Friday, June 26, 2009

What has the WDR 2008 got to tell about Indian agriculture?

Abstract: It has been almost 2 years since the World Bank launched its World Development Report 2008. The Report has made a number of observations, based on research papers and reports, contributed by various economists and scholars. An attempt has been made in the present review to figure out the prospects and problems associated with Indian agriculture in this context.

The World Development Report 2008: Agriculture for Development, which has been released in 2007 by the World Bank, categorizes countries into agriculture-based countries, transforming countries and urbanized countries. It says that China (1981-85 to 1996-2001) and India (1965-70 to 1989-94) moved over the evolutionary paths from the agriculture-based to transforming group over the last 15-25 years. It is mentioned in the Report that transforming countries have been the fastest growing, with gross domestic product (GDP) growth exceeding 6 percent a year since 1990, and with China, India, and Vietnam recently growing at more than 8 percent. The Report, however, misses out to predict the world food and fuel crises that took place in the year 2008, just one year after its release, which adversely affected the poorer nations from Asia and Africa. Indian economy is presently passing through a difficult time. According to the newly released Reserve Bank of India Bulletin (May, 2009), foodgrains production in India is expected to decline by (–) 1.26 percent from 230.8 million tonnes in 2007-08 to 227.9 million tonnes in 2008-09. The Report informs that India is currently at a nascent stage to develop biofuel from oil-rich plants like jatropha, pongamia, and other feed stocks. The risks associated with biofuel production from crops in terms of price rise, environmental degradation et al have been well discussed. It has been argued that India is yet to reap the full benefit of biotechnology.

Supermarkets that engage in food sales are mushrooming rapidly in India, the Report mentions. In fact, the Supermarket revolution has just raised its hood. Wealthier farmers capture a disproportionate share of the benefits of facilities in congested wholesale markets in India. Competition is pushing some small retail stores and processors to grow and upgrade their services in order to exist. It is now a matter of “perform or perish” for the small retailers and the petty vegetable vendors. Lack of proper market infrastructure leads to damage of agricultural produce and has a dampening impact on agri-trade. The Report reminds us that investment in roads contributed to agriculture’s growth during the 1970s. Commodity futures exchanges are running successfully in India and are effective in risk management of the commodities traded. The establishment of 6,400 Internet kiosks called e-Choupals in nine Indian states, reaching about 38,000 villages and 4 million farmers, by the ITC has enabled the farmers to get free information on local and global market prices, weather, and farming practices.

China, India, Vietnam, and other countries experienced fall in poverty levels when they went through major spurts of agricultural growth, just as industrial take-offs and rising incomes followed in the wake of major spurts of agricultural growth in Japan and the Republic of Korea. In this way, the Report endorses the thesis that the transfer of a large agricultural surplus was a precondition for initiating a process of industrialization in less developed countries (Kay, 2009). Kay (2009) shows that in South Korea and Taiwan, the State played a pivotal role in the process of surplus creation, extraction and transfer from agriculture to industry. It created both the conditions for productivity growth in agriculture as well as securing the transfer of much of this growth to the industrial sector via such mechanisms as taxation and manipulation of the terms of trade in favour of industry. Technological innovations (via the diffusion of high yielding varieties) in India and institutional innovations (via the household responsibility system and market liberalization) in China led to major declines in rural poverty and rapid agricultural growth. Some of the lagging areas such as central and eastern India have good potential for agricultural growth and could become future breadbaskets, the Report predicts. Bihar has the potential to increase its agricultural productivity. The yawning disparity in rural-urban incomes over the years is striking. Reducing rural poverty via agricultural development is a major concern today in the midst of economic liberalization. States with better track records of farm productivity and standards of living would face more poverty-reducing effects owing to non-farm economic growth, the Report suggests.

The role of C Subramaniam who persuaded Indian parliamentarians and skeptics in the Planning Commission about the green revolution has been mentioned in the Report. India’s concern about food security grew out of the United States’ treatment of food aid as an instrument of foreign policy during the 1960s. The importance of education in reducing poverty, accelerating agricultural development and adoption of new technologies has been highlighted in the Report. During the heydays of green revolution, education had higher returns in regions with higher rates of adoption of the new seeds in India. However, subsidies on inputs has mainly benefited the large farmers vis-à-vis the small and marginal farmers, and has actually reduced the scope of much-needed public investment in core public goods such as rural infrastructure. In the case of the Indian sugar cane cooperatives, large growers depress the price of sugar cane to the detriment of small farmers, which generates retained earnings within the cooperatives that large farmers can then siphon off through various means.

The Report informs that Indian agriculture is mainly rain-fed, which increases the vulnerability to weather shocks and limits the ability to exploit known yield-enhancing technologies. Irrigation systems in the pre-Independence days helped the spread of much feared disease-malaria. However, malaria could be controlled by modifying or manipulating agricultural water systems. In the early 1900s, better maintenance and improvements of irrigation and drainage systems reduced the incidents of malaria cases by more than half in the Arab Republic of Egypt, India, and Indonesia. In the present times, water scarcity is particularly acute and projected to worsen with climate change and rising demand in the Middle East, North Africa, and large parts of India and China. Higher reliance on groundwater irrigation has led to overpumping, falling groundwater tables in aquifers with low recharge, and deteriorating groundwater quality. The advent of tubewell and treadle-pump technology in the 1990s was behind the successful transformation in South Asia’s poverty triangle—Bangladesh, eastern India, and Nepal’s Terai region, the Report says. Small farmer-controlled irrigation using simple low-cost technologies—river diversion, lifting with small (hand or rope) pumps from shallow groundwater or rivers, and seasonal flooding also enjoys local success. Rising prices of fertilizers may have a dampening effect on usage and crop productivity, the Report anticipates.

The WDR 2008 asks for diversification of Indian agriculture towards high-value crops such as horticulture and floriculture so as to promote income-generation among the small and marginal farmers. It informs that markets for higher value products such as horticulture are growing at 6 percent a year in India. Horticulture, livestock, and other high-value activities offer considerable potential for employment generation and productivity growth. The private sector and the market have guided the horticultural revolution, says the WDR 2008. However, the Report fails to convince what would happen to farmers pursuing horticulture if the price of their produce plummets due to further integration of global economies. Bringing more land under horticulture might affect India’s self-sufficiency in foodgrain production, which the Report fails to tell. Further, shortage of storage and transportation facilities could inhibit the growth of markets in perishables.

India has reduced its anti-agricultural bias substantially over the past three decades, not only directly but also indirectly via cuts to manufacturing protection. The Report could have, however, mentioned that terms of trade turned against agriculture from 1999–2000 to 2004–05 that reduced profitability of cultivation (Planning Commission, 2007). The WDR 2008 makes a passing remark on farmers’ suicides in India. At the national level, 48.6 farmer households were indebted during 2003, according to the Situation Assessment Survey of Farmers: Indebtedness of Farmer Households, National Sample Survey 59th Round (January-December 2003). We know that indebtedness is one of the causes behind farmers’ suicides.

The Report provides some concrete facts regarding the employment scenario in Indian agriculture. It says that the Asian green revolution initially provided a “big push” for the demand for labor and reduced poverty through year-round employment and higher real wages. However, later adoption of direct seeding, tractors, and threshers led to a subsequent decline in agricultural employment in India and the Philippines. India has witnessed a considerable decline in the number of permanent workers; the majority of agricultural wage employment is now casual. The proportion of casual workers increased from 65 percent in 1972 to 80 percent in 2002 among male wage earners, and from 89 percent to 92 percent among female. Poverty incidence among casual workers reached 49 percent in 1993/94, almost three times the 17 percent for permanent workers. In India, while agricultural wages remain low, there is evidence of convergence between rural non-agricultural wages for casual workers and urban wages. The proportion of wageworkers increased from 42 percent to 47 percent from 1987/88 to 1993/94, with little change since then. In contrast, the share of wage labor does seem to be falling in some Latin American countries. In India, more than 100 million workers, almost half the agricultural labor force, are in agricultural wage employment. The rural labor force is growing at 1.5 percent a year, adding 4 million new workers annually. In India, an analysis of 257 districts from 1956 to 1987 shows wages are very sensitive to rainfall shocks. Wages responded less in areas with better-developed financial services and better access to other markets, where laborers could find work. Econometric studies of India for 1958–94 where many of the rural poor are landless show price and wage effects of food crop productivity to be more important in reducing rural poverty in the long run than direct effects on farm incomes, which dominated in the short run.

Tenancy restrictions in India reduce productivity and equity. Lack of efficient land markets in China or and restrictions on land rental in India inhibited labor mobility. Land rental activity in India has declined sharply, from 26 percent in 1971 to less than 12 percent in 2001, contrary to trends in other countries, the Report says. However, renting continues to be an important means of accessing land. More number of households rented land in 2001 than the total number that benefited from land reforms Land sales and purchases contributed more than land reform to equalize India’s land ownership. Kay (2009) shows that unlike Latin American countries, in South Korea and Taiwan, the State changed class relations by reducing the political power of landlords and established the economic and political conditions favourable to rapid industrialization. The average landholding went down from 2.6 hectares in 1960 to 1.4 hectares in 2000, and it is still declining in India, the Report says. Although fragmentation of land holdings increases cost of cultivation and reduces profitability per unit of land under cultivation vis-à-vis large land holdings, there exist enough evidences to prove that smaller farms are more productive in terms of value of output compared to the larger ones. The Report fails to address the inverse relationship between farm size and productivity.

The Report mentions about the pivotal role played by Self-Employed Women’s Association (SEWA) in India that led to the development of non-farm enterprises. Education plays a key role to determine the fate of one’s employment in agriculture, both in China and India. Better education enables rural workers to find high-paying non-farm employment.

The Report acknowledges the collective actions of marginal farmers who worked via Indian Dairy Cooperatives Network in order to make India successful in milk production. It has been informed that Indian dairy cooperatives provide services to more than 12 million households, benefiting women in particular because of their role in dairy farming. Even the consumption of milk nearly doubled between the early 1980s and late 1990s due to the livestock revolution.

In India, the panchayati raj (village councils) reserve seats for women and for members of scheduled castes (SCs) and tribes (STs) that helps in decentralized decision-making, and provides space for need-based infrastructure development. Due to excessive regulations, companies engaged in biotechnology sector indulge in bribery. Rolling back the state would reduce corruption, suggests the Report. Such arguments have been aired earlier too so as to make room for privatization without adequate measures taken to ensure accountability. In fact, lack of regulatory mechanisms has caused the present global economic and financial crisis within the banking sector that has happened in countries from Europe and the United States. The shortsightedness of the WDR 2008 at this point becomes quite visible.

“Proponents of commercialization argue that a market-based system improves quality of care and efficiency, because of competition between providers and because consumers have more choices. Nothing could be farther from the truth…. Competition does not improve quality if people cannot make an informed choice….Instead multiple providers only target the affluent, and the poor are left with virtually no options. Private care is notorious for flouting regulations, and the necessity to regulate them places a burden on public finances. A system with multiple providers is inefficient, because it cannot make use of “economies of scale” in the case of purchases, or in the provision of services”(Civil Society’s Report to CSDH, 2007).

The Report adds that adoption of new technologies, especially information and communication technologies—ICTs (e-government), can reduce the scope for corruption, as with computerizing land records in Karnataka. The Report fails to mention the challenges faced by e-government projects in order to scale-up and replicate. Bribes paid annually by users of land administration services are estimated at $700 million in India. The private sector in India is presently investing in rural telecommunications infrastructure, which helps farmers to get information on farm related practices, weather and prices of commodities.

The WDR 2008 discusses the dangers of the adoption of green revolution technology. It is mentioned that in Punjab, extensive use of nitrogen fertilizer and pesticides has increased concentration of nitrates and pesticide residues in water, food, and feed, often above tolerance limits. Therefore, it is justified to adopt more diversified systems that can reduce the need for chemical fertilizers and pesticides (for example, mixed legume-cereal systems). Power, fertilizer, and output subsidies, which are provided to appease large farmers, discourage a shift to alternative cropping patterns. In the Punjab region, overexploitation of groundwater takes place thanks to the huge subsidies given on electricity. Moreover, minimum support prices (MSP) for rice increase the financial attractiveness of rice relative to less water-intensive crops, which makes depletion of ground water table more obvious.

South-South cooperation in R&D among Brazil, China, and India with modest funding has been emphasized by the Report. It can be deciphered from table 1 that R&D expenditure as a percentage of agricultural gross domestic product (GDP) has increased from 0.18 percent in 1981 to 0.34 percent in 2000. China’s (US$ 3,150 million) public agricultural R&D spending was almost twice as compared to that of India (US$ 1,858 million) in the year 2000. The impact of intellectual property rights (IPRs) under the International Union for the Protection of New Varieties of Plants (UPOV) has been discussed in the Report. It mentions that the present Indian government recognizes farmers’ capability to save, exchange and breed new seeds. The Protection of Plant Varieties and Farmers’ Rights Act, 2001 has been enacted for the establishment of an effective system for protection of plant varieties, the rights of farmers and plant breeders and to encourage the development of new varieties of plants. The increasing adoption of Bt cotton by small and marginal farmers of India has been discussed. In Tamil Nadu, farmers suffered considerable income losses because they received spurious Bt cottonseeds. Hence, seed certification has been deemed important by the Report. Pro-poor public investment in technology has been suggested for easy access and faster dissemination of inputs of production.

Zero-tillage farming in the Indo-Gangetic plain of South Asia for rice and wheat cultivation has been considered as a good agricultural practice to increase yield levels. The Report informs that zero tillage with wheat succeeding rice is now the most widely adopted resource-conserving technology in the Indo-Gangetic Plain, especially in India with some 0.8 million hectares planted in 2004 using the method. The Report could have devoted some more pages for traditional farm practices, which are vanishing rapidly in the age of globalization.

In order to provide access to easy credit, branchless banking in the form of post offices, stores, gas stations, and input providers has been suggested. There are estimated 2.2 million self-help groups (SHGs) in India that collect savings from their members and either deposit them in rural banks or lend them to members. In India, a recent survey of 6,000 households in two states showed that 87 percent of the marginal farmers surveyed had no access to formal credit, and 71 percent had no access to a savings account in a formal financial institution. Lack of access to credit and insurance makes the small producers vulnerable to external shocks, finds the Report.

With a new government at the Centre and a delayed monsoon, the time is ripe enough to turn our attention to the formulation of Food Security Act. Perhaps, the WDR 2008 could help our policy-makers who are now thinking to provide 25 kg of cereals at Rs.3 a kg each month to the poor. One should also bear in mind the recent estimates of the UN Standing Committee on Nutrition (UNSCN), which suggests that soaring food prices combined with the global economic meltdown will push more than 1 billion of the world’s poorest people into hunger in 2009.


Civil Society’s Report to the Commission on Social Determinants of Health (2007), Social Medicine, pp. 192-211, Vol. 2, No 4,

Chapter 1: Agriculture, Volume III, Agriculture, Rural Development, Industry, Services and Physical Infrastructure, Eleventh Five Year Plan (2007-2012), Planning Commission, Government of India

Kay, Cristobal (2009): Development strategies and rural development: Exploring synergies, eradicating poverty, The Journal of Peasant Studies, Vol.36, No.1, January 2009, 103-137

Report No. 498(59/33/1), Situation Assessment Survey of Farmers: Indebtedness of Farmer Households, National Sample Survey 59th Round (January-December 2003)

Reserve Bank of India Bulletin—May, 2009

World Development Report: Agriculture for Development 2008, World Bank, Washington D.C.