Transcript Withering Punjab Agriculture: Can it Regain its Leadership?

Understanding the role of Subsidies
and Investments in Indian Agriculture
Ashok Gulati
Director in Asia, IFPRI
Mumbai Media Forum on
Subsidies and India’s Agrarian Distress
YMCA, Mumbai, March 26, 2007
Growth performance of Indian Agriculture:
Annual Average (%) Growth Rate (at constant prices)
Growth Rates in Agriculture and Overall GDP
10.0
Overall
9.0
9.0
Agriculture & Allied
7.6
8.0
6.7
7.0
6.0
5.5
6.0
4.7
5.0
4.0
4.1
3.2
3.4
3.0
2.0
2.1
2.3
1.3
1.0
0.0
Seventh Plan Annual Plan
(1985-90)
(1990-92)
Eighth Plan
(1992-97)
Nine Plan
(1997-2002)
Tenth Plan
(2002-2007)
Eleventh
Plan* (20072012)
Source: Economic Survey 2006-07, GOI. *Towards Faster and More Inclusive Growth: an Approach to the 11 th FYP,
December 2006, Planning Commission, GOI
Note: Growth rates prior to 2001 based on 1993-94 prices and from 2000-01 onwards based on new series at 1999-00 prices
Page 2
Why have the growth rates in
agriculture slumped?
 Various hypotheses, but no agreement
• Falling public investments in agl.??
• Or rising subsidies??
• Or falling global prices after the east Asian crisis???
• Or domestic supply bottlenecks ??
• Or domestic demand constraints??
• Or????
Page 3
Understanding subsidies in Agl.
 Budgetary and economic subsidies
 While budgetary subsidies are often explicit and easy
to estimate, economic subsidies are generally hidden
and difficult to capture accurately.
 To know the real story, challenge is to go beyond
budgetary subsidies (A government could be subsidizing
through budget, but taxing through trade policy: one foot on the
accelerator and another on the brake!)
•
(For details one may see Subsidy Syndrome in Indian Agriculture:
Gulati-Narayanan, 2003, OUP)
Page 4
Implicit Subsidization/taxation of AGRICULTURE VS
MANUFACTURING: India 1965-2005
(Source: Pursell, Gulati, and Gupta, 2007 (forthcoming)
Fig 7
India 1965 to 2005: Agriculture versus Manufacturing Protection
120
100
80
Manufacturing NRA
Agriculture NRA 11 crops
Protection Rate
Agriculture DRA 11 crops
60
40
20
0
-20
-40
-60
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
Page 5
Estimating Input Subsidies
 Fertilizers: difference between import parity and what the
farmers pay
 Power: difference between cost of providing power to all
sectors and what is the revenue tariff from agl.
 Irrigation: difference between the O&M exp. and revenue
from irrigation
 Credit: difference in the rates of interest between agl and other
sectors and defaults in agl.
(No definition is perfect and we are open to alternative
definitions!)
Page 6
Trends in Input Subsidies
(Billion Rps in 1993 price)
Source: Fan, Gulati, Thorat, 2007 (forthcoming)
19
60
19
63
19
66
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
300
250
200
150
100
50
0
Power
Fertilizer
Irrigation
Credit
Total
Page 7
Input Subsides and GDP
Source: Fan, Gulati and Thorat, 2007 (forthcoming)
Input Subsidies as Percent of GDP
10
8
6
4
2
0
% of AgGDP
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
rr
% of GDP
Page 8
Input subsidies (power, fer., irrigation) and public
investments in agl. (NAS)
Source: Gulati and Narayanan, (2003)
Page 9
Understanding investments in/for agl.
 National Accounts Statistics (NAS, CSO)
defines GFCF in agl. as GCFA minus
Changes in stocks
 By the type of institution
• Public (government comm. Undertakings,
90% is irrigation)
• Private corporate (plantations)
• Private households ( a variety of
investments largely dominated by agl.
Machinery, wells, etc.)
Page 10
Trends in public and private sector
investments in agl. (Rs billion at 1993 prices)
(NAS)
Page 11
Relative share of public and private
investments in Agl. (NAS definition)
Page 12
Agl. growth depends not only on
investments in agl. but also for agl?
 Dantwala had spoken in the past on this issue
and many tried to capture this
 But recently, few attempts to estimate public
investment for agl:
•
•
•
•
Fan, Hazell and Haque (2000)
Ramesh Chand (2000)
Gulati and Bathla (2002)
GOI (2003) (DES, MOA Committee)
(Each one differs in scope and coverage)
Page 13
Trends in public investment for agl.
(alternate concepts: Gulati-Bathla, 2002)
Public GCFA under Alternate Concepts at 1993-94 Prices
140
100
80
60
40
20
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
1991-92
1990-91
1989-90
1988-89
1987-88
1986-87
1985-86
1984-85
1983-84
1982-83
1981-82
0
1980-81
Rs. billion
120
Year
Concept 1
Concept II
Concept III
Page 14
Diversity in levels and trends of
investments for agl.
 Except Fan et.al. (2000), all others show
declining trend in public investments for
agl., although their levels differ;
 In Fan et.al. (2000), if you include rural
education, the trend is pulled somewhat
upwards
(open to suggestions!)
Page 15
Input Subsidies and public investments for agl.
(as per Fan, et.al. 2000) Rs. Billion at 1993 prices
19
66
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
300.00
250.00
200.00
150.00
100.00
50.00
0.00
Subsidies
Investment
Page 16
Measuring the impact of public investment
for agricutlure? IFPRI Study (Fan, Hazell and Thorat, 1999)
Page 17
Returns in Ag GDP
Source: Fan, Gulati, and Thorat, 2007 (forthcoming)
1960s
1970s
1980s
1990s
Returns in Agricultural GDP (Rps per Rps Spending)
Roads
Education
Irrigation Investment
Irrigation Subsidies
Fertilizer Subsidies
Power Subsidies
Credit Subsidies
Agricultural R&D
8.79
5.97
2.65
2.24
2.41
1.18
3.86
3.12
3.80
7.88
2.10
1.22
3.03
0.95
1.68
5.90
3.03
3.88
3.61
2.28
0.88
1.66
5.2
6.95
3.17
1.53
1.41
n.s.
0.53
0.58
0.89
6.93
Page 18
Returns in Poverty Reduction
Source: Fan, Gulati, and Thorat, 2007 (forthcoming)
1960s
1970s
1980s
1990s
Number of Poor reduced per Million Rps Spending
Roads
Education
Irrigation Investment
Irrigation Subsidies
Fertilizer Subsidies
Power Subsidies
Credit Subsidies
Agricultural R&D
1272.29 1345.68
411.03 468.65
182.73 125.49
149.11
67.51
180.88 180.88
78.68
52.31
256.6
92.54
207.30 325.57
295.43
447.21
197.27
113.50
48.14
82.52
258.51
345.24
334.98
108.75
66.91
n.s.
23.67
26.9
41.73
323.30
Page 19
What does all this research imply?
 Raise investments and contain subsidies;
 Rationalizing each subsidy is a challenge:
price reforms alone will not succeed.
 Institutional reforms are more critical and must
go hand in hand with price reforms
Page 20
What sort of institutional reforms?
 Power: Towards creating competition?
• “Unbundling” as in power generation, transmission and
distribution?
• Two part tariff system with pre-paid electricity cards for the
poor
• Irrigation: Involving WUAs as in canal irrigation and
having Canal Regulatory Commission to bring transparency
in investments
• Fertilizers: Abolishing RPS and opening up imports of
urea
• Credit: Introducing NBFIs to reach small and marginal
farmers
Page 21
But the future of agriculture will depend
upon a New Vision of Agri-system
Source: Gulati, 2007
A Vision of dynamic complete Agri-System,
where farms are fragmenting while all other
segments are scaling up fast
Retailers
Agro
Processors
Input
Suppliers
Logistic
Suppliers
Farmers
Page 22