The Economic Times, Last Updated: Aug 04, 2008
Indian agriculture has witnessed significant transformation over the past few decades. The changes range from new entrants into the sector to new and improved technologies, to farming becoming more mechanised, to weather, soil and environmental changes, to new markets and demand, and most importantly to agriculture evolving from just a way of life to a full-fledged business agribusiness. These changes have unfortunately not been accompanied by changes on the institutional and policy front. Even in instances where amendments have been introduced on the policy front they have not necessarily been accompanied by changes on the organisational and institutional fronts. This disconnect has limited the growth potential of this vital sector.
The state research and extension systems are not sufficiently robust and the lack of regional strategic thrust as well as field-level operational flexibility has restricted the potential of the Indian agricultural growth story. There is an overlapping of the roles and responsibilities of the central and state institutions. On the legislative, constitutional, policy and financing/funding front, the Centre seems to play a dominating role and is the main decision-making authority in terms of agriculture.
There also exists the challenge of delays in the process of budgetary allocation from the central level to the different state-level bodies, agencies and the farmers. Policy dialogue between the Centre and states has also not been efficient enough.
The need to develop a long-term strategy that would reduce the vulnerability of the farming community and accelerate agricultural growth is thus imperative. What are required are institutional reforms and technological breakthroughs, which trigger agricultural transformation. It is here that the central and state governments play a key role through national and state research systems as the future and success of the agricultural sector in India depends on how the Centre and states function with respect to each other, and how they facilitate the sector across the country.
The role of the central and state systems in agriculture in India needs to be studied, to find out the drawbacks, loopholes and areas for reform in the systems. While the Centre would continue to play a major role on the funding front, the various state governments need to take on the onus of developing the sector in their respective states.
There is no dearth of funds, but the states need to make a stronger case before the Centre in order to avail of these funds. This is probably the major reason for the difference in the level of central agricultural funding across the states. Apart from the funding aspect, there also exist administrative and legislative issues that keep cropping up between the Centre and states, as well as between states. There is an urgent requirement for immediate improvement and harnessing of the synergies of central and state organisations in the areas of agricultural research, extension and education by evolving appropriate institutional arrangements. There thus emerges the need for the development of appropriate institutional mechanisms that clearly define the model roles for both the public sector (central and state) and private sector, and systems and modalities for their interface to improve efficiency of human and financial resources.
The panchayati raj institutions also need to be re-integrated fully into the agricultural system for sustainable and equitable growth. The hitherto problem of non-involvement of farmers in the planning process will be addressed by involving the panchayati system in the process of agriculture planning by introducing the three-tier system. This again would require certain institutional and policy reforms along with facilitating mechanisms that would ensure a smooth participative system.
All of the above would require focused and strategically designed institutional reforms that would facilitate the movement towards a robust agricultural sector jointly driven by the public and private sector. An in-depth analysis of the situation, and the required institutional and legal structure reforms that emerge therefrom, could also involve a review of the redundant aspects in the constitutional framework to enable some of the changes. The need of the hour is an in-depth analysis and review of the current system, identification of the problem areas and the subsequent formulation of institutional and policy reforms that would ensure an efficient governance mechanism to facilitate the new/ reformed system a system that allows for a smooth functioning of the Centre, states and private sector players in a combined effort to boost Indian agriculture.
A well developed food value chain is essential for the development and success of the Indian agribusiness sector. This, however, requires the identification and implementation of appropriate projects and interventions. Lack of agri infrastructural facilities can severely affect, and in fact nullify, the gains in value and efficiency in the agricultural sector. These bottlenecks need to be dealt with and removed in a focused manner. This can be done by facilitating and extending Public Private Partnership (PPP) principles from the infrastructure sector to the agribusiness sector.
While the government plays a paramount role in the food and agriculture sector through legislation, policy guidelines, support pricing, subsidies, agri-extension services along with providing various essential inputs like fertiliser, water and energy (very often at concessional rates), the importance of the private sector is being increasingly recognised in terms of the additional investments that it can mobilise as well as its greater efficiencies, which ensure superior service delivery to the end consumer with the objective of maximising service to the common man at an affordable price. PPP has thus been recognised as an important facilitator of and a probable mechanism to facilitate and foster the participation of the private sector along with the government, both central and state, in order to achieve social objectives as well as ensure the marketability and profitability of the agricultural sector both in terms of technology and final output. Given that PPP is a relatively new approach in India, focus first needs to be directed to the policy and governance front in order to create an enabling environment for successful implementation of PPP projects.
Financial institutions (FIs) play a key role in the agri-business sector, primarily on the credit front due to the priority sector lending requirement. However, the link between FIs and agri-business does not end with just credit to the farmers. FIs should be an integral component of the agri-system and finance should be available at each and every stage of the value chain in order to make the agri-system sustainable. overnment should refrain from direct participation but should facilitate this integrating process by creating appropriate institutional mechanisms and policy frameworks. Decisions like farmer loan waivers do not in any way help farmers meet their credit needs. The government should aim at reducing the dependence of farmers on subsidies and loan waivers but help in capacity building and training programmes such that the farmers can assess their credit needs on the basis of which they are able to take informed and calculated choices and decisions.
Banks and FIs must consider setting up focused groups within the organisation that cater specifically to advisory on the policy and governance front. This would act as a huge enabler for integrating the financial sector with agriculture. The possibility of tie-ups with international training organisations in order to provide farmers training to carry out hi-tech and high-value farming need to be explored.
It is only when all the concerned stakeholders come together under the common umbrella of enhancing agricultural growth that we will be able to identify specific focus areas where institutional reforms are needed and comprehend the nature of these reforms. There are a variety of challenges that need to be addressed in the agricultural sector. These need to be identified, worked upon along with formulating appropriate institutional and policy reforms as well as appropriate regulatory and governance mechanisms.
-By Rana Kapoor MD and CEO of Yes Bank