Although agriculture contributes only 21% of India’s GDP, its importance in the country’s economic, social, and political fabric goes well beyond this indicator. The rural areas are still home to some 72 percent of the India’s 1.1 billion people, a large number of whom are poor. Most of the rural poor depend on rain-fed agriculture and fragile forests for their livelihoods.
The sharp rise in foodgrain production during India’s Green Revolution of the 1970s enabled the country to achieve self-sufficiency in foodgrains and stave off the threat of famine. Agricultural intensification in the 1970s to 1980s saw an increased demand for rural labor that raised rural wages and, together with declining food prices, reduced rural poverty.
Sustained, although much slower, agricultural growth in the 1990s reduced rural poverty to 26.3 percent by 1999/00. Since then, however, the slowdown in agricultural growth has become a major cause for concern. India’s rice yields are one-third of China’s and about half of those in Vietnam and Indonesia. With the exception of sugarcane, potato and tea, the same is true for most other agricultural commodities.
The Government of India places high priority on reducing poverty by raising agricultural productivity. However, bold action from policymakers will be required to shift away from the existing subsidy-based regime that is no longer sustainable, to build a solid foundation for a highly productive, internationally competitive, and diversified agricultural sector.
ISSUES AND CHALLENGES
Slow Down in Agricultural and Rural Non-Farm Growth: Both the poorest as well as the more prosperous ‘Green Revolution’ states of Punjab, Haryana and Uttar Pradesh have recently witnessed a slow-down in agricultural growth. Some of the factors hampering the revival of growth are:
Poor composition of public expenditures: Public spending on agricultural subsidies is crowding out productivity-enhancing investments such as agricultural research and extension, as well as investments in rural infrastructure, and the health and education of the rural people. In 1999/2000, agricultural subsidies amounted to 3 percent of GDP and were over 7 times the public investments in the sector.
Over-regulation of domestic agricultural trade: While economic and trade reforms in the 1990s helped to improve the incentive framework, over-regulation of domestic trade has increased costs, price risks and uncertainty, undermining the sector’s competitiveness.
Government interventions in labor, land, and credit markets: More rapid growth of the rural non-farm sector is constrained by government interventions in factor markets -- labor, land, and credit -- and in output markets, such as the small-scale reservation of enterprises.
Inadequate infrastructure and services in rural areas.
Weak Framework for Sustainable Water Management and Irrigation:
Inequitable allocation of water: Many states lack the incentives, policy, regulatory, and institutional framework for the efficient, sustainable, and equitable allocation of water.
Deteriorating irrigation infrastructure: Public spending in irrigation is spread over many uncompleted projects. In addition, existing infrastructure has rapidly deteriorated as operations and maintenance is given lower priority. Inadequate Access to Land and Finance:
Stringent land regulations discourage rural investments: While land distribution has become less skewed, land policy and regulations to increase security of tenure (including restrictions or bans on renting land or converting it to other uses) have had the unintended effect of reducing access by the landless and discouraging rural investments.
Computerization of land records has brought to light institutional weaknesses: State government initiatives to computerize land records have reduced transaction costs and increased transparency, but also brought to light institutional weaknesses.
Rural poor have...
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