Slump of Agriculture

Abstract

   The welfare policies taken up in India have always been framed within the purview of Agricultural development and uplifting rural people. In India, rural development and poverty have always positively correlated with agriculture development. Therefore the aim is to highlight the problems associated with Indian agrarian economy and the welfare policies that need to be strategised for uplifting the rural population as a whole and simultaneously impeding a huge trade-off which have to be pocketed out of urban population.

Introduction

  Agriculture sector has been a foundation on which Indian economy has lingered upon. It is a base on which millions of people are dependent for livelihood. It’s clamored that India needs a shift from agriculture to other sectors such as manufacturing and services so that it could successfully transform into a developed economy, as empirically observed in the western countries.

 1. Dependence on Agriculture

  In the period 1951-71, a magnificent 72% Indians were dependent on agriculture. Since 1991 a major decline by 10% is observed owing to adoption of LPG policies in Indian economy. Major shift was seen towards Secondary and Tertiary as seen in table below-

• Agriculture sector’s contribution in occupational structure as discussed above have seen a decline but still caters to over 50% population for livelihood in 2016, but its GDP contribution has declined from 51% in 1951 to 18% in 2016. Basically in 2016 half of Indian population produces mere a 18% of GDP suggesting a major inefficiency. In comparison to this in 1951 when 70% of population was involved in agriculture, their contribution to GDP was 51%, reflecting better productivity in comparison to 2016.

2. Problem Of Operational Holding Size

• Economic Principle– If we assume a situation of a single family of farmer dependent upon a small size Land Capital, then gradually as family will increase overtime then more employment of labor will be done on that small piece of land. 

    As more labor will be employed then, According to Law of Variable Proportion the output productivity of each labor will fall. Therefore, overall agriculture productivity must fall which has actually happened. The agriculture contribution to GDP has fallen to 18% in 2016, one of the reason being disguised unemployment.

     Looking at number of operational holdings of agricultural land size, marginal and small size holdings have rapidly increased from 36200 in 1970-71 to as high as 92826 in 2010-11 respectively, while in the same period medium and large size holdings have decrease from 7932 and 2766 to 5875 and 973 respectively. This implies that more cultivators and agricultural labors are working on small size land holdings. Relative to increase in population in rural India which has rapidly grown at 20% over past twenty years, the dependence on marginal and small size holdings to drive livelihood surely have increased. This reflects that excessive family members and agricultural labor are participating in cultivation and agriculture related activities, reflecting high level of disguise unemployment and falling productivity levels.

3. Rural Education Impacting Agriculture Productivity; in lieu with Operational Holding

  Poor educational institution in rural areas is a bottleneck which impedes intellectual upliftment and incarcerate them into a poverty trap. Observe below facts-

•   Between the age group of 5-19 years 30.8% of total children are not enrolled to any educational institution in rural areas in comparison to urban areas where 24.4% are not enrolled for same age group.
•   Currently only 7% of youth between the age of 20-34 in rural areas is a graduate or above in comparison to 23% in urban areas for same age group.
•   The intellectual development which rural people are drained off makes difficult for them uplifting their skills and get a secured livelihood. Even if market provides sweat labor jobs for them, during high recessionary period these people are likely to hit the worst. The natural level of employment which is equilibrated in a free market would always have a high unemployment levels for such unskilled rural people. The shift from agriculture sector would be transient if such easy sweat labor jobs are provided. For an individual the opportunity cost of leaving agriculture activities and working as industrial labor would always be high due to such insecurities.
• To summarise, the situation in occupational sector will observe a change if market provides sweat labor jobs to rural people, but during recessionary period when market will be bound to reduce it’s non-developmental expenses, lay-offs for such people will be high. Thus rural people would likely prefer to work back as agriculture labor or farmer, bringing back occupational structure to it’s original level.

Measures Required and Implication 

  The economic condition of farming sector can be summed up as running in diseconomies of scale due to overcrowding of farming population and improper land distribution. The farming population is marginalised out of a systematic network. Government’s financial capabilities are limited and can only provide short-term subsidies to such a large farm population without disturbing the free market.

  Therefore providing Loan-waivers will have a negative impact on economy as it would eventually crowd out Private Investments from economy, though farmer’s situation would improve for a small period. But over-dependence of Indian farmers on rain creates risk of poor produce, which subsequently would again result in their insolvency. Empirically in 1990 such scheme was implemented in India, and after a period of 27 years again the need for such policy is felt, which just shows its ineffectiveness. Instead government should work on providing waivers on purchase of Capital-Intensive Agriculture tools and develop a modern irrigation system augmented with regular power supply for its effective working. This would strengthen the agriculture sector and be fruitful in increasing GDP as funds spent on infrastructure always have positive impact.

As discussed earlier the inefficiency developed in the agriculture sector is due to the scattered small size landholdings. This increases the need for reallocation and redistribution of farm land among farmers on Pan India basis. The already well-off farmers would suffer due to loss of land capital but government shall compensate for them though on a year-on basis and dividing the compensation in cash and incentives which will help reducing the burden. The benefited farmers will face an unsecured liability against the excess farm land they receive and would be paying for that to government in a stipulated time helping government to reduce it’s burden. Failing to pay it, would help government in identifying purely ineffective farmers and then they could be provided with special training helping them to employ in manufacturing or service sector.

 As of now Income Tax incidence is only done on Income earned from Non-Agricultural sector, which constitutes only 1% of Indian population. The consumer market which is formed by such households, due to high tax payments suffers from Dead Weight Loss. Tax payments pressure reduces their Consumer Surplus and results in loss overall Trade Surplus. Direct Tax incidence should be implied upon Agriculture Sector as it will ensure a huge market correction in this sector due to which inefficient farmers had to leave the market and allow more efficient farmers a larger market share and improve overall agriculture productivity. It will be extremely important to employ the badly impacted farmers to secondary or tertiary sector of economy which can robustly happen on a foundation of highly skilled producing educational platform. Though such measures are need to be taken having an optimistic outlook in long run.