WWRR Vol.2.015

India
Agri-inputs / Automobiles
SIRAJ HUSSAIN: THE NEXT FIVE YEARS IN INDIAN AGRICULTURE
Former Agriculture
Secretary | Visiting
Senior Fellow, ICRIER
Key takeaways
Food constitutes 45% of monthly consumption expenditure (as per NSS 2011-12).
Over the past few years, agricultural wages have stayed stagnant. Real GDP is expected to
grow by 7-8% over the next few years, while food demand is expected to rise more
sharply. There is a stark difference between consumption at the higher end (top 5%
percent) and at the bottom level (poorest 5%). For the rich (top 5% of the population)
per capita consumption is 15 bananas a month, less than half a kg of mangoes a month,
just 200 gm of watermelon a month, one coconut, 700 gm of apples and 200 gm of
grapes in a month. The poorest 5% of the population consumes about 60 times less fruit,
about 4 times less vegetables, about 15 times less on egg, fish and meat, about 2.2 times
less of cereals, about 3.5 less times of pulses – a disparity that highlights the lack of
purchasing power causing food inflation to remain depressed.
WPI inflation on a downward trajectory. Pulses, vegetables and milk all are in
negative territory. Better supply management is there because of which prices of
perishables are low too. However, it is unlikely that our food surpluses will be permanent.
Consumption will continue to pick up. The possibility of El-Nino is there, which could
result in drought, wiping out surpluses in rice and pulses.
The average size of landholding is quite low, which renders agriculture unviable in
many cases. Except in Punjab, the size of landholding is quite small everywhere. China’s
landholdings are smaller than India’s. Despite having a lower irrigation ratio and cropped
area than India, China produces 2X grains, 4X fruits and vegetables and 8X meat and fish.
Rural wages have been fuelled by higher construction expenditure supplemented
by higher MSPs during 2004-14. High global prices facilitated the export of soya meal,
rice, cotton and wheat. Booming meat exports would have also contributed to farm
incomes from animal husbandry. Doubling of farm incomes by 2022 is unlikely to be
achieved as it would require CAGR of ~14% in wages over six years, which is unlikely.
Farm incomes can double in states that have a low base such as Uttar Pradesh (average
income is Rs6,600 per month according to a NABARD survey) and Bihar (Rs7,100 per
month) rather than in Punjab (Rs23,000 per month) and Haryana (Rs18,500 per month).
Initial policy of the NDA regime had been to tackle high food inflation through
aggressive imports, fiscal consolidation via lower MSPs, ban on bonuses. etc. There are
good initiatives such as 99 projects under Pradhan Mantri Krishi Sinchai Yojana (yet to be
completed but could have many benefits), Pradhan Mantri Fasal Bima Yojana, which
expands the coverage to 50% of gross cropped area and E-National Agriculture Market
that encourages inter-state trading. Currently, the government’s policy restricting animal
trading makes it difficult to monetize non-milk-bearing cattle. The impact of
demonetization on the agriculture sector has not waned yet. Formula-driven MSP is
unlikely to be successful. In fact, formula-based MSP dents competitiveness.
Pre-election concerns. In the run-up to the elections, there are three primary concerns
with regards to agriculture: (1) concerns about nationwide farm loan waivers (around Rs3
tn), (2) possibility of MSP at C2+50% across all crops and (3) direct investment support of
Rs2 tn.
Over the next 3-5 years, agricultural prices in India will follow global prices. If global
prices recover, so will Indian prices. Farmer risks would be better managed under Pradhan
Mantri Fasal Bima Yojana. Carryover stock of pulses is falling, which should result in
higher prices. Trade friction can also affect global prices and in turn, Indian realizations.
4 KOTAK INSTITUTIONAL EQUITIES RESEARCH