Headline : India can learn agri-policy lessons from China Editorial 25th Oct’19 FinancialExpress
India and China have similar challenges in agriculture:
- India and China are the most populous countries in the world, having a population size of 1.35 billion and 1.39 billion, respectively, in 2018.
- With limited arable land [about 120 million hectare (m ha) in China, and 156 m ha in India], both face the challenge of producing enough food, fodder, and fibre for their population.
Followed many similar methods to increase output:
- Both have adopted similiar methods to get more food from limited land, including:
- Modern technologies in agriculture, starting with High Yielding Variety (HYV) seeds in the mid-1960s
- Use of more chemical fertilisers
- Increased irrigation cover
- China’s irrigation cover is 41% of cultivated area, and India’s is 48%.
- As a result of this irrigation, China’s total sown area is 166 m ha compared to India’s gross cropped area of 198 m ha.
But China produces more output than India:
- Even with much lesser land under cultivation, China produces agricultural output valued at $1,367 billion—more than three times that of India’s $407 billion.
Lessons for India from China in agriculture:
- There are three important lessons for India, if it is to catch up to the levels achieved in China.
I) Increased spending on Agriculture Knowledge and Innovation Systems
- Agriculture studies have revealed that the highest impact is from investments in agriculture Research and Education (R&E).
- China spends more:
- China spends a lot more on agriculture knowledge and innovation system (AKIS), which includes agri R&D, and extension.
- China invested $7.8 billion on AKIS in 2018-19, amounting to 5.6 times the amount spent by India ($1.4 billion).
- Presently, India invests just about 0.35% of its agri-Gross Value Added (GVA) whereas China spends 0.8%.
- India needs to spend more:
- For increasing total factor productivity, India needs to increase expenditure on agri-R&Dwhile making the Indian Council for Agricultural Research (ICAR) accountable for targeted deliveries.
- Note: Better seeds that result from higher R&D expenditures generally demand more fertiliser. China’s fertiliser consumption in 2016 was 503 kg/ha of arable area compared to just 166 kg/ha for India, as per World Bank estimates. Consequently, China’s productivity in most crops is 50 to 100% higher than India’s.
II) Better incentive structure to farmers through agri-marketing reforms
- The incentive structure, as measured by Producer Support Estimates (PSEs), is much better for Chinese farmers than Indian ones.
- The PSE concept measures the output prices that farmers get in relation to free trade scenario, as well as input subsidies received by them.
- The PSE concept is adopted by 52 countries that produce more than three-fourths of global agri-output.
- China’s PSE much higher to India:
- For Chinese farmers, PSE was 15.3% of gross farm receipts during the triennium average ending (TE) 2018-19.
- For the same period, Indian farmers had a PSE of -5.7%.
- In a way, this reflects that Indian farmers had been net taxed, not subsidised, despite high amounts of input subsidies.
- Due to restrictive trade and marketing practices in India:
- This negative PSE (support) comes due to restrictive marketing, and trade policies that do not allow Indian farmers to get free trade prices for their outputs.
- This negative market price support is so strong that it exceeds even the positive input subsidy support the government gives to farmers through low prices of fertilisers, power, irrigation, agri-credit, crop insurance, etc.
- China’s experience that high MSPs do not work:
- India can take a leaf out of Chinese bad experience from high MSPs.
- China, in fact, used to give procurement prices to farmers that were much higher than even international prices.
- The result was massive accumulation of stocks of wheat, rice, and corn that touched almost 300 million metric tonnes (MMT) in 2016-17 (see graphic).
- As a result, they had to incur large expenditure for withholding these stocks without much purpose.
- Having learnt lesson, China dropped the price support scheme for corn, and in fact, have been gradually reducing support prices of wheat, and rice.
- India should learn from China and move away from high MSPs:
- Indian government has been trying to jack up minimum support prices (MSPs) for 23 crops.
- As a result, India’s stock situation in July 2019 was 81 MMT as against a buffer stock norm of 41 MMT.
- India needs to reduce the gamut of commodities under the MSP system, and keep MSPs below international prices.
- Else, India will also suffer from the same problems of overflowing granaries as China did.
- Marketing reforms are necessary in India:
- To improve this situation, large-scale agri-marketing reforms (APMC and Essential Commodities Act) need to be carried out.
III) Implementation of single direct income support scheme:
Single input subsidy scheme in China:
- China has combined its major input subsidies in a single scheme that allows direct payment to farmers on a per hectare basis, and has spent $20.7 billion in 2018-19.
- This gives farmers freedom to produce anything, rather than incentivising them to produce specific crops.
- Inputs are priced at market prices, encouraging farmers to use resources optimally.
India offers heavy input subsidies apart from direct benefits:
- India spent only $3 billion under its direct income scheme, PM-KISAN, in 2018-19.
- On the other hand, it spent $27 billion on heavily subsidising fertilisers, power, irrigation, insurance, and credit.
- This leads to large inefficiencies in their use, and has also created environmental problems.
India needs to consolidate subsidies into a single scheme:
- It may be better for India to also consolidate all its input subsidies and give them directly to farmers on a per hectare basis, and free up their prices from all controls.
- This would go a long way to spur efficiency, and productivity in Indian agriculture.
- If India needs to learn these three lessons from China, i.e., to invest more in agri-R&D and innovations, improve incentives for farmers by carrying out agri-marketing reforms, and collapse input subsidies into direct income support on a per hectare basis.
- Through this, India can benefit its farmers and put agriculture on a high growth trajectory.
GS Paper III: Indian Economy
Section : Editorial Analysis