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What Punjab needs to do is switch gears from supply-driven agriculture to demand-driven agriculture
By Kavery Ganguly & Ashok Gulati
Lately, Punjab’s politics has been making headlines for weird reasons. Be it the security lapse during the prime minister’s visit or infighting within certain political parties, or the floating of a new party by the agitating farmer leaders, each one is swearing for the betterment of the farming community in the wake of upcoming Assembly elections. It is no secret that Punjab, once the frontrunner of Indian agriculture, is struggling to retain its dynamism. While Punjab ranked at the top of major Indian states in terms of per capita income during 1967-68 to 2002-03, it has already slipped to below the 13th position, and will keep falling in its ranking if business as usual continues.
Policies that once empowered farmers in Punjab to usher in the Green Revolution are fast losing relevance. Strong political will and rational policy choices with futuristic outlook are needed, not populism, if Punjab is to retain its crowning glory—agriculture. That Punjab needs to diversify towards high-value agriculture was advised by Dr S S Johl, the wise man of Punjab, way back in 1986. But not much seems to have moved on that front.
Punjab’s agricultural growth rate, at 5.7%, was more than double of India’s average of 2.3% during 1971-72 to 1985-86. This has reversed during 2005-06 to 2018-19 with Punjab at 1.9% and India at 3.7% (see graphic). The latest NSSO-SAS data for 2018-19 reveals that Punjab’s agricultural household income, when normalised on per hectare basis, ranks 11th amongst that of major states. And if one uses the landholding size as given in the Census of 2015-16 (3.62 hectares), Punjab slides down to the 21st position.
With almost 85% of the gross cropped area under wheat and rice, crop agriculture in the state is the least diversified. Guaranteed MSP for wheat and paddy, backed by assured procurement, free power and highly subsidised fertilisers, has disincentivised diversification. Mandi transactions cost about 8.5% of MSP, the highest in the country, making Punjab wheat and rice less competitive. On the environment front, nearly 80% of blocks in Punjab have over-exploited water reserves and in many other places, the water table is depleting at the rate of nearly a meter a year. Soils are getting degraded, and stubble burning makes it worse.
But the political economy around wheat and rice is so intense that any effort to address its distortionary impact is met with fierce opposition by vested interest groups. However, there is still a glimmer of hope on recalibrating Punjab agriculture towards higher sustainable growth. While fruit and vegetables account for 7.4% of the value of output of agriculture and allied sector, livestock accounts for 31.5% and fisheries less than 1% (TE 2018-19). The state has the highest per capita availability of milk but the processing levels are less than 20%, which need to be augmented. It is also a significant player in seed potato and with the right package of practices, traceability systems, and infrastructure, the market for Punjab seed potato can be strengthened. Alternative marketing channels for fruits and vegetables, such as direct marketing, contract farming, and exports, have been in place but these models need to be scaled up with right ecosystem.
By adopting a ‘Markets First’ approach, Punjab can ensure that farmers benefit from higher sustainable net returns. What Punjab needs to do is to switch gears from supply-driven agriculture to demand-driven agriculture. The demand for fisheries, poultry, dairy, and fruits and vegetables is increasing much faster than the demand for wheat and rice. Time-bound incentives in the form of freight subsidy for exporters of high value agri-produce, tax exemptions for processing of perishable commodities, etc, for value-chain players would be more rational than the overloaded subsidies of urea and free power. Rationalising mandi charges to not more than 3% will attract private sector investments in building efficient value-chains. Promoting mega parks for value addition in fruit and vegetables, milk and other livestock products through medium and small enterprises will strengthen its competitiveness.
Punjab should leverage the start-up revolution that is unfolding in India, and use technology to ensure optimal utilisation of resources, expand markets, and augment farmers’ income. Geo-tagging of farms can address concerns related to long-term leasing of land that is critical for large scale investments and enable vibrant agricultural land markets. Digitalisation of markets will generate real-time information on input sales, market arrivals, transactions, and payments and allow transparency in marketing practices. Innovations in supply-chain management, be it automated grain silos or state-of-art herd management will not only optimise use of resources but also bring in traceability of farms and animals, early monitoring and prevention of disease outbreak, and contain value-chain losses. As value-chains develop and cater to international markets, compliance with food safety standards and norms need to be adhered. Initiatives such as Innovation Mission Punjab can nurture the local ecosystem of start-ups, farmers, other private players, and government to create efficient value chains.
To unlock the financial resources needed to reboot agriculture in Punjab, the state government needs to take some bold steps in consultation with the Centre. It should rationalise the fertiliser subsidy regime by moving towards cash transfers on per hectare basis and free up fertiliser prices. If that’s not possible, then include urea in the nutrient-based subsidy scheme. Also, bring soluble fertilisers under subsidy, which will enhance fertiliser use efficiency through fertigation. This will also help reap environmental gains. Food subsidy can also be rationalised through direct cash transfers replacing PDS, as Punjab is a grain-surplus state. The bottom line is that Punjab needs to almost half its area under common paddy to promote crop-diversification.
Both environmental and financial sustainability concerns of business-as-usual farming in Punjab call for a rebooting strategy. But can any political party bell the cat by taking it up in its manifesto?
Ganguly is senior research fellow and Gulati is Infosys Chair professor, ICRIER
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