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Agricultural Policy Strategy, Instruments and Implementation: A Review and the Road Ahead

For 40 years, India's agricultural growth rate has averaged less than one-third of the government's modest target of 4%. The sector's performance has been about the same before and after the economic reforms in the early 1990s. The reforms that brought a dramatic acceleration of growth in urban sectors have essentially had no effect on agriculture. Slow agricultural growth has had ill-effects on food security, food price inflation and poverty reduction because of the inadequate level and composition of public expenditure. Agricultural education, research, extension and a wide range of ancillary public institutions have also suffered. Agricultural growth always demands massive public goods provision and that in turn requires a radical reorientation of central, state and district government activities. This paper advocates a new integrated, technology-led strategy to pull out of, what looks like, a vicious circle that agriculture is now caught in.

SPECIAL ARTICLE

Agricultural Policy Strategy, Instruments and Implementation: A Review and the Road Ahead

Bhupat M Desai, Errol D’Souza, John W Mellor, Vijay Paul Sharma, Prabhakar Tamboli

For 40 years, India’s agricultural growth rate has averaged less than one-third of the government’s modest target of 4%. The sector’s performance has been about the same before and after the economic reforms in the early 1990s. The reforms that brought a dramatic acceleration of growth in urban sectors have essentially had no effect on agriculture. Slow agricultural growth has had ill-effects on food security, food price inflation and poverty reduction because of the inadequate level and composition of public expenditure. Agricultural education, research, extension and a wide range of ancillary public institutions have also suffered. Agricultural growth always demands massive public goods provision and that in turn requires a radical reorientation of central, state and district government activities. This paper advocates a new integrated, technology-led strategy to pull out of, what looks like, a vicious circle that agriculture is now caught in.

We are grateful to Gopal Naik and C G Ranade for an exchange of ideas at the formative stage of this paper. The usual disclaimers apply.

Bhupat M Desai (bhupatdesai@gmail.com) was at the Centre for Management in Agriculture, Indian Institute of Management, Ahmedabad; Errol D’Souza (errol@iimahd.ernet.in) is at the IIM-A; John W Mellor (jmellor@jmassocinc.com) was former director general of the International Food Policy Research Institute, Washington DC; Vijay Paul Sharma (vijays@iimahd.ernet.in) is at the CMA, IIM-A; Prabhakar Tamboli (pmtamboli@verizon.net) is at the University of Maryland.

1 Introduction

T
hree of India’s many current problems are rooted in its agricultural and allied sectors. These are decelerating growth in real agricultural gross domestic product (GDP) and land productivity, increasing food insecurity among the poor and an increased level and persistence of food inflation. They have an adverse impact on the growth of the economy and employment and offset efforts to reduce poverty.

Alleviating these problems and their consequences require accelerating the growth of agriculture through “continuous” location-specific generation and transfer of land augmenting and labour using technical change, and ensuring a critical mass of professional human resources. It also requires boosting public expenditure, revamping farm support and input pricing, and radically reorienting the existing multi-institutional model of organisation and management. The reforms of the early 1990s were not accompanied by these changes and they did not therefore accelerate the agricultural growth rate.

Policy planners recognised the need for higher agricultural growth, but they placed too much faith in the reforms and not enough emphasis on critical policy changes. More specifically, policy neglected basic institutions such as the Indian Council of Agricultural Research (ICAR), state agricultural universities (SAUs) and departments of agriculture in the central and state governments. It relied on the market to evolve and transfer relevant technologies rather than getting it being done through institutions that governments had arduously built over the earlier decades.

The major consequences of this have been the following.

  • The concept of growth in agricultural production has not moved from diversifying crop patterns to favouring high-value crops.
  • Poor planning has affected the evolution as well as transfer of genetically modified Bt cotton technology to rain-fed and irrigated areas.
  • Institutional components at the agronomic, biological, chemical, mechanical and grass roots levels, which are complementary to the engineering component in watershed development, have been neglected in rain-fed and other areas.
  • The supply of formal agricultural credit in such areas has preceded technical change instead of accompanying it.
  • There has been inadequate attention paid to post-harvest and storage technology.
  • The Rashtriya Krishi Vikas Yojana of the Eleventh Five-Year Plan seems to be like the erstwhile Intensive Agriculture District Programme rather than a plan involving high-yielding varieties (HYVs) to deliver better farm growth.
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    2 Role of Agricultural Growth

    Conventionally, agriculture is viewed as a source of food and raw materials for the economy and its people so that they can overcome poverty (GOI 1959; Ahluwalia 1978, 2011). This is unquestionable. But it is a narrow vision because agricultural growth is a means to the larger goals of employment-led growth and poverty reduction (Vakil and Brahmananda 1956; Johnston and

    Table 1: Annual Compound Growth Rates of Total and Agricultural GDP (1999-2000 Prices) and Productivity of Major Crops and Allied Agricultural Products in Pre-Reforms and Reforms Periods

    Variables ACGR Average Yield (Kg/ha)
    Pre-Reforms Reforms Pre-Reforms Reforms
    (1971-72 to 1990-91) (1991-92 to 2009-10) (1971-72 to 1990-91) (1991-92 to 2009-10)
    Total GDP 4.40 6.60
    Agricultural GDP 2.70 2.87
    Rice 2.51 1.13 1,342 1,964
    Wheat 3.31 0.92 1,695 2,628
    Maize 2.18 2.13 1,178 1,836
    Jowar 2.05 0.62 667 838
    Bajra 1.61 2.63 480 775
    Coarse cereals 1.89 2.29 711 1,093
    Pulses 1.03 0.51 507 598
    Gram 0.66 0.73 655 798
    Tur 0.37 0.52 722 690
    Lentil/masur 2.46 0.04 529 658
    Foodgrains 2.74 1.38 1,048 1,641
    Oilseeds 2.06 3.22 604 991
    Groundnut 1.18 0.92 841 1,045
    Rapeseed and mustard 3.46 1.79 620 969
    Sunflower -2.61 0.61 539 577
    Soybean 0.22 0.90 776 1,001
    Cotton 2.36 3.54 169 283
    Tobacco 2.05 0.49 1,091 1,445
    Sugar cane 1.48 -0.16 55,851 67,104
    Jute and mesta 1.65 1.98 1,143 1,626
    Total foodgrains 2.39 1.69 107.6 160.3
    Total non-foodgrains 1.73 1.16 104.3 142.5
    All crops 2.14 1.67 106.3 154.2
    Horticulture NA 1.08 NA 9,200
    Fruits NA -0.15 NA 11,100
    Vegetables NA 1.67 NA 14,400
    Potato 3.01 0.73 12,989 17,356
    Onion 0.04 -0.05 10,293 11,614
    Livestock
    Milk 4.76 4.03
    Marine fisheries 3.83 1.05
    Inland fisheries 4.90 5.79
    Fisheries 4.25 3.22

    ACGR are computed by fitting trend equation in Y = a + bt; data for total GDP and agricultural GDP in the reforms period is from 1991-92 to 2008-09; growth rates for total foodgrains, non-foodgrains and all crops are based on index numbers of their yields per hectare as data for their physical production is not available; data for the pre-reforms period is from 1978-89 to 1990-91 and reforms period from 1991-92 to 2003-04 to enable comparison; and data for all livestock products in the pre-reforms period is from 1980-81 to 1990-91 and in the reforms period from 1991-92 to 2001-02. Sources: Agricultural Statistics at a Glance (2010), Union Ministry of Agriculture; Indian Horticulture Database (2006, 2010), Government of India; Basic Animal Husbandry Statistics (2010), Department of Animal Husbandry, Dairying and Fisheries; National Accounts Statistics (various issues), Central Statistical Organisation.

    Table 2: Average Productivity of Rice, Wheat, Maize and Milk in India, the World and the Best in Developed Countries (2008)

    Crop India World Best
    Rice (kg/ha) 3,370 4,309 Egypt (9,731); China (6,556); Japan (6,488)
    Wheat (kg/ha) 2,802 3,086 3,108 (US)
    Maize (kg/ha) 2,324 5,109 9,658 (US)
    Milk (kg/animal/year) 1,145 2,309 7,342 (Netherlands)

    Source: FAOSTAT production data, www.faostat.org (accessed on 28 June 2011).

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    Mellor 1961; Dantwala 1962; Mellor and Lele 1973; Mellor 1976; Lele and Mellor 1981; Rangarajan 1982; Desai 1997; Oza 1997; Desai and Namboodiri 1998; Mellor and Ranade 2007; Balakrishnan 2010; Mellor and Dorosh 2011). Such a larger vision of agricultural growth serves economic welfare while the conventional view serves just welfare (Desai 2002a). These studies provide an understanding of the dominant role technology-led farm growth has in reducing poverty through its direct impact on real wage rates and indirect impact on increased employment.

    It has been known for more than three decades (Ahluwalia 1978) that sustained farm growth per capita leads to a decline in rural poverty. Since then, much empirical literature has shown how that process works, in part through the effects of cheaper food and the expenditure patterns of small commercial farmers (summarised and modelled for Ethiopia in Mellor and Dorosh 2011; and modelled for Pakistan in Mellor and Ranade 2007). Farmers’ expenditures facilitate generating value addition by processing farm commodities, which also results in higher growth in industrial employment. In low- and middle-income countries, poverty does not decline without accelerated growth in agriculture. This is because changes in technology-led agricultural growth’s demand, savings, investment and foreign exchange patterns are intimately linked to economic growth, employment growth and poverty alleviation in rural and urban areas.

    3 Agricultural Performance in Pre-Reforms and Reforms Periods

    This section compares the agricultural performance in the reforms period with that in the pre-reforms period (Tables 1 and 2).

    3(a) Agricultural Growth Rate

    The growth rate of real agricultural GDP has averaged less than an inadequate 3%. More significantly, this growth rate was lower than the modest, targeted growth rate of 4% for the reforms period. In the reforms era, this growth rate as a ratio of total real GDP growth rate decelerated from 0.61 to 0.43.

    Though the average per hectare yield levels of most crops increased, the growth rate of per hectare yield declined for all crops except bajra, tur, sunflower, soybean and cotton. Except for inland fisheries, the growth rates of all allied farm commodities decelerated. Average levels of yield per hectare for all the four major farm commodities – rice, wheat, maize and milk – in 2008 were lower than those at the global level. More importantly, they were much lower than the best in the world.

    Decelerated growth rates of yields per hectare of a majority of crops in the reforms era is also found at the state level with the incorporation of changes in crop pattern in favour of high-value crops (Bhalla and Singh 2009).

    3(b) Food Insecurity

    Data for the headcount index and the absolute number of poor measured by purchasing power parity (PPP) $1.25 a day or less are from the World Bank’s World Development Indicators 2005, while real agricultural earnings are from Easwaran et al (2009).

    Though the headcount index declined in both the pre-reforms and reforms periods, its annual compound growth rate was

    hardly different – 1.4% in the reforms period and 1.3% in the pre • Changes in farm commodity composition that result from
    reforms period. The absolute number of poor people increased in demand-led agricultural growth arising from rising per capita
    both periods. It was 456 million in 2005, up from 444 million in incomes in the urban sector is being lost.
    1993 in the reforms era, which in turn was higher than the abso • Food insecurity for the large number of poor and higher food
    lute number of 420 million in 1981 in the pre-reforms period. This prices due to inflation and various taxes for most consumers are
    is significant considering that the 2005 PPP $1.25 a day bench being perpetuated.
    mark translates into a daily income of only Rs 14.3 for the rural All this suggests that there have been weak linkages between the
    poor, while the corresponding figure for the urban poor is growth of the agricultural and non-agricultural sectors, with conse-
    Rs 21.6. Such low daily incomes are indicative of lives lived on quent threats to higher economic growth, food inflation and poverty.
    the margins of existence in the company of malnutrition. The sluggish pace of poverty eradication is also seen in the 4 Strategy of Agricultural Change
    reduced growth rate of real weekly earnings by farm labourers. Resolving these undesirable consequences requires a strategy of
    In the reforms period (1993-94 to 2004-05), its annual compound location-specific land augmentation and farm labour adapting to
    growth rate was only 1.85% against a growth rate of 3% in the technological changes in pre- and post-harvest operations. There
    pre-reforms period (1983-84 to 1993-94). The absence of acceler are, however, two other options to raise farm growth, which were
    ated, technology-led agricultural growth has remained a binding pursued in the past – extensive farming and intensive agriculture.
    constraint on economic growth and poverty alleviation. Extensive farming means bringing hitherto uncultivated land
    under farming, while intensive agriculture means using more and
    3(c) Persistence and Higher Incidence of Food Inflation more of the same inputs. But the former is not feasible as land is an
    Data studied here include the consumer price index for agricultural exhaustible commodity. And the latter is not technically sustainable
    labourers (CPI-AL), the CPI for industrial workers (CPI-IW), the CPI because it creates pressure on natural resources and the conse
    and wholesale price index (WPI) for food articles, and the agricul quence is environmental degradation. It is also economically in
    ture deflator in the pre-reforms and reforms periods (Table 3). efficient because it leads to a trap, Ricardo’s law of diminishing
    Table 3: Food Inflation Rates in India and Their Incidence returns to scale (DRS). This means a change in production is obtained
    in Pre-Reforms and Reforms Periods at diminishing returns to the cost of all inputs. Such returns cannot be
    Category 1971-72 to 1991-92 to 1971-72 to 1990-91 2009-10 2009-10 overcome if there is a severe constraint on the availability of land.
    CPI (agricultural labour) 7.79 7.17 7.49 The only acceptable strategy is therefore sustained technical
    CPI (industrial workers) food articles 8.57 7.73 8.16 change of the type mentioned earlier. Such a strategy shifts the
    CPI (industrial workers) all commodities 8.70 7.49 8.11 production function upwards and to the right so that it avoids the
    WPI food articles 8.34 7.54 7.95 WPI all commodities 8.72 6.51 7.64 Agriculture deflator 8.40 6.88 7.86 GDP deflator 8.73 6.20 7.69 DRS trap. This increases agricultural production at lower unit-costs in real terms and thereby reduces the prices of farm commodities, which benefits the poor most (evidence for this in the pre-reforms
    CPI (industrial workers) food articles inflation as % of era includes wheat, rice, maize and foodgrains; see Mellor 1978;
    CPI (industrial workers) all commodities inflation 98.13 103.11 100.59 Kahlon and Tyagi 1983; Sidhu and Byerlee 1992; Kumar and
    WPI food articles inflation as % of WPI all commodities inflation 95.64 115.82 104.02 Mruthyunjaya 1992; Rao 1994; Kumar and Rosegrant 1994; Singh,
    Agriculture deflator inflation as % of GDP Pal and Morris 1995; Acharya 1997; Joshi, Pal and Birthal 2001).
    deflator inflation 96.26 111.02 102.20 Such technical change is needed on a continuous basis; it
    Source: RBI Handbook of Statistics on Indian Economy. cannot be a one-shot effort. This is because agricultural produc-
    For agricultural labourers, food inflation ranged from near 7% tion being a biological process, it needs continuous evolution,
    to 8% in both periods, whereas for industrial workers it varied new varieties and the use of complementary inputs and resources
    from 8% to 9%. That food inflation has persisted holds true for all that are knowledge-driven (Desai 1994). Continuity is also required
    consumers if we consider the WPI for food articles as well as the because both the absolute and relative contributions of total
    agriculture deflator. Food inflation has been higher than overall factor productivity receded in the 1980s (Desai 1994). Before the
    inflation only in the reforms period. Moreover, it has been high for options for a sustained technical change are discussed, we briefly
    all consumers as reflected in their WPI for food articles, followed look at the policy that has had to do with the growth of agricul
    by the CPI for food articles-industrial workers and the agriculture ture since the advent of economic reforms.
    deflator (see column 3 in last three rows of Table 3). These find- This is of two broad types – one, improved (barter) terms of trade
    ings suggest that high food inflation has persisted for a long time. (that is, in the prices received to prices paid by farmers), and two, an
    The following are the implications of these for the reforms era. increase in foreign trade of farm commodities. The former has been
    • Decelerating agricultural growth means that the farm sector’s expected with the prices paid by farmers for inputs declining be
    contribution to providing employment-intensive growth for rais cause of delicensing, deprotection and dereservation in industry and
    ing incomes in the farm and non-farm segments of the economy trade. This should translate into higher agricultural growth (Singh
    is being lost. 1995; Ahluwalia 1996). It has also been expected that with the trade
    • Decelerating growth in the yields of major field crops, livestock liberalisation envisaged under the World Trade Organisation (WTO),
    products and horticultural crops means that the opportunity to spare the price environment will improve for imports of farm commodi
    land and labour for non-agricultural growth is also being lost. ties, besides creating opportunities for higher export growth of farm
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    commodities such as rice and horticulture. This should also mean higher agricultural growth (Gulati and Sharma 1994; Boussard 1999). Both these mechanisms have been preferred because the instruments of farm policy in the reforms era hinges on market theology.

    But the first option is misconceived because its substitution, income and wealth effects have an ambiguous impact on farm growth as they work in opposite directions. Its substitution effect is positive as long as savings, investment and labour supply increase, while consumption and leisure decrease. But its income and wealth effects are negative if consumption and leisure increase, but savings, investment and labour supply decline. This suggests that their net impact on agricultural growth could be positive, negative or zero (Desai and D’Souza 1999; Desai 2002a, b). Thus, a priori the impact of barter terms of trade on agricultural growth cannot be determined. But this should not be interpreted to suggest that delicensing, deprotection and dereservation of industry and trade is not a positive policy for the economy as a whole.

    The second option of foreign trade is also misconstrued because it assumes the world agricultural market has perfect competition, which is far from the reality. Perfect competition assumes constant returns to scale, which violates the earlier stated character of DRS to which agriculture is prone. Agricultural growth is not constrained by the lack of a domestic market and past experiences suggest that when India imports farm commodities or inputs, the world market price skyrockets, but when it exports farm products, it is a disadvantaged price taker (Nayyar and Sen 1994; Datta 2001; Desai 2002c; Desai and Namboodiri 2001a; Sharma and Thaker 2011).

    5 Options for Continuous Technical Change

    The three options for continuous technical change in the agricultural sector are it being seed-centred (as in the green revolution); resource-centred (as with new technology for dry/rain-fed farming); or seed/breed-cum-resource-centred (as in an integrated farming system) (Desai 1997, 2002a, b).

    The need for a second green revolution has been recognised ever since economic reforms were initiated, but has not been fully committed to, as Bt cotton technology transfer which was approved by the union government in 2002, shows (Gandhi and Namboodiri 2010, which also indicates significant gains in selected areas of Maharashtra). Likewise, the need for new dry/rain-fed farming technology has been recognised but its explicit agenda has not yet been spelt out (Deshpande 2008). The third option of seed-cum-resource-centred technology has been acknowledged as an integrated system that agricultural scientists advocate (Swaminathan 1999), but its need on a continuous basis has not been recognised or proactively pursued since the mid-1980s or so.

    An integrated farming system such as the seed/breed-cumresource-centred technology aims to achieve the integration of farm inputs and resources as well as all farm commodities – field crops, livestock and horticulture. It consists of a range of resource-saving practices that aim to achieve acceptable profits and high and sustained production levels, while preserving the environment and minimising the negative effects of intensive farming. Based on the principle of enhancing natural biological processes above and below the ground, it represents a winning combination that reduces erosion; increases crop yields, soil biological activity and nutrient recycling;

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    intensifies land use, improving profits; and can therefore help reduce poverty and malnutrition and strengthen environmental sustainability. Accelerating the growth rate of productivity of all farm commodities is urgently needed to achieve the employment-led agricultural growth and overall economic progress discussed in Section 2.

    Before economic reforms, this third option was promoted in some areas with commitment from the central government and some states that pursued soil and water conservation and harvesting on a watershed basis in rain-fed areas. Ralegaon Siddhi in Maharashtra is a successful example of such technical change that was achieved by executing all the components of institutional support at the engineering, agronomical, biological, chemical, mechanical, macro and grass-roots levels (Desai and Namboodiri 2001b). Another such example is the Kalapipal watershed in the tribal areas of Dahod district in Gujarat (Jagawat 2005). But such was not the case in the reforms era when watershed development was undertaken in Dewas district of Madhya Pradesh with only limited success (Sharma 2010; Verma 2010).

    The third option is preferable for five reasons.

  • (1) Land productivity growth of field crops, livestock, and horticulture has decelerated in the reforms era.
  • (2) It has the potential to satisfy agriculture’s inherent complementary nature of farm inputs, resources and institutional components.
  • (3) When this complementary nature is achieved, technical change is economically efficient, which means the production response is larger than the sum of effects of each input and resource used singly (Ishikawa 1967; Jagawat 2005).
  • (4) Such technical change facilitates land and labour augmentation that is suitable to small-scale agriculture.
  • (5) Being embodied in innovations related to new biological, chemical, mechanical and natural resources and inputs, besides collective action, it has better potential for sustainability.
  • Some elements of the preferred technical change could be the following.

  • Land being prepared in a way that an appropriate soil and moisture regime is developed.
  • Seeds being line-sown with a location-specific distance between rows and the depth of seeding.
  • Seeds being newly replaced by purchases from the market with location-specific rates of their use.
  • Fertilisers being applied with a location-specific quantity, timing and depth of use.
  • HYVs/Bt seeds being combined with appropriate doses of organic manure, fertilisers or bio-fertilisers and other complementary measures such as soil and moisture conservation and harnessing.
  • Irrigation water from canals being released through a system with drainage and used through field channels with a locationspecific frequency and depth of application, besides being managed by collective, grass-roots level institutions.
  • Irrigation water from wells, ponds and tanks that watershed development has contributed to being efficiently used to improve irrigation methods in the manner mentioned above and collective action of the community.
  • Groundwater being harnessed through more efficient mechanical pumping devices with field channels, and/or application by sprinklers or drip methods.
  • Methods for eradicating pests and diseases being developed and transferred to farmers by location-specific integrated pest management schemes.
  • Services for better livestock breeds, feed and veterinary services being developed and transferred to farmers.
  • Post-harvest operations being upgraded so that they have scientific standards, devices and methods for cleaning, grading, storage, marketing and processing their main and/or by-products.
  • Promoting the suggested technical changes requires 10 interrelated actions, all on a continuous basis.

  • (1) The central government must adopt and encourage decentralisation of the ICAR’s organisation and management and funding operations, as recommended by the Mashelkar Committee and the Swaminathan Committee.
  • (2) The ICAR’s system and SAUs must be restructured to produce relevant research and higher agricultural education by granting them academic autonomy and the funds to effect a change in the paradigm to that of the new technology (Challa, Joshi and Tamboli 2011).
  • (3) This paradigm requires human resources that will implement location-specific integrated farming instead of advocating reducing the gap in yield by tinkering with farmers’ fields and experimental farms.
  • (4) These research and development (R&D) institutions must have autonomy and be free to recruit proficient scientists who are receptive to the change envisaged.
  • (5) They must evolve and organise demonstrations of integrated farming on farmers’ fields so that its adoption is better promoted and encouraged.
  • (6) Farm inputs’ suppliers, including the line departments of governments, should extend knowledge as an input, sharing the methods and compositions of using new complementary inputs and resources with farmers.
  • (7) The training of government extension workers at the central, state, district and village levels must be organised by the ICAR and SAUs with a focus on the new technology.
  • (8) The village-level extension workers to farmers ratio has to be improved from about 1:800/1,000 to 1:500 or so with the use of information technology that will help spread their services to individual farmers or groups of them.
  • (9) Seed enterprises have to be developed in the public and private sectors that are accountable for the quality of seeds they supply at the grass-roots level.
  • (10) The densities of suppliers that provide farm inputs, sources that provide credit and agro-processing enterprises must be increased.
  • 6 Instrument of Public Expenditure for Agriculture

    The rationale for an increase in public expenditure is rooted in the inability of governments in the reforms period to bring about technical changes in agriculture and achieve higher agricultural growth. It is also necessitated by the significant decline in public outlay on agriculture as a percentage of the total public outlay during five-year plans in the reforms era, compared to what it was in the pre-reforms era (Desai and Namboodiri 1997a). It is further justified by that public spending on agriculture and irrigation as a percentage of public spending on agriculture, irrigation and

    46 rural development is not consistent with the central government’s target of higher agricultural growth at a rate of 4%.

    The public expenditure for technology-led agricultural growth must accord higher priority to

  • Agricultural research, education and extension.
  • Irrigation and flood control.
  • Soil and water conservation and harvesting on a watershed basis.
  • Rural infrastructure such as soil-testing laboratories, roads, electricity, regulated markets, Amul-type cooperatives for perishables, rural financial institutions and employment guarantee schemes that concentrate on building community assets that directly contribute to agricultural growth.
  • A significant scaling up of public expenditure is also needed for other farm and livestock inputs. Major examples are seeds, breeds, fertilisers, compost manure, vermicompost, cattle feed, veterinary services and modern handheld and bullock-drawn farm implements, all of which are interrelated to the four types of public expenditure pointed out above.

    We now look at what the profile of public spending on agriculture, irrigation and flood control and rural development has been in the pre-reforms and reforms periods. This is studied for two scenarios – one that excludes explicit food and fertiliser subsidies, and the other that includes them. For both, we analyse

  • The percentage of public spending on agriculture, irrigation and flood control and rural development in the total public expenditure.
  • The percentage of expenditure on agriculture and irrigation and flood control in the total for all three criteria.
  • The percentage of expenditure on agricultural research, education and extension in the total for all three criteria.
  • The percentage of expenditure on irrigation and flood control in the total for all three criteria.
  • The average percentage of increment in expenditure over the previous plan for each of the above purposes.
  • Table 4 (p 47) presents the results for the pre-reforms period (1974 to 1990; the Fifth to Seventh Five-Year Plans) and the reforms period (1991 to 2005; the Eighth to Tenth Five-Year Plans).

    Table 3 reveals that under both scenarios, all the eight criteria, barring one, show that the percentages are lower in the reforms period than in the pre-reforms period. The exception is the percentage of spending on agriculture, irrigation and flood control and rural development to total public spending for all purposes (see columns 4 and 5 in row 1 of Table 4). This is 35% in the reforms era compared to 32% in the pre-reforms era. The reasons for this are mainly two. One, more public expenditure on rural development schemes such as the Integrated Rural Development Programme (IRDP) and employment generation through the National Rural Employment Programme (NREP), the Jawahar Rozgar Yojana (JRY), the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), and community development, and two, increased spending on food subsidy. Such food subsidy spending has come from increases in procurement prices without any significant change in issue prices for the public distribution system (PDS). In the Ninth and Tenth Five-Year Plans, food subsidy was even larger than fertiliser subsidy – larger by 32.5% in the Ninth and by 46.6% in the Tenth.

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    Table 4: Public Expenditure on Agriculture, Irrigation and Flood Control, and Rural Development in Pre-Reforms and Reforms Periods

    Excluding Subsidies Including Subsidies Pre-Reforms (1974 to 1990) Reforms (1974 to 1990) Pre-Reforms (1974 to 1990) Reforms (1991 to 2005)

    Percentage of agriculture, irrigation and flood control and rural development in total public expenditure 22.6 21.6 32.2 35.4

    Percentage of agriculture, irrigation and flood control in total public expenditure on agriculture, irrigation and flood control and rural development 73.2 61.6 81.2 76.6

    Percentage of agriculture research, education and extension in total public expenditure on agriculture, irrigation and flood control and rural development 9.6 9.6 6.7 5.8

    Percentage of irrigation and flood control in total on agriculture, irrigation and flood control and rural development 42.3 35.6 29.4 21.7

    Average percentage of increment over previous plan for all criteria 134.7 88.7 137.5 89.5

    Average percentage of increment over previous plan for agriculture 110.0 80.0 na na

    Average percentage of increment over previous plan for agriculture, research, education and extension 199.7 161.7 na na

    Average percentage of increment over previous plan for irrigation and flood control 141.9 99.5 na na

    Agriculture includes crop husbandry, horticulture, animal husbandry, dairy development, fisheries, agricultural research and education, food storage and warehousing, agricultural financial institutions, agromarketing and rural go-downs, minor irrigation, and cooperation. Rural development includes community development, the IRDP, and rural employment programmes such as the NREP, JRY and MGNREGS. Source: Five-year plans; Planning Commission, Statistics at a Glance, Ministry of Planning, and Economic Survey 2010-11.

    Public expenditure for technology-led agricultural growth is far more desirable as such growth drives down poverty, besides encouraging its linkages with non-agricultural growth and hence higher overall growth. The rationale for higher public spending on agriculture research, education and extension also lies in four other factors.

    (1) In the Tenth Five-Year Plan, this spending was only 0.30% of agricultural GDP, which is much lower than the international norm of 2% (Desai 1997); (2) public spending for this purpose had a high value on the marginal product-based internal rate of return – 20.51% during the period 1966-67 to 1989-90 (Desai and Namboodiri 1997b); (3) farm research, education and extension systems are starved of budgets for increasing the present villagelevel extension worker to farmers ratio of 1: 800/1000 to 1: 500; and (4) it is further needed to undertake location-specific evolution and transfer of the new integrated farming technology by restructuring the ICAR’s research and revitalising SAUs (Desai 2002b; Challa, Joshi and Tamboli 2011). This is because such technology evolution and transfer is more diverse and more complex than crop-specific.

    The above recommendations will require much larger budgets in total public spending for the ministries of agriculture at the central and state government levels.

    7 Instrument of Price Support for Agriculture

    We discuss three aspects of this instrument – minimum support price (MSP), procurement price (PP) and procurement operations, which include the quantity to be procured, and issue price (IP), the price at which consumers are sold this quantity. The first one is now not used though it was official policy during the mid-1960s to the mid-1970s but the other two are in vogue to ensure food security to vulnerable consumers (Desai 2002b).

    The practice of using an MSP must be restored because of the higher risks associated with a rapid increase in production if the preferred technical change is implemented. This price should be based on the variable cost of production (that is, basic cost of the commodity plus cost of family labour used in production and a premium for variability in farm harvest prices whose coefficient of variation exceeds 20%). Such an MSP is required to ensure that farmers remain in business as long as their variable costs are covered. It will also incentivise farmers to adopt the advocated technical change. The central government should determine such prices and announce them before the sowing season.

    The PP must be based on both the variable cost as defined above plus the fixed cost of production (that is, total costs). It is now adjusted for changes in barter terms of trade, crop-input price ratio, parity with the international price and inflation (Tyagi 1990; Acharya 1997). But the central government should discontinue its practice of adjusting the PP to account for changes in various price regimes (Desai 1997, 2002b). Barter terms of trade have an indeterminate impact on the growth of farm supplies as was discussed earlier and such supplies are basically influenced by non-price factors such as irrigation, HYVs, fertilisers, public and private capital stock for agriculture, and rural infrastructure. The function of the PP is to facilitate procurement as a source of food security for the poor and prevent the government-determined price from acting as a leader in the market (Desai and Namboodiri 2001a; Sharma and Thaker 2011). The suggested method for determining the PP would amount to a lower PP, which would mean lower pressure to raise the IP and food subsidy. The PP should also be announced before the sowing season.

    The recommended changes would ensure that the quantity needed for the PDS as well as for buffer stocks required in times of severe drought will be procured. These two needs are estimated to be 16 million tonnes to 27 million tonnes. Purchases by the central government in excess of this quantity would happen only if the farm harvest price (FHP) is lower than the MSP. Such a situation is unlikely to arise because the supply of and demand for farm commodities are relatively price inelastic and ruling market prices will tend to be higher than the MSP. But in the event of such purchases, the central government should release them in the open market or use them in food-for-work schemes under its employment guarantee programmes to build community assets such as watersheds and rural roads (Desai 2002b).

    A few observations have to be made on the IP and targeting the PDS. The IP should always be lower than the open market price for vulnerable consumers. This will ensure PDS offtake and also amount to genuine entitlement. The existing practice of catering for consumers below and above the poverty line can be discontinued, targeting only the former. The poor can be identified on the basis of those whose daily earning is PPP $1.25 or less (World Bank 2005). The prevailing method leads to inclusion of card holders who do not need the PDS. The suggested change of targeting the PDS is also

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    justified by the preferred technical change that would push up employment in both the agricultural and non- agricultural sectors.

    8 Instrument of Pricing Farm Inputs

    The prices of fertilisers, water and electricity need rationalisation (Desai 1997, 2002b). The present practice adversely affects the efficiency of the main stakeholders.

    The pricing policy on fertilisers has been ad hoc, hotchpotch and uncertain ever since the advent of economic reforms. The prices of phosphorus (P) and potassium (K) fertilisers have been decontrolled but not that of nitrogen (N). This has adversely affected the price parity for these three nutrients and led to an adverse NPK use ratio by farmers, with consequent degradation of natural resources. The central government then introduced concessions on the sale of decontrolled fertilisers. This improved the use ratio of NPK nutrients, but it led to an increase in the subsidy for fertilisers. At times, the concessions were as large as the entire fertiliser subsidy.

    Overcoming this hotchpotch requires a mindset that is not caught in the idea that the use of fertilisers is adverse to soil health. When farmers grow a crop, it consumes nutrients that exist in the soil. This suggests that these nutrients must be restored by using fertilisers. The agronomic care required is that organic compost manure also be used with inorganic sources of nutrients. Given that India’s soil is highly deficient in NPK nutrients, advocating that fertilisers should not be used amounts to imprudence. Another change required is to recognise that the fertiliser subsidy ultimately benefits the consumers of farm products.

    Instead of the present policy of pricing fertilisers, the central government should evolve guided market rates for N, P and K fertilisers. Such rates may be based on the long-run average cost for each plant and then aggregated for each of the three nutrients so that a subsidised level of prices can be fixed by considering what the farmers’ demand curve can bear (Desai 2002b). The subsidy payments so implied should be given to raw material suppliers instead of fertiliser companies so that they can sell raw materials at lower prices to fertiliser manufacturers. It is the high cost of raw materials that makes fertilisers expensive to Indian farmers (Desai 2002b).

    The pricing of water, from canals, irrigation projects or elsewhere, is not consistent with the reality that farmers in irrigated regions have so far been the main beneficiaries. It therefore needs to be revised upwards. A consensus is that the price should cover the operation and maintenance (O&M) costs of various irrigation projects. Such a price would fetch the government better revenues for the upkeep and modernisation of these projects, which is in the interest of farmers.

    The same principle may be considered to determine the price of electricity used in agriculture. Moreover, this price must be based on volumetric use rather than a flat rate. There is a case for discontinuing the supply of electricity for agriculture free of cost, as, for example, in Punjab. But there is justification for cross-subsidisation of agriculture by fixing different prices for different users such as elite consumers, agriculture, industry, trade and commerce.

    On subsidies, three observations have to be made (Desai 2002b). One, the General Agreement on Tariffs and Trade (GATT) provisions permit subsidies to the poor. They also allow, for example, research for decreasing production costs, extending extension

    48 services, providing higher agricultural education and adding to physical infrastructure such as roads, all of which are central to the strategy advocated here. Two, subsidies for agricultural and rural development, excluding those to the poor, are estimated to be less than 10% of agricultural production that these provisions allow. Three, any subsidy is justified when society benefits more from it than a private enterprise, as is often the case with agriculture. All these perspectives should guide the policy on farm and food subsidies, while the norms of what the GATT permits must be honoured.

    9 Implementation of Continuous Technical Change

    Implicit in the preceding discussion is that the implementation of technical change in agriculture requires a multi-institutional model of organisation and management. The model of single institution is not enough given the size, diversity and complexity of the agricultural sector.

    There is a view that agriculture being a state subject, it is the states that have to bring about technical change (Ahluwalia 2011). But it has to be remembered that the green revolution was successfully implemented during the pre-reforms period when a similar structure of government existed. What is, however, required is that the central government play three catalytic roles when the Planning Commission consults each state government for the formulation of its annual and five-year plans.

    The first such role the central government should aim at is visualising the “outcomes” related to seed/breed-cum-resourcecentred technical change. These outcomes would relate to the productivity of field crops, livestock and horticulture; the real agricultural GDP growth; this growth as a ratio of real overall GDP growth; the change in the number of poor and poverty ratio; the change in real earnings of farm labourers; and the incidence of food inflation. These could form the basis for preparing physical targets for the coverage of new seed and breed varieties, inputs that are complementary to them and the various resourcecentred components discussed in Sections 5 and 6.

    Such physical targets, along with the required unit cost, may then be used to prepare targets for the public expenditure needed for various programmes such as agriculture; R&D and its transfer; seed multiplication; area under irrigation; area under fertilisers and compost manure; use of electricity, number of milch cattle with better breeds and veterinary services; cattle feed production; rural roads; regulated markets; and various components to conserve and harvest irrigation water from watersheds, all under the purview of the government. This may further include programmes such as setting up soil-testing laboratories, power supply lines, farm input and agro-processing enterprises and rural financial institutions in the public and cooperative sectors in each district.

    The second catalytic role the central government has to play is creating an institutional structure to integrate agricultural research, education and extension by forming an organisational committee representing the agriculture departments of the central and state governments, SAUs and the ICAR at both the state and district levels to plan and guide the implementation of integrated farming.

    The third catalytic role the central government has to undertake is reviving organisational committees at the state level that used to oversee implementation of agricultural growth (What is

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    this? Do they mean state and district agricultural plans?) before the economic reforms (Desai 2002b). What is, however, required is adopting the following six changes to make their functioning effective and accountable.

  • (1) Organisational committees should be formed at the state and district levels.
  • (2) Each committee should have two tiers, one that represents the elected members of the legislative assembly (at the state level) and members of district panchayats (at the district level), and the other that represents development officials such as secretaries (at the state level) and district development officers (at the district level).
  • (3) The committees at both the state and district levels should have representation of the ICAR, SAUs, the National Dairy Development Board (NDDB), water users’ associations (WUAs) in irrigated and rainfed/dry farming areas, the National Bank for Agriculture and Rural Development (NABARD), progressive farmers, eminent non-governmental organisations (NGOs), the Food Corporation of India (FCI), farm input and agro-processing industries, and the Commission for Agricultural Costs and Prices (CACP).
  • (4) The committees at both the state and district levels must have an autonomous permanent secretariat of professionals who have studied and/or have experience in agricultural sciences, agricultural economics and agricultural management. The secretariat at the district level should do the groundwork for annual and five-year plans based on the programmes that the first catalytic role produces.
  • (5) The permanent secretariat at the state level should aggregate the plans prepared by the secretariats at the district level after they have been carefully considered by the organisational committees at the district and state levels.
  • (6) State governments should use such plans when the Planning Commission consults them for their annual and five-year plans.
  • The three catalytic roles of the central government must be complemented by a change in how the auxiliary institutions function. Agricultural research, education and extension institutions, line departments of the government, and other agencies should have autonomy alongside accountability. Moreover, both for planning and implementation of the programmes, a bottom-up-cum-topdown approach must be adopted in their design, execution and monitoring. All the implementing institutions must be reorganised so that they together look like an erect pyramid, rather than an inverted one, as is often now the case (Desai 2002b).

    What has been said above for implementation should also apply to institutions that perform regulatory functions such as releasing new seed varieties and breeds; ensuring the quality of farm inputs and resources (surface and ground water); and for enforcing compliance with the hygienic standards prescribed for agricultural products. The two primary goals of a multiinstitutional model are to be accountable to farmers and consumers, and to act in symphony to achieve synergy among all institutions while the advocated strategy is continuously implemented.

    10 Concluding Observations

    The rapid growth of urban-based sectors during the reforms era has failed to accelerate agricultural growth or reduce poverty. This has been mainly because of inadequacies in providing the critical public goods on which farm growth thrives. Overcoming

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    these inadequacies would facilitate achieving huge multiplier effects. For instance, rising farm incomes could mean more demand for services from the employment-intensive, non-tradable, rural non-farm sector. This, together with higher agricultural growth, would improve the rate of poverty decline.

    Since India’s agriculture is land scarce and labour surplus, its growth requires augmenting land and labour using new technology. Such technology could be seed-centred, resource-centred or seed/breed-cum-resource-centred; the last being an integrated farming system. Agricultural policy in the reforms era has neglected all these options. This study advocates a locationspecific new technology based on integrated farming. Such technology will bring down the unit cost in real terms, which will most benefit the poor. This was the case even with the green revolution though it was only a seed-centred new technology.

    Realising the potential of the advocated strategy would require a big increase in public expenditure on agriculture research, education and extension; irrigation and flood control; watershed development; and rural infrastructure such as soil-testing laboratories, roads, electricity, and so on. It is also needed for inputs such as seeds, breeds, fertilisers, organic manure, cattle feed and modern small implements and equipment. The two categories are complementary and will improve the performance of each other.

    The instrument of farm product price support must follow or accompany the advocated strategy. This requires reorientation of the methods now in use. The practice of determining an MSP should be restored and must be based on variable costs; the PP must be based on total costs without considering various price parities; and the poor must be identified using the PPP $1.25 a day or less benchmark (World Bank 2005).

    The instrument of pricing fertilisers needs rationalisation based on a guided market principle for N, P and K that is derived from the long-run average costs of the enterprises manufacturing them and what the farmers’ demand curve can bear. Subsidy on this input may be given to suppliers of raw materials. The prices of water from irrigation canals and schemes and electricity should cover the O&M costs of the projects concerned. The price of electricity must be based on its volumetric consumption, not a flat rate. But differential pricing for different users may be adopted to cross-subsidise agriculture.

    Farm and food subsidies are permitted for the poor by the GATT. These subsidies, excluding those for the poor, are lower than 10% of the agricultural production permitted under the GATT. Such subsidies are justified when they benefit the society at large rather than the private or public sectors. But the provisions of the GATT must be honoured.

    Implementation of the suggested strategy must have a multiinstitutional model of organisation and management. But this model needs reorientation to become effective and accountable while integrating research, education and extension as well as field crops, livestock and horticulture. The major tool for this change is creating organisational committees at the state and district levels. Each committee will have two tiers, one that represents the elected members of the legislative assembly (at the state level) and members of district panchayats (at the district level), and the other that represents development officials such as secretaries (at the state level) and district development officers (at the district level). The committee should also have representatives of the ICAR, NDDB, is making the multi-institutional model look like an erect pyra-NABARD, FCI, CACP, SAUs, WUAs, progressive farmers, eminent mid rather than an inverted one. This should also apply to all NGOs, and farm input and agro-processing industries. It should also regulatory institutions, which must be made accountable to have autonomous permanent secretariats of professionals at the farmers and consumers. They should act in harmony so that synstate and district levels to prepare plans that the state can pass on ergy in their execution achieves the goals that are aimed for. to the Planning Commission for its annual and five-year plans. The implementation of what is suggested requires the central

    The agendas of the secretariats should relate to outcomes of and state governments to recognise that agricultural growth the suggested strategy and its three instruments and must follow through the new technology advocated here has the potential to a bottom-up-cum-top-down approach in their formulation and accomplish labour-intensive overall growth and poverty reducexecution of various programmes. Another reorientation needed tion while lowering food inflation.

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