Challenges in Agriculture

 Agriculture is India’s largest user of water. However, increasing competition for water between industry, domestic use and agriculture has highlighted the need to plan and manage water on a river basin and multi-sectoral basis. As urban and other demands multiply, less water is likely to be available for irrigation. Ways to radically enhance the productivity of irrigation (“more crop per drop”) need to be found. Piped conveyance, better on-farm management of water, and use of more efficient delivery mechanisms such as drip irrigation are among the actions that could be taken. There is also a need to manage as opposed to exploit the use of groundwater. Incentives to pump less water such as levying electricity charges or community monitoring of use have not yet succeeded beyond sporadic initiatives. Other key priorities include: (i) modernizing Irrigation and Drainage Departments to integrate the participation of farmers and other agencies in managing irrigation water; (ii) improving cost recovery; (iii) rationalizing public expenditures, with priority to completing schemes with the highest returns; and (iv) allocating sufficient resources for operations and maintenance for the sustainability of investments.

 Encouraging farmers todiversify to higher value commodities will be a significant factor for higher agricultural growth, particularly in rain-fed areas where poverty is high. Moreover, considerable potential exists for expanding agro-processing and building competitive value chains from producers to urban centers and export markets. While diversification initiatives should be left to farmers and entrepreneurs, the Government can, first and foremost, liberalize constraints to marketing, transport, export and processing. It can also play a small regulatory role, taking due care that this does not become an impediment.

Some agricultural sub-sectors have particularly high potential for expansion, notably dairy. The livestock sector, primarily due to dairy, contributes over a quarter of agricultural GDP and is a source of income for 70% of India’s rural families, mostly those who are poor and headed by women. Growth in milk production, at about 4% per annum, has been brisk, but future domestic demand is expected to grow by at least 5% per annum. Milk production is constrained, however, by the poor genetic quality of cows, inadequate nutrients, inaccessible veterinary care, and other factors. A targeted program to tackle these constraints could boost production and have good impact on poverty.

 India’s legacy of extensive government involvement in agricultural marketing has created restrictions in internal and external trade, resulting in cumbersome and high-cost marketing and transport options for agricultural commodities. Even so, private sector investment in marketing, value chains and agro-processing is growing, but much slower than potential. While some restrictions are being lifted, considerably more needs to be done to enable diversification and minimize consumer prices. Improving access to rural finance for farmers is another need as it remains difficult for farmers to get credit. Moreover, subsidies on power, fertilizers and irrigation have progressively come to dominate Government expenditures on the sector, and are now four times larger than investment expenditures, crowding out top priorities such as agricultural research and extension.