What is India's Agricultural Policy?

India’s overall agricultural output has shown sub optimal growth and unless there are significant changes to land ownership policy and appropriate assistance to farmers, India is headed for a major disaster. Furthermore, lack of jobs in rural India is further exasperating the problem. The current agricultural land policy that limits acquisition of farmland to agriculturalists and the ceiling on agricultural land ownership is the single most deciding factor, creating an increasing number of Marginal Farmers who are unable to survive as costs rise and net income declines.

In today’s environment, farming is an entrepreneurial activity and not everyone is cut out to be an entrepreneur.

Programs geared towards the “marginal farmer” are an exercise in futility. What the “marginal farmer” needs is a viable exit strategy whereby he can trade his land for sustainable income. The very laws intended to protect the farmer is working against the farmer’s interest. Instead of focusing on farm ownership, the focus ought to be on jobs. It is better to be employed and make a living than to own and not be able to make ends meet. It is easier for a person to relocate to a job, provided housing is taken care of, than bringing job opportunities to the person.

The emphasis ought to be in regulating what can be done on the land as opposed to who can own it. Agricultural land should remain agricultural regardless of whether it is owned by a company or individual. Conversion to non-agricultural activity should be strictly regulated and permitted on a case by case basis.

A major factor contributing to farmer suicides is due to the fact that the land gets divided over successive generations and with escalating costs, a point is reached when the land is no longer able to sustain the family that owns and tills the land. The Yield Ratio; defined as net income divided by the cost declines for crops such as rice and wheat as the size of the farm decreases. Given the size of the farm, the Yield Ratio may or may not realize the necessary income to support the farmer’s family. Making the situation worse is the exploitation the farmer experiences from traders, moneylenders, government employees and other nefarious agents. Fighting the exploitative forces is a major battle. Providing the farmer with easy access to information on spot and future prices will at least give the farmer an opportunity to make an informed decision and fight the exploitative forces.

To increase or maintain the Yield Ratio adjusted for inflation, farming techniques would have to change. This often means mechanization and changes to the irrigation methodology. Raising prices is an option, but that just shifts the burden of bearing the farmer’s inefficiency to the consumer. In order to introduce mechanization and other necessary changes, there is a minimum farm size requirement, which could be accomplished by collective/co-operative farming. The co-operative could then raise the requisite capital to make the transition. The Farm Development Programme under the auspices of the National Bank for Agricultural and Rural Development (NABARD) has piloted such a program in Vidharba district at villages in Wardha and Amravati successfully. The added benefit of such a co-operative, is collective bargaining by which farmers are able to obtain better pricing from traders. Providing incentives by way of low interest loans and assistance would expedite the formation of co-operatives. Allowing the financial institution to take an equity position in the co-operative and/or allowing outside parties to partner with the farmers is something that could be explored. But with prevailing attitudes and issues of trust, this is a long shot.

Aside from forming and joining a co-operative the farmer has basically three options:

1. Switch to a different crop that provides an adequate Yield Ratio
2. Lease the land or
3. Sell Out

Leasing:
Leasing is an option, however it requires a certain level of understanding in both the lesser and the lessee. Leasing is a desirable option since the farmer is guaranteed an income, provided the lessee is a solvent party. And the farmer retains the farm assets and benefits from its appreciation over time.
Jobs will give immediate relief to the landless, and provide options for the marginal farmer. Accelerated job creation in rural India can be achieved by allowing manufacturing and agro-industries to negotiate directly with rural land owners to acquire the necessary land to establish their operations. Zoning guidelines can be established to ensure fertile land cannot be converted for non-agricultural use. An option is to promote the leasing of the property to the incoming party. Companies entering into rural areas will be naturally motivated to hire locally and this would present a viable option to the farmer, provided he/she performs to the satisfaction of the employer.

• Removing the land ceiling and make it easier to acquire agriculture land for agriculture

• Encouraging co-operative farming

• Facilitating crop diversification

• Providing access to spot and futures pricing to enable the farmer to battle the exploitive forces

• Allowing companies with agro-initiatives and urbanites wishing to establish farm houses to buy agricultural land

Switching to cash crops:

There are cash crops that are labor intensive by definition and do not require heavy investments by way of mechanization. This would extend the sustainability of the land holding. Switching over to a new crop is also easier said than done. The farmer is ill equipped to evaluate viable options, let alone implement them. The farmer will need assistance in the form of advice and hand holding to make this transition. Farmers in Punjab have successfully implemented a crop diversification program wherein they have switched to karif maize from rice and wheat. Allowing farmers to farm what is best for them is fine even if it means India has to import staples such as rice and wheat. As long as India exports alternative farm produce to offset these imports, this would not pose a problem. And if wheat is cheaper to import even if subsidized by someone else’s taxes, that would just be an added benefit to India.

Selling Out: 

Selling out has its inherent problems. The proceeds is often frittered away resulting in neither land or money. Social engineering is not recommended. Instead providing an alternate source of income by way of job opportunities is the preferred solution.

The current situation where the government is involved in the land acquisition is not working. The land is being acquired way below the open market price based on the “rate” established in the records. In addition to the exploitative forces the farmer faces, the farmer faces yet another exploiter, the Indian government. Instead the government should establish policies and practices that can be administered locally, to ensure the true value of the land is recorded by allowing market forces come into play. Reducing the registration stamp duty would be one solution.

The impending disaster can be prevented provided rapid changes in the agriculture sector are pursued such as:

• Removing the land ceiling and make it easier to acquire agriculture land for agriculture
• Encouraging co-operative farming
• Facilitating crop diversification
• Providing access to spot and futures pricing to enable the farmer to battle the exploitative forces
• Allowing companies with agro-initiatives and urbanites wishing to establish farm houses to buy agricultural land