in the agriculture sector. It is evident that in irrigation, private investment has invariably gone for expanding the area under pump irrigation, using groundwater resources. Unfortunately, this has not been accompanied by sufficient public investment in recharging the aquifers and maintaining the underground reservoir.

This could not be expected from the private sector. With a dramatic drop in water tables and resultant hike in irrigation costs, and especially in the context of highly erratic electricity supplies which make farmers dependent on diesel, private investment in even this form of irrigation has not increased. Moreover, this has made a complete hash of the irrigation regime that has been adopted since the Green Revolution.

Instead, a properly working private-public partnership could have resulted in achieving sustainable and more inclusive irrigation practices, based on regulated utilisation of continually recharged and sustainable groundwater resources, eminently possible given the annual rainfall.

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