The Hindu Business Line : Focus on agriculture

The World Development Report for 2008 focuses on “Agriculture for Development”, an emphasis which appears to be specially appropriate for India. Among other things, it is well-known that overall GDP growth in this country always receives a fillip if farm-output growth is good, the converse being also true. In other words, in India at least, the positive correlation between overall growth and farm performance is very strong which, among other things, indicates t he critical position which agriculture occupies in the GDP growth scenario. It also suggests strongly that Indian economic growth in the coming years is greatly dependent on the Government’s policies in the farm sphere, and that, without a quantum jump in performance, the potential of national economic growth getting into the front seat in the international league table is almost certain to be stymied.

In fact, the Prime Minister’s message, delivered at the FICCI AGM held last week, should be seen in this framework to be properly appreciated. Essentially, what Dr Singh said was that though checking inflation was the first priority of his Government, the overall objective was to encourage growth. More specifically, the growth aimed at would be more inclusive, meaning that as many people as possible should be brought within its ambit.

Checking inflation

But then, how do you ‘check’ inflation? One of the ways is to put a dampener on demand, which can be effected by, among other instruments, reducing money supply and/or making money more costly, in other words, raising the interest rate. This would result in the cost-push element gaining strength in the economy, but it would also have the effect of curbing demand — and slowing down economic activity, generally. But, at the same time, the Prime Minister also wants ‘growth’ to be maintained and dispersed among as large a number of people as possible, the strong inference here being that it is agriculture that has to be targeted.

Against this background, the latest World Development Report’s focus on agriculture should come in useful if it can throw light on the basic issues involved in getting the sector moving a bit faster than has been the case till now. The report has three parts, namely, what agriculture can do for development, what are the effective instruments that can be used to make agriculture contribute to development, and how can agriculture-for-development agendas best be implemented. The first subject needs no emphasis in Indian conditions for obvious reasons. The second and the third are equally important, two specific sections in each being of particular interest for our purpose here.

Trade liberalisation

One of the instruments which can be used to make the farm sector contribute effectively to development is trade-liberalisation, a subject that is greatly in the news today in view of the poor progress being made in the Doha Round multilateral trade negotiations. The latest WDR underscores the complexity of the subject when it says that such liberalisation may not affect equally all the players involved in developing-country farm sectors. As it says, “While most poor are net buyers of food, others are net sellers. Any change in price will therefore produce gainers and losers among the poor”. In view of this, it suggests that considering only the average poverty effect may hide important consequences of policy reform on poverty across households and that the distribution of gainers and losers is country-specific.

Changes in price level

This apart, trade liberalisation in the farm sector would mean changes in the price level, but, as the report says, there is no reason to assume that the impact will be the same on different categories of consumers. It says: “In assessing the impact of food import prices on household welfare, the degree of transmission of international prices to rural households also matters. The degree of transmission varies significantly by country, affected by transaction costs and tradability within the country’. The report cites a recent study of eight developing countries which indicates “low price transmission” to farmers in Colombia, Egypt, Ghana, Indonesia and Madagascar. However, in Argentina, Chile, and Mexico, “about 60 per cent of domestic price variability can be explained by world price changes” This is important because “price changes at the household level determine the magnitude of the welfare impact”. Further, the report also says that the ability of farmers “to respond to new market opportunities depends on such non-price factors as market infrastructure, institutions, and services”.

Effective governance

The second point which should actually form the bedrock of any concerted attempt to step up development in the Indian farm sector is the quality of governance, which is dealt with in some detail by the third section of the World Bank report. Here too, the issues involved are many and varied, indicating that the problem of effective governance aiming at rapid development could indeed be a Herculean job for any Government. To take only one example of the complexities involved, the report says that “to improve governance for policy implementation, it helps to distinguish demand-side approaches from supply-side approaches, identifying combinations of approaches that are politically feasible and fir country conditions”.

This apart, there are other, non-economic aspects of reform involved, the implementation of which could run up against virtually insurmountable hurdles. To take one example, the report says that “although direct State involvement in agriculture can be reduced... an effective agricultural administration remains essential in pursuing the agriculture-for-development agenda”. It adds that though it is well-known that agriculture Ministries generally “require new skills and management structures to fulfil their new roles”, there is no easy way out in solving the problem of instituting internal reform of the public administration, specially if such reform entails staff-movement and a switchover to a system of “performance-based remuneration” from one based solely on the seniority principle.

This is only the tip of the iceberg as far as changes in the farming sector are concerned, which will have to be implemented to usher in a regime of more rapid growth in Indian agriculture. The principal utility of the 2008 World Development Report lies in its laying bare the myriad issues involved in getting agriculture to contribute to development, perhaps also in dropping the strong (unstated) hint that private enterprise should be encouraged to start with, the distributive aspects being tackled later, only after the increased supplies begin to flow in appreciable volumes.

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