Agricultural Policies in India

Abstract

India is one of the fastest growing G20 economies, largely reflecting an ambitious reform agenda under implementation since 2014. Against this background, agriculture is a key sector in terms of its contribution to both employment and GDP. Sustained by improved access to inputs such as fertilisers and seeds, as well as better irrigation and credit coverage, production has been increasing on average at about 3.6% annually since 2011. The sector has also been diversifying from grains towards pulses, fruit, vegetables and livestock products, largely driven by evolving demographics, urbanisation and changing demand patterns. India has achieved a significant fall in the proportion of the population that is undernourished, from around 24% in 1990-92 to 15% in 2014-16. Moreover, it has also emerged as a major agricultural exporter of several key commodities, currently being the largest exporter of rice globally and the second largest of cotton. Despite these notable achievements, challenges remain; among them, the prevalence of very large numbers of smallholders, low productivity, climate change, pressure on natural resources such as water, persistent food insecurity, and an under-developed food processing and retail sector. Agricultural policies in India are designed and implemented by a complex system of institutions. States have constitutional responsibility for many aspects of agriculture, but the central government plays an important role by developing national approaches to policy and providing the necessary funds for implementation at the state level. Nevertheless, no sufficiently strong mechanism exists to bring state and central level policy-makers together to discuss problems, design solutions, and monitor performance. At the central level, while the Ministry of Agriculture and Farmers’ Welfare has responsibility for agricultural policy, many other ministries and agencies have important roles. There is, therefore, significant risk of fragmentation, overlapping and unclear attribution of responsibilities. Throughout the last decades, agricultural policies have sought to achieve food security, often interpreted in India as self-sufficiency, while ensuring remunerative prices to producers and safeguarding the interest of consumers by making supplies available at affordable prices. The level of support to producers, as measured by the share of transfers from consumers and taxpayers in gross farm revenues, averaged -6.2% in 2014-16. It is composed of budgetary spending corresponding to 6.9% of gross farm receipts and negative market price support of -13.1% of gross farm receipts. Together they generate a negative producer support estimate (PSE) overall, which needs careful interpretation, because it is composed of both positive and negative elements. India contrasts with most other countries studied by the OECD because of the prevalence of negative market price support and its size. In the 2000 to 2016 period, producer prices – as measured for the purposes of this report – have remained for many years and for many commodities examined below comparable reference prices in international markets.