Decoding the challenges of India’s Agri sector

India’s natural resources and geographical advantage has been envied by the world for centuries. India has always been an agricultural country and even after attaining independence, the clarion call of “Jai Jawan, Jai Kisan”, positioned farmers alongside soldiers, hailing them as two heroes of the nation – one protecting the national sovereignty and the other feeding people and fueling the country’s economic growth.

Generation after generation, the masses of rural India embraced farming as their primary occupation, but the economic return started to decline long time back. As the world progressed technologically and started embracing modern ways of farming, Indian farmers couldn’t part with their traditional ways and lagged behind profoundly.

A snapshot of the Indian Agri sector

According to a latest report by FICCI, India has the second-largest arable land area in the world. Agriculture is the source of livelihood for 58% of the Indian population. The country is the largest producer of milk, pulses, spices, tea and jute and the second-largest producer of rice, wheat, cotton, fruits and vegetables, fish and poultry. Many important industries in India, like sugar, textiles, edible oils, etc. are heavily dependent on the Agri sector for raw materials. In FY2018, India was the tenth-largest exporter of agricultural products in the world.

Agriculture and the Indian economy

Not very long ago, agriculture was considered to the backbone of the Indian economy. While the Agri sector is still the lifeline of India, it has weakened substantially. Although the sector employs 41% (44% according to FICCI’s latest findings) of the country’s population, it contributes only 16% to India’s GDP, states Statista. This clearly depicts a huge gap between the resources used by the sector and the economic value generated for the country.

Major challenges

Indian agriculture is currently facing a plethora of challenges. Firstly, the methods of farming used by Indian farmers are largely traditional – it requires more water, more manual labor, while generating lower volumes of produce. Moreover, farmlands are fragmented which further hinders the volumes of yield. Farmers lack the education and resources needed to use advanced farming technology. Further they lack access to sell their produce directly to corporate buyers and do not have adequate storage or transportation facilities, as a result of which, they are compelled to sell their harvest at very low prices.

Government regulations

The price of the agricultural produce in India is heavily regulated by the government. There are government approved APMCs or Mandis, where farmers sell their produce to the middlemen, as per the price pre-decided by the government. The government also procures about 40-50% of rice and wheat surplus, which rises to 80-90% in Haryana and Punjab.

The farmers are also eligible to claim subsidies from the government if they sell their produce in the free market below the minimum price fixed by the authorities – a common practice followed in many countries around the world. According to the Ministry of Finance, due to the government’s price subsidies and other efficiency and procurement policies, the average households of India had saved more than $200 annually in food costs.

Image source: Statista

New Agri bills of India

Recently the Indian government has introduced some amendments to the age-old farm laws with the intention of loosening the regulations around government-controlled prices of grains at mandis or wholesale markets. The new laws allow farmers to enter into free trade agreements with corporates directly, bypassing the middlemen who are regulated by the government. By implementing the new farm laws, the Indian government is trying to modernize the Agri-sector to some extent.

A large section of the Indian farmers, however, are not happy with the new laws, as evident in the weeks long demonstration going on in and around Delhi. Farmers are afraid, that they won’t be able to sell their harvest to the government at MSP and might be left at the mercy of the civil servants. Further, they fear that if the middlemen are eliminated, they will face several new problems due to lack of funds for transporting and storing their harvest.

How this matter is resolved is yet to be seen, but we hope the government and farmers soon find an amicable solution that advances the Agri industry with progressive reforms and help the farmers live a better life, while boosting the Indian economy.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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