Loan waiver is not the solution

Since Independence, one of the primary objectives of India’s agricultural policy has been to improve farmers’ access to institutional credit and reduce their dependence on informal credit. As informal sources of credit are mostly usurious, the government has improved the flow of adequate credit through the nationalisation of commercial banks, and the establishment of Regional Rural Banks and the National Bank for Agriculture and Rural Development. It has also launched various farm credit programmes over the years such as the Kisan Credit Card scheme in 1998, the Agricultural Debt Waiver and Debt Relief Scheme in 2008, the Interest Subvention Scheme in 2010-11, and the Pradhan Mantri Jan-Dhan Yojana in 2014.

It is encouraging to see a robust increase in institutional credit from ₹8 lakh crore in 2014-15 to ₹10 lakh crore in 2017-18. Of this, ₹3.15 lakh crore is meant for capital investment, while the remaining is for crop loans, according to the Ministry of Agriculture and Farmers Welfare. Actual credit flow has considerably exceeded the target. The result is that the share of institutional credit to agricultural gross domestic product has increased from 10% in 1999-2000 to nearly 41% in 2015-16.

Clamour for loan waiver

While the flow of institutional farm credit has gone up, the rolling out of the farm waiver scheme in recent months may slow down its pace and pose a challenge to increasing agricultural growth. The Uttar Pradesh government has promised a ₹0.36 lakh crore loan waiver covering 87 lakh farmers, whereas the Maharashtra government has announced it’s writing off ₹0.34 lakh crore covering more than 89 lakh farmers. The demand for a loan waiver is escalating in Punjab, Karnataka, and other States. This clamour is only poised to increase as the 2019 general election comes closer.

There is a serious debate on whether providing loans to farmers at a subsidised rate of interest or their waiver would accelerate farmers’ welfare. At the global level, studies indicate that access to formal credit contributes to an increase in agricultural productivity and household income. However, such links have not been well documented in India, where emotional perceptions dominate the political decision quite often. A recent study by the International Food Policy Research Institute reveals that at the national level, 48% of agricultural households do not avail a loan from any source. Among the borrowing households, 36% take credit from informal sources, especially from moneylenders who charge exorbitant rates of interest in the 25%-70% range per annum. More importantly, the study using the 2012-13 National Sample Survey-Situation Assessment Survey (schedule 33) finds that compared to non-institutional borrowers, institutional borrowers earn a much higher return from farming (17%). The net return from farming of formal borrowers is estimated at ₹43,740/ha, which is significantly greater than that of informal sector borrowers at ₹33,734/ha. Similarly, access to institutional credit is associated with higher per capita monthly consumption expenditures.

A negative relationship between the size of farm and per capita consumption expenditure (a proxy for income) further underscores the importance of formal credit in assisting marginal and poor farm households in reducing poverty. Indeed, access to formal institutional credit also tends to enhance farmers’ risk-bearing ability and may induce them to take up risky ventures and investments that could yield higher incomes. Going by the NSS schedule 18.2 (debt and investment), rural households’ investments in agriculture grew at a high rate of 9.15% per annum between 2002 and 2012. While 63.4% of agricultural investments are done through institutional credit, landless, marginal and small farmers’ investment demand is met through informal sources to the tune of 40.6%, 52.1%, and 30.8%, respectively. Statistics show that nearly 82% of all indebted farm households (384 lakh) possess less than two hectares of land compared to other land holders numbering 84 lakh households. Those residing in the less developed States are more vulnerable and hence remain debt ridden.

Not helping farmers’ welfare

Clearly, a major proportion of farmers remain outside the ambit of a policy of a subsidised rate of interest, and, for that matter, of loan waiver schemes announced by respective State governments. In other words, this sop provides relief to the relatively better off and lesser-in-number medium and large farmers without having much impact on their income and consumption. This anomaly can be rectified only if the credit market is expanded to include agricultural labourers, marginal and small land holders. It is, therefore, important to revisit the credit policy with a focus on the outreach of banks and financial inclusion.

Second, the government along with the farmers’ lobby should desist from clamouring for loan waivers as it provides instant temporary relief from debt but largely fails to contribute to farmers’ welfare in the long run. To what extent this relief measure can help bring farmers out of indebtedness and distress remains a question. This is because farmers’ loan requirement is for non-agricultural purposes as well, and often goes up at the time of calamity when the state offers minimal help. If governments are seriously willing to compensate farmers, they must direct sincere efforts to protect them from incessant natural disasters and price volatility through crop insurance and better marketing systems.

Third, it should be understood that writing off loans would not only put pressure on already constrained fiscal resources but also bring in the challenge of identifying eligible beneficiaries and distributing the amount.

The report of the Committee on Doubling of Farmers’ Income, Ministry of Agriculture and Farmers Welfare, has rightly suggested accelerating investments in agriculture research and technology, irrigation and rural energy, with a concerted focus in the less developed eastern and rain-fed States for faster increase in crop productivity and rural poverty reduction. Additional capital requirements estimated for 20 Indian States are ₹2.55 lakh crore (₹1.9 lakh crore on irrigation and rural infrastructure by State governments and ₹0.645 lakh crore by the farmers) at 2015-16 prices by 2022-23. Public and private investments are required to grow at an annual rate of 14.8% and 10.9% in the next seven years. A diversion of money towards debt relief, which is in fact unproductive, will adversely impinge on state finances, may dissuade lending by the banks, and hence prove counterproductive to the government’s broader mandate of doubling farmers’ income by 2022-23.

Anjani Kumar and Seema Bathla are agricultural economists at IFPRI and Jawaharlal Nehru University, New Delhi, respectively. This piece was originally published in The Hindu 

Is dietary quality in Nepal improving?

Women farmers in Nepal

Nutritional deficiency is a major concern in achieving sustainable food and nutrition security, especially in the South Asian nations. Nutritional deficiency, also known as “hidden hunger” is very common in these countries where people’s diet is largely dominated by starchy staples. The macro nutrients (protein, carbohydrates and fat) and micro nutrients (vitamins and minerals) are essential for our metabolism, growth,

and physical and mental well-being. The major source of these nutrients is our diet and hence the quality of diet largely determines the intake of these nutrients. Dietary diversity is one of the indicators which can assess the dietary quality and also the extent to which our nutritional needs are met. A recent study conducted by IFPRI tries to explore the dietary diversity and the food expenditure patterns for households in Nepal using data from the Nepal Living Standards Survey (NLSS).

The findings of the study suggests that many sociodemographic and economic factors determine the dietary diversity and quality of diet of the people in Nepal. Historically, Nepal has been known as an impoverished country with poor nutrition indicators. However, in recent years it has shown the fastest rate of reduction in child stunting, in the world. Lately, there has been many positive changes such as reduction in the share of food expenditure devoted to staples, which has dropped by 32 percent between 1995 and 2011. Though still the largest share of food expenditure is on cereals yet there has been a significant increase in the expenditure on fruits, vegetables, milk and milk products.

Research shows that dietary diversity was seen more in the urban areas because of the better access to markets in comparison to their rural counterparts. The diets of small and marginal farmers were more cereal-dominated. Ethnicity also influenced the choice of food items and the Brahmins had the most diversified diet compared to the other unprivileged ethnic groups.

The study revealed that factors like poverty, educational status, ethnicity and access to basic facilities, all have a bearing on the kind of diet one consumes. The households receiving greater remittances, having higher income, better education and increased access to facilities would have more diversified diet and vice versa.

This implies that efforts are needed to adopt a multisectoral approach in order to deal with the nutritional security. Measures like social cash transfers could improve the situation for better. Initiatives to improve literacy levels and increase access to basic facilities need to be further scaled up. Special programs to improve nutritional security among the unprivileged ethnic groups must be implemented. Further fragmentation of land needs to be stopped and simple measures such as kitchen gardening need to be encouraged. A comprehensive strategy, including all the plausible factors that impact dietary diversity, needs to be put in place in order to deal with the dreadful hidden hunger.

Time for PPPs in Agriculture

Ch. Hira Singh Wholesale Vegetable Market at New Sabzi Mandi, Azadpur, Delhi
Watching over pineapple fruit trucks.
Photo Credit: Melissa Cooperman / IFPRI

Indian agriculture has come a long way from its earlier image of being traditional, subsistence and non-commercial. With the increasing demand for value added and high-quality products, agriculture has been adopting commercially and economically viable agribusiness solutions. In the recent past, business and investment opportunities in this sector have suddenly jumped manifold. But the response from the private sector has been likewarm.

There is a pressing need to develop a structured approach for increasing the number of bankable agri-business and agri-infrastructure projects through private sector participation for better quality and improved services. Role of private sector is immense in reinvigorating agri-food sector. We have good record of public-private partnership (PPP) in infrastructure development such as highways, ports, power and other sectors. Unfortunately, agri-infrastructure development in PPP mode was not adapted and applied in agriculture sector with the same vigor as done for these sectors.

Engaging private sector in developing and managing agri-infrastructure will bring improved technologies, best practices in operations and generate rural employment. The partnership can emerge as an important tool to induce investment and capitalize on the synergies of public and private sector. While the government continues to lead and facilitate development of agriculture sector through its policies, the entry of the private sector will induce a fresh bouquet of ideas that when scaled up can emerge as mass development models for the agriculture sector. Drawing lessons from other sectors, we are proposing few areas for developing agri-infrastructure in PPP mode.

Wholesale market development: Agricultural markets in India are thinly distributed. Existing marketing is characterized as inefficient, fragmented and unorganized. Very few markets have been developed during the last three decades; most of these are concentrated only in well off areas. The time is apt for evolving mechanisms to develop wholesale markets in PPP mode in a similar pattern of constructing and managing national highways using BOT (built, operate and transfer) approach. A model concession agreement using viability gap funding mechanism should be created by central government with encouragement to state to implement the process as per specific needs of each states. 

Warehouse and cold storage development: High price volatility is one of the major reasons for agrarian distress. Prices crash in the event of high production. Warehouses and cold storages play an important role to stabilize prices and benefit farmers as well as consumers. Development of warehouses and cold storage offers enormous opportunity for public-private partnership. Non-availability of land and low scale of business are reported to be the major obstacles for private sector response in this sector. Panchayat land, uncultivated land, government land, including some of the railways land, may be allocated on a long-term lease with annual rent by inviting bids from private sector in OMDA (Operation, Management and Development Agreement) mode as has been done for airport development and management.

Agro-processing development: The agro-processing, especially of perishable commodities, has huge opportunities as their demand in domestic and global market is rising very fast. This sector must be harnessed to meet the future demands and reduce unaccounted losses of perishable commodities. The Ministry of Food Processing and Industries committed for continued emphasis on creation of world class infrastructure for growth of food processing sector through mega food parks and Integrated cold chains. Use of PPP model for achieving these objectives and developing processing plants and linking them with micro, small and medium enterprises (MSMEs) will boost agri-processing sector. This is a lesson to be drawn from successful PPP mode in constructing airports, providing numerous services, and linking operations by various airlines.

Canal irrigation development and management:  India has large network of major and minor canals and distributaries from various rivers. Roughly 40 per cent of all irrigated area is covered by canals. Huge investment has been made to develop reservoirs, canals and distributaries. The canal irrigation system in many parts of the country is reported to be underperforming with irrigation efficiency is mere 30 per cent. The PPP model can be extended to this sector on the lines of the power sector. At first level, the irrigation department, should take sole responsibility for developing and managing the water reservoirs. This way government will have control over water for irrigation. At second level, canal management and water delivery could be contracted out to the private sector based on the performance. The contract may include canal and distributary management, water pricing and promoting efficient -irrigation methods. This will incentivize for volumetric release of water at different stages from reservoir to the farmers and eventually improve water use efficiency.

Agriculture extension: Public agricultural extension system has significantly contributed in bringing green revolution in the country. But it is its efficiency and effectiveness are now being questioned.  At present, Krishi Vigyan Kendras (KVKs) and Agriculture Technology Management Agencies are the last mile connectivity for technology delivery. Some of the KVKs are also run by private sector but majority are with agricultural universities (AUs) and Indian Council of Agricultural Research (ICAR). The AUs, ICAR institutions and KVKs have good infrastructure with land and water resources; a part of that can be allocated on a medium to long term lease (7-10 years) to the private sector for demonstrating their best practices. Private sector and public research system can also jointly undertake research for demonstration purposes. The process can also be used to incentivize private sector to use their CSR funds.

Private sector will come at its own where there is commercial viability and profit can be generated. But above-mentioned areas may have less commercial viability but high economic benefits. Therefore, these are the areas for developing public-private partnership to re-energize agriculture sector. This could mark the beginning of the next revolution in agriculture – one that is driven by institutional and governance reforms implemented via social equity based PPP process. This will require a new thinking to evolve enabling policy environment to attract private sector in developing agri-infrastructure.

This article was originally published in Business Standard

P K Joshi is the director- South Asia, International Food Policy Research Institute. Tushar Pandey is the freelance consultant in PPP and social equity related policy analysis.

 

 

Global Hunger Index 2017

India’s high ranking on the Global Hunger Index (GHI) again this year brings to the fore the disturbing reality of the country’s stubbornly high proportions of malnourished children—more than one-fifth of Indian children under five weigh too little for their height and over a third are too short for their age.

At 31.4, India’s 2017 GHI score is at the high end of the “serious” category, and is one of the main factors pushing South Asia to the category of worst performing region on the GHI this year, followed closely by Africa South of the Sahara. India is ranked 100th out of 119 countries, and has the third highest score in all of Asia—only Afghanistan and Pakistan are ranked worse.

“Even with the massive scale up of national nutrition-focused programs in India, drought and structural deficiencies have left large number of poor in India at risk of malnourished in 2017,” said P.K. Joshi, IFPRI Director for South Asia. “The on-going efforts are expected to make significant changes in improving the existing situation. It is welcoming that India has developed and launched an action plan on “undernourishment free India” by 2022. The Action plan shows stronger commitment and greater investments in tackling malnutrition in the coming years.”

As of 2015-16, more than a fifth (21 percent) of children in India suffer from wasting (low weight for height)—up from 20 percent in 2005-2006. Only three other countries in this year’s GHI—Djibouti, Sri Lanka, and South Sudan—show child wasting above 20 percent, and India’s child wasting rate has not shown any substantial improvement over the past 25 years. By contrast, the country has made considerable improvement in reducing its child stunting rate, down 29 percent since 2000, but even that progress leaves India with a relatively high stunting rate of 38.4.

Globally, the Central African Republic (CAR) has the highest score (reflecting the highest hunger level) of any country ranked in the report, and is the sole country in the Index’s “extremely alarming” category. CAR has the same score in 2017 as it did in 2000, suggesting any progress made in reducing hunger in the country in recent years has been reversed of late. Several other countries including Sri Lanka, Mauritania, and Venezuela also have higher GHI scores in 2017 than in 2008, after witnessing falling scores in the previous two decades.

“Conflict and climate related shocks are at the heart of this problem. We must build the resilience of communities on the ground, but we must also bolster public and political solidarity internationally.  The world needs to act as one community with the shared goal of ensuring not a single child goes to bed hungry each night and no-one is left behind.” said Concern Worldwide CEO Dominic MacSorley

Despite recent setbacks, the report spotlights some areas of progress in the fight against global hunger. The level of hunger in developing countries decreased by 27 percent since 2000. Declines in average hunger at the regional or national levels obscure some grim realities though. The averages can mask lagging areas where millions are still hungry, demonstrating the need to hold governments accountable not only for investments in timely data but also for building resilience in communities at risk for disruption to their food systems from weather shocks or conflict.

Uneven hunger levels bring into sharp focus this year’s theme of ‘the inequalities of hunger’, which emphasizes the inequalities of social, economic and political power underlying nutritional inequalities. Groups with the least social, economic, and political power like women and girls, ethnic minorities, and the rural poor often also experience greater levels of poverty and hunger.

“With a GHI score that is near the high end of the serious category, it is obvious that a high GDP growth rate alone is no guarantee of food and nutrition security for India’s vast majority. Inequality in all its forms must be addressed now if we are to meet SDG 2 of Zero Hunger for everyone by 2030,” said Nivedita Varshneya, Welthungerhilfe Country Director India.

The GHI, now in its 12th year, ranks countries based on four key indicators: undernourishment, child mortality, child wasting and child stunting. The 2017 report ranked 119 countries in the developing world, nearly half of which have “extremely alarming”, “alarming” or “serious” hunger levels.

More information can be found at: http://www.globalhungerindex.org/

Interpreting India’s Performance on the Global Hunger Index

 

Why eastern India needs a Green Revolution

Women Farmers in field, Nalanda District, Bihar. Source: (flickr) Divya Pandey, IFPRI

Eastern India is waiting for Green Revolution to improve food security and reduce poverty. A large fraction of the population in this part of the country is dependent on agriculture for food and livelihood security. The region is home to the highest density of rural poor in the world and poverty is high among agricultural laborers and sub-marginal farmers cultivating less than 0.5 ha land. Despite several government efforts in the past, eastern India still lags when it comes to agricultural development. Though the region has the best of soils in the country and an abundance of water, sunshine and labor, agricultural performance is appears to be of subsistence level only.

The majority of farming families in this region are poor; increasing their net returns from agriculture is essential to reduce poverty. However, the returns from agriculture are significantly lesser in eastern India compared to, say, the north-western states. For example, average net returns from paddy are 5-7 times lower in Bihar than that in Haryana and Punjab. The crop yields are low and almost stagnating in eastern India compared to the north-western and other parts of the country. For example, average yield of rice is around 2-2.5 tons/ha in Bihar (and similar in other states) compared to 5 tons/ha in Haryana and 6 tons/ha in Punjab. In the case of wheat, the yield is around 2.5 tons/ha in Bihar—significantly below the national average and much below the yield levels in Punjab and Haryana (4.5-5 tons/ha).

High population pressure on land, combined with relatively low crop-yields, results in lower average per capita income for farm households in the region. The average annual farm incomes in eastern states are also nearly half of the national average. The region is also highly vulnerable to climate change and thus suffers from high inter-year crop yield variability, making agriculture more vulnerable to climate extremes such as droughts and floods. For example, during 2009, a drought year, paddy yields in Bihar dropped by nearly 15% compared to normal year yields, leading to serious social and economic impacts. A similar situation played out in other eastern states, too; however, in north-western states like Haryana and Punjab, the yields were similar to that in normal years. Therefore, the major policy challenge is to promote sustainable intensification of agriculture to make agriculture more profitable and resilient to climate change.

IFPRI conducted some surveys in major states of India to map the adoption of improved varieties of crops and new technologies. Surveys from the eastern states show that most farmers there continue to use 25-30 years-old seed varieties with low yield potential and high susceptibility to biotic and abiotic stresses. Further there is negligible adoption of conservation agriculture (CA) technologies (zero tillage, laser land leveller, etc). In contrast, Punjab and Haryana are adopting the latest varieties and technologies. Non-availability and lack of knowledge are reported to be the important constraints in adopting modern varieties and technologies. Lack of a legal framework for land leasing was also stated to be a constraint in adopting the latest technologies and committing investment to development of farm assets. Global experiences reveal that legalised land leasing improves efficiency and reduces poverty.

Despite all constraints, in recent years, agriculture in eastern India has begun to transform, but the pace needs to be accelerated by reforming policies, institutions, and markets and by developing agri-infrastructure. Diversification of agriculture in eastern India towards high-value produce is the next step forward to increase farmer’s income. There is enormous scope for dairy, horticulture and fisheries in eastern India. An integrated-farming-system approach can generate additional incomes for farmers along with higher crop and water productivity. Research shows integrated farming system is the most reliable way of obtaining high incomes to the farmers. It would need investment in developing physical and financial infrastructure such as agro-processing, rural warehouses, cold storages, cold chains, and financing institutions.

Market availability is yet another factor to consider. In the absence of suitable marketing facilities in the region, most farmers sell their surplus at non-remunerative prices soon after harvests. In addition, marketing and the ability to negotiate a good price for produce is severely constrained. Therefore, adequate facilities need to be created in rural areas through public–private partnership to provide price advantage, reduce transaction costs and give access to efficient input- and output-markets. The region also has experienced low investment in agriculture development, especially on land, water, markets and extension services in comparison to other parts of India. IFPRI research shows that encouraging private investment in irrigation development will trigger agricultural growth in the region.

The success of all efforts will rely on how farmers are consolidated through self-help groups or farmer-producer organisations or cooperatives to take advantage of economies-of-scale.

Finally, a comprehensive approach by integrating technologies, policies, institutions and agri-infrastructure is necessary to usher in a new green revolution, in eastern India this time.

This piece was originally published in Financial Express.

 

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