05 November 2024 – The Hindu

Dip in Agricultural Production in India

• Debatable has been the situation of capital formation in agriculture. Agriculture’s gross capital formation (GCFA) has been declining since 2013–2014. The GCFA decreased from 17.5% in the three years ending in 2013–14 to 15.7% in the three years ending in 2020–21 as a percentage of GDP of agriculture and related sectors.

Why is the Gross Capital Formation of Agriculture Lower?

• The economy as a whole is showing a general trend of declining capital formation, while the rate of decline in agriculture is higher.
• Between 2004–05 and 2013–14, the cumulative annual growth rate (CAGR) for both GCF and GCFA was 9%.
• However, between 2013–14 and 2020–21, the GCFA’s CAGR fell precipitously to 3%, but the GCF’s CAGR indicated a marginally higher rate of 5%.
• Given the significant impact of the GCFA on agricultural growth in the future, it is critical to comprehend the potential causes of this slowdown.

What Causes This Deceleration in Speed?

• Compositional Shift in Public Investment: It has been suggested that a move from large and medium-sized irrigation projects to micro irrigation may be the cause of the slowdown in public investment.
• Irrigation accounts for more than 90% of public investment in agriculture; a shift in emphasis may have caused a decrease in total capital formation.
• Modifications to the RKVY Programme: The state’s investments in agriculture were greatly aided by the Rashtriya Krishi Vikas Yojana (RKVY).
• Since 2014, this criterion has been loosened because the States were covering 40% of RKVY expenses. As a result, States no longer have as much of an incentive to spend in agriculture each year.
• Exclusions from the Agriculture Sector: The agriculture and associated sectors do not include significant investments in the fields of fertiliser and pesticide manufacturing, agricultural research, rural roads, storage, or electrification.
• The recognition of these sectors’ overall contributions to agricultural growth may be lacking as a result of this omission.
• Diminished Private Investment: The private sector makes up more than 80% of all agricultural investments. A significant factor influencing private investment in agriculture is terms of trade (ToT) in the sector.
• The ToT is a measure of the prices that farmers receive, and it has significantly slowed down recently.
• It’s possible that the decline in ToT has also reduced private agricultural investment.
• Terms of trade (ToT) have an impact on private sector investments, which are a substantial contributor to agriculture.
• It’s possible that the slowdown in ToT, which reflects farmer prices, had a negative impact on private agricultural investment.
• Change in Agricultural Practices: The kind and extent of capital investments may have been impacted by a change in agricultural practices towards more contemporary and effective techniques, including micro irrigation.
• Economic and Policy issues: The slowdown may be caused by broader economic issues, such as modifications to governmental regulations and agricultural practices.
• Investment decisions may be impacted, for example, by modifications to regulations pertaining to market access, loan availability, or subsidies.
• Global and Climate variables: Agriculture and capital formation may also be impacted by external variables such as climate change and global economic situations. For example, shifting weather patterns may have an influence on the feasibility of some agricultural investments because climate change raises the probability of crop failure owing to pests, diseases, and temperature variations, which reduces agricultural profitability.

What possible effects might this GCAF reduction have?

• Slower agriculture Growth: The agriculture sector may grow more slowly if capital formation falls. This is due to the fact that reduced capital equates to lower investments in contemporary farming techniques, technology, and infrastructure—all of which are critical for raising production.
• For instance, an Indian study discovered that a 10% rise in agricultural public capital formation resulted in a 1.6% increase in agricultural output.
• Income inequality: In low-income nations in 2018, the average daily income of the lowest 40% of the population was $1.25, while the average daily income of the richest 10% was $9.61, according to the World Bank. A sluggishly expanding agriculture industry could make this inequity worse.
• Challenges to Job Creation: One of the main industries is agriculture. Farming and associated industries may experience a decline in employment if the sector expands more slowly. In rural areas, this could lead to higher rates of underemployment or unemployment.
• Impact on Food Security: In order to feed 9.7 billion people by 2050, the FAO projects that 50% more food must be produced globally. This objective may be hampered and the likelihood of famine and malnutrition raised by a sluggishly expanding agricultural industry.
• Decreased Competitiveness: If capital investment is scarce, India’s agriculture sector may see a decline in its ability to compete internationally.
• It’s possible that other nations with higher agricultural investment have an advantage in terms of productivity, adoption of new technologies, and export potential.
• Environmental Consequences: According to a World Resources Institute (WRI) research, in 2010 agriculture was expected to be responsible for 24% of global greenhouse gas emissions; if current trends continue, this percentage might climb to 30% by 2050.
• Investing in low-carbon and climate-smart agricultural technologies and practices is one strategy to lessen the environmental impact of agriculture.
• Dependency on Monsoons: According to a research conducted by the Indian Council for Research on International Economic Relations (ICRIER), India’s agricultural growth was slowed by 0.7% for every 1% variation from the country’s average rainfall.
• In order to lessen reliance on the monsoon, agricultural insurance, weather forecasting, and irrigation system development require capital investment.

 Agriculture’s importance in India:

• That gives roughly 54.6% of the population work opportunities.
• It makes up roughly 17% of the GDP overall.
• It provides food for India’s sizable and expanding population.
• It supplies raw ingredients to a number of food processing and agro-based enterprises.
• It affects the nation’s trade and commerce both domestically and internationally.
• It facilitates the creation of capital and government revenue.

What are the government’s efforts to strengthen the GCAF?

• increased access to institutional financing for farmers through initiatives like Interest Subvention Scheme and Kisan financing Card.
• Agricultural produce’s shelf life can be extended by promoting scientific warehouse infrastructure through programmes like the warehouse Development and Regulatory Authority and the Gramin Bhandaran Yojana.
• creation of an Agri-tech Infrastructure Fund to support programmes like the Agri-Market Infrastructure Fund and the Pradhan Mantri Kisan Sampada Yojana, which aim to increase farming’s profitability and competitiveness.
• advancing commercial organic farming by means of initiatives such as Mission Organic Value Chain Development and Paramparagat Krishi Vikas Yojana.
• establishing a startup ecosystem for the agricultural and related industries through programmes like Agri Udaan and the Rashtriya Krishi Vikas Yojana.

What More Can Be Done to Raise Agriculture’s GCF?

• raising government spending on market infrastructure, extension services, research and development, irrigation, etc.
• These have the potential to raise agricultural productivity and profitability and foster an atmosphere that is favourable to private investment.
• encouraging the private sector to engage in agriculture through legislative changes such as the Model Agriculture Produce and Livestock Contract Farming Act, the Model Agriculture Produce and Livestock Marketing Act, and the reduction of income taxes for Farmer Producer Companies, among others.
• These can support contract farming, open up new avenues for marketing, and motivate farmers to work together.
• Using climate finance’s potential to help the transition to low-emission, climate-resilient agriculture. Three interconnected strategies can be used to do this: encouraging resilient agriculture, providing risk management and consulting services that are informed by climate change, and restructuring food systems.
• One source of climate money that can assist developing nations in reaching these objectives is the Green Climate Fund (GCF).

 Way Forward:

• The deceleration in Gross Capital Formation in Agriculture (GCFA) presents obstacles for India’s agricultural sustainability. Changes in agricultural techniques, along with adjustments in public investment, exacerbate the problem by impacting global competitiveness, job creation, and income distribution. For India’s vital agriculture industry to remain robust, competitive, and sustainable in the future, strategic collaboration is required.