INDIA

2039
Transforming
Agriculture

PRODUCTIVITY

MARKETS

INSTITUTIONS

INDIA
2039
Transforming
Agriculture

PRODUCTIVITY

MARKETS

INSTITUTIONS

Contents

Page
number

Figures, Tables, and Boxes

vii

Acknowledgments

Conclusions and Recommendations

Background and Introduction

Indias rising affluence and growing middle class

Global agricultural prices on the rise

Changing shape of Indian agricultural and rural sectors

A Vision of Indian Agriculture in 2039

Many farmers will conduct their agricultural operations part-time

The composition of food demand will change

10

The private sector will be the most important actor in value chains and in agricultural services,

while the public sector will attend to parts of the agricultural sector where the private sector is

less interested
10

10

10

12

12

12

Public agricultural and rural programs will be consolidated and significantly decentralized to
best address the location-specific needs
Irrigationwith water a critical constraint to Indias agriculturewill have become an efficient
modern sector by 2039
Remaining constraints in the marketing of agricultural commodities will have been eliminated.
Prices will be market-driven with few price controlsif any
Indian agriculture markets will be more integrated with global markets, with domestic prices
aligned with broader global trends
The effects of climate change will pose significant new challenges: agricultural yields will
decline and real agricultural prices will rise
To realize the above vision, the transformation of Indias agriculture necessary by 2039 is
predicated on four necessary, interlinked, and simultaneous subtransformations

13

The preferred scenario

13

The business as usual scenario

15

Legacies of the Past and Key Challenges

18

National food security, productivity, and irrigation growth

21

Framework to Achieve Indias Agricultural Transformation

21

Building block 1

21

New and better technology for crops and livestock

22

Credit for investments

iii

Page
number

22

Building block 2

23

Expanding irrigation and efficiency of water use

24

Improving efficiency

25

A greater role for the private sector

26

Building block 3

26

Agricultural research

27

Agricultural extension

28

Building block 4

29
30

Many states are already amending the Agricultural Produce Marketing Committee acts

Building block 5

30

Higher farmgate prices will enable greater investments

30 
Higher agricultural prices will necessitate a fresh look at food subsidies and the
public distribution system
31

Input subsidies are distorting prices in an environmentally damaging way

31

Agriculture would benefit from better functioning land markets in rural areas

32

Building block 6

32

Consolidating public programs

33

Decentralizing public programs

34 
Institutions at the lower levels (such as the Panchayati Raj institutions) are not yet
ready to ensure the expected results from effective local governance
34

Overcoming bureaucratic and political opposition to greater decentralization,

community empowerment, and consolidation of central programs will require

political leadership at the center and in the states

37 
Annex 1 National Food Security, Productivity, Irrigation Growth, and Trade
The Model, Assumptions, and Results
37

iv

Trends that motivate the model structure

37

Model features

39

Model scenarios and findings

41

Implications of the model findings

43

Annex 2 Background Papers

45

References

Figures, Tables,
and Boxes
Page
number

Figures
6

1. Real agricultural prices to remain higher

2. The share of services in GDP is rising

3. Agricultures share in GDP will continue to fall steadily

15

4a. Agriculture and livestock production

15

4b. Agriculture production breakdown

16

5a. Share of global rice production

16

5b. Share of global wheat production

17

6. Agricultural imports and exports

17

7. Private investment in agriculture is rising

17

8. Agricultural total factor productivity growth in India has shot up to almost 4%

22

9. Real volumes of agricultural credit have increased sharply

23

10. Surface water irrigation is stagnant

Tables
8

1. Agricultural GDP growth rates, 19802010 (%)

16

2. Indias position in global agriculture, 2007

32

3. Subsidies are large, pervasive, and not shrinking (% of GDP)

Boxes
11

1. New drivers of the rural nonfarm sector

19

2. The structural and agricultural transformations in China and in India

Acknowledgments

This overview paper is based on the summary

report of a project led by Hans P. Binswanger-Mkhize
and Kirit Parikh, and background papers written by
the following authors (in alphabetical order): Richard
Ackermann, G.V. Anupama, Cynthia Bantilan, Pratap
S. Birthal, Alice Chiu, Partha R. Dasgupta, Uttam Deb,
Klaus Deininger, Marco Ferroni, Probal Ghosh, Derek
Headey, P.K. Joshi, Suneetha Kadiyala, Bart Minten,
Hari K. Nagarajan, A. V. Narayanan, Kailash C. Pradhan, Rahul Raturi, Thomas Reardon, N.C. Saxena, J.P.
Singh, Sudhir K. Singh, Alwin dSouza, and Yuan Zhou.
Annex 2 provides the full list of background papers.
This study was managed by Harinder Kohli,
Praful Patel, and Anil Sood of the Centennial Group,
Washington, DC, with financing from the Syngenta
Foundation for Sustainable Agriculture, which initially
proposed the study. It is a follow-up to the Centennial
Groups report India 2039: An affluent society in one
generation, published in 2010.
We would also like to thank Madhukar Gupta and
Chander Vasudev of the Centennial Foundation, and
Partha Dasgupta, Marco Ferroni, and Dilip Gokhale
of the Syngenta Foundation for Sustainable Agriculture for their insightful interaction with the Planning
Commission, particularly discussion with Saumitra
Choudhari, Arun Mehra, and Abhijit Sen, members of
the Planning Commission.
The study was closely coordinated with the
Planning Commission of India, and with the Ministry
of Agriculture. Shenggen Fan of the International
Food Policy Research Institute; C.H. Hanumantha
Rao of the Centre for Economic and Social Studies,
Hyderabad; and M.S. Swaminathan of the Economic
Advisory Council of the Prime Minister all served
as members of the Advisory Committee of this
study, and their guidance and insights are gratefully
acknowledged.
We also benefited greatly from comments received
from the following participants at a review workshop:

Bina Agarwal, Institute of Economic Growth; Suman

Bery, Arjun Uppal, and V.S. Vyas, Economic Advisory Council of Prime Minister; Vivek Bharati, Pepsi
Co; Shashank Bhide, National Council of Applied
Economic Research; Sumen Biswas, Pradhan, V.K.
Chadha, South Asian University; Ramesh Chand,
National Center for Agricultural Policy; Saumitra
Choudhuri, member, Planning Commission and
Economic Advisory Council of Prime Minister; S.
Mahendra Dev, Indira Gandhi Institute of Development
Research; Subash Garg and Ashok Gulati, Commission of Agricultural Costs and Prices; Sabyasachi
Kar, Institute of Economic Growth; Mukesh Khuller,
Ministry of Agriculture; Nand Kumar, Member, National
Disaster Management Agency; Shiv Kumar and Vijay
Kumar, Ministry of Rural Development; P.N. Mathur,
Indian Council of Agricultural Research; P.K. Mishra
and Sanjay Nandrajog, Field Fresh; Jyoti Parikh,
Integrated Research and Action for Development; L.
Pandey, P. Parthasarathy Rao, and Naveen Singh,
International Crops Research Institute for the SemiArid Tropics (ICRISAT); Pravesh Sharma and Radha
Singh, Federation of Indian Chambers of Commerce;
and R.B. Singh, A.N.P. Sinha, and J.N.L. Srivastava,
IFFCO Foundation.
The study team is deeply grateful to Honorable
Union Minister Sharad Pawar; Deputy Chairman of
the Planning Commission, Montek Ahluwalia; and the
senior officials at the Ministry of Agriculture and the
Planning Commission of India for their support and
encouragement, as well as helpful comments, suggestions, and critiques without which this study would
not have been possible. Any remaining weaknesses
and errors remain the responsibility of the Centennial
Group and the authors.
This overview paper was prepared by Natasha
Mukherjee and Bruce Ross-Larson, with assistance
from Drew Arnold. Katy Grober formatted the paper,
and George Maasry designed the cover.

vii

Conclusions and
Recommendations

Indias recent performance in agriculture has been

and extension, and for irrigation, will have to adapt to

fairly favorable. With agricultural production growing

these requirements. Rapid agricultural and nonfarm

over the past 30 years, India has stepped into the

growth are important and will be driven partly by

ranks of the top five countries in key crop produc-

agriculture and partly by spillovers from the urban

tion categories, including wheat, rice, cattle, eggs,

economy. Subsidies will need to be reformed to be

vegetables, and melons. It has become the worlds

more efficient and ultimately will need to be accom-

leading producer of milk and pulses. And it has been

modated within Indias fiscal headroom. Indias numer-

a net exporter of agriculture products every year since

ous agricultural and rural development programs will

1990/91. Smallholder farmers are shifting toward

need to be streamlined and reformed to deliver higher

high-value output. Agriculture investment as a share

impact. Such major reforms will challenge both the

of agriculture GDP rose from 15% in 2004/05 to over

central government and the states, which have the

20% in 2008/09; private investment increased sig-

major responsibility for implementing agricultural and

nificantly even when public investment was stagnant,

rural development programs. Effective implementation,

and the private sector has moved into agricultural

more than new policies, will be the decisive factor.

research and extension services. Retail in food products is modernizing rapidly.

Yet there is a widespread and justifiable consen-

The vision of Indian agriculture in 2039 spelled out

in this report addresses these challenges. The vision
is that of a more efficient sector supplying the food

sus that, relative to the rest of the economy, agri-

needs of an affluent, highly urban India. Under this

culture is lagging and that it can and must do much

scenario, India would remain a top world producer in

better to support Indias overall high economic growth

most agricultural products and could strengthen its

and dynamism.

export performance in some of them. Such a scenario

The Centennial Group reports find that continu-

can be achieved only with bold institutional, policy, and

ing rapid economic growth would transform India

program changes encapsulated by four necessary,

into an affluent country by 2039, with average living

interlinked, and simultaneous subtransformations:

standards comparable to those in many European

From traditional grains to high-value crops

countries today (such as Portugal). Indeed, with aver-

and livestock products. The agricultural sec-

age per capita incomes of $20,000 a year, India could

tor continues to move away from the produc-

go from poverty to affluence in one generation. But

tion of traditional cereals to the production of

such rapid economic growth will lead to challenges

higher value horticultural crops and livestock

for Indias agricultural sector.

products. As India becomes more affluent,

domestic demand will continue to shift toward

India will face a rapid expansion of food demand

higher value crops.

and major shifts in its composition. Agricultural growth

rates would have to accelerate, perhaps even beyond

From production based on low labor costs

the current 4% target rate, or imports would need to

to efficiency and productivity-driven growth.

rise. With limited land and water, the acceleration of

Agriculture moves away from input-driven

agricultural growth requires a significant acceleration

production based on low labor costs and sub-

of productivity growth, and much higher water-use

sidized inputs to commercial production that

efficiency to enable continuing irrigation growth. The

uses improved and appropriate technologies,

public and private institutions responsible for research

including modern information techniques.

1

From wasteful to efficient water use. The

expected results because of shortfalls in their on-the-

use of waterIndian agricultures critical

ground implementation. The encouraging news is

constraint over the long termis highly inef-

that in numerous instances a number of states have

ficient. Despite dwindling surface water and

carried out successful pilots that showcase desired

groundwater resources, all economic sec-

reforms. The challenge now is to replicate these expe-

torsespecially agricultureuse water as if

riences and scale them up across the country, and

it were an abundant resource. This is clearly

thus reap the full benefits of these policies nationally.

unsustainable.

With that in mind, this report puts forth a set of

From public support and protection to an

recommendations that should be implemented on

even greater involvement of the private sector

a priority basis. These recommendations are sum-

in the value chain. The private sector plays a

marized below:

much stronger role throughout the value chain,

including food grain distribution. Public support

Make public programs much more focused and

will continue to be critical for marginal groups

effective

(such as small farmers and poor households).

but on what we believe Indian agriculture must trans-

Convert the current fragmented silo approach

into block grants.

form into in order to match the economys progress

as a whole. This vision is not a fantastic construct; it is

Sharply reduce the number of centrally sponsored schemes and public programs.

This vision is based not on mechanical projections

Decentralize, as soon as is practical, down to

based on the experiences of other successful devel-

Panchayati Raj institutions (accompanied by

oping and developed economies, as well as Indias

capacity building) the implementation of the

own experience and planning documents.

public programs with increased accountability

for results at all levels.

Our review indicates that with a few notable

exceptionssuch as the lack of progress in making

Use the independent evaluation bodies, such

national markets for agricultural inputs and outputs

as the newly established Evaluation Office

more vibrant and efficient, and the persistence of high

of the Planning Commission, to monitor and

and often inefficient, inequitable, and environmentally

evaluate impacts. The feedback from such

damaging subsidiesIndia today has on the books

evaluations must be fed into the design,

most of the policies and strategies necessary to

budgeting, and monitoring of future schemes

achieve the vision of an affluent and modern agricul-

and programs.

tural sector.
The worry is that even though the good policies
exist, they often are accompanied by othersnotably

constraint to Indian agricultural growth and

hefty subsidies for water, electricity, and fertilizerthat

give top priority to significantly improving the

prevent the proper development of a national market

efficiency of water use

for agriculture inputs and outputs and slow the mod-

Recognize water as a critical, long-term

Shift the emphasis from open surface

ernization of the value chain between the farmers and

irrigation (such as canals) to more efficient,

consumers. More fundamentally, Indias well-designed

sustainable groundwater-based irrigation

and well-intentioned policies have not delivered the

(including underground pipelines).

Promote the emergence of water markets

tions of the Swaminathan and Mashelkar

providers.

Committees to restructure the Indian Council

of Agricultural Research (ICAR).

Actively promote measures to artificially

Build and better exploit synergies between

Expand the public financing of on-farm or

public and private sectors in agricultural

local water storage facilities.

research, including through public-private

Phase out electricity subsidies, as part of

partnerships.

broader subsidy reforms; provide electric-

Review and implement the recommenda-

and greater involvement of private wholesale

recharge groundwater aquifers.

Accelerate the scaling up of the Agricultural

ity for fixed hours for electricity feeders

Technology Management Agency (ATMA) and

for groundwater extraction (separate from

the Krishi Vigyan Kendras (KVKs), replicat-

domestic electric supply).

ing successes in selected states across the

Support expansion of micro-irrigation and

country.

drip irrigation.

Encourage participation of the private sector

in extension, including by leveraging informa-

Promote new high-yield seeds and related

tion technology, and e- and mobile- (m-)

technologies, including mechanization, to

applications.

improve yields and productivity

and other GM seeds.

and remote areas.

Tackle regulatory bottlenecks that restrict the

availability of improved seeds, both at the

Support further improvements of the farm-to-

national and farm level, while keeping strong

market value chain and reduce spoilage

Remove remaining regulatory barriers (such

Move to market-based output and input

as mandi monopolies) to private sector expan-

prices.

sion in transport, storage, and marketingby

Adopt banking practices that promote finan-

accelerating the adoption and implementa-

cial inclusion and the availability of needed

tion of the Agricultural Produce Marketing

credit, particularly to poor, marginalized farm-

Committee (APMC) Model Act in all states.

ers and others active in the rural economy.

Support NGOs in providing extension serviceswith a strong focus on the small farmer

safeguards to protect public health and safety.

Promote more and better seeds, including Bt

Encourage higher investments by the private

Encourage the private sector to step up

sector to improve productivity and competi-

investments in developing and marketing new

tion throughout the value chain, and permit

technologies.

farmers to retain a larger share of their output

prices while simultaneously lowering consumer prices.

Improve the effectiveness of agricultural research

and extension

Open retailing to foreign direct investment

Step up the investment in agricultural

to bring in additional capital, technology and

research from 0.7% of agricultural GDP to 2%

management know-how to enhance competi-

(as envisioned in 12th Five Year Plan).

tion and improve supply chains.

3

India 2039Transforming Agriculture

Reform food grain policy and institutions.

Improve markets and incentives related to

Replace subsidized food distribution with

agriculture through reforms of prices, trade, and

conditional cash transfers that can be used

subsidies

for a broad set of foods rather than just food

riers to achieve truly nationwide markets for

(along the lines of food stamps), and adopt a

agricultural inputs and outputs.

system that excludes the identifiable well-off.

Phase out subsidies for environmentally damaging inputs (such as fertilizers).

Shift the procurement, imports, and storage

of most agricultural products to the private

Remove regulatory and administrative bar-

grains, using newly introduced Aadhar cards

Eliminate remaining restrictions on land rental

sector.

and lease markets, and further improve rural

Refocus the Food Corporation of India (FCI)

land administration to improve the land sales

on managing buffer stocks.

markets, and the ability of farmers to use land

as collateral for loans.

Integrate Indian agriculture into the global

economy well before 2039.

Background and
Introduction

The central premise of this study is that Indian

agriculture must undergo a fundamental transformation between now and 2039, on both the demand

incomes of over $20,000 a year, India could go from

poverty to affluence in one generation.2
If this scenario plays out, India will witness a

and supply sides, by emphasizing higher value out-

dramatic expansion of its middle class, from 1020%

puts, increased productivity, and redefined public and

of todays 1.2billion people to possibly 90% of the

private sector roles. Driving this transformation will

population 30 years from now. With a population of

be the broader trends in the wider Indian and global

1.6billion forecast for 2039, India could add well over

economies: a sharp shift in food demand away from

1billion people to its middle class.3 This middle class

staple food grains to higher value products (such as

will comprise professionals, government officials,

vegetables, milk, eggs, poultry, and fruits) caused by

college graduates, farmers, and businesspeople

Indias affluence; rising energy costs; much higher

and they will dominate Indias consumption. In this

rural wages; increasing international prices of agricul-

scenario, India in 2039 is predominantly urban, with

ture inputs and outputs; the availability of new seeds

5 mega-cities (more than 10million people), 75 cities

and other technologies; and, importantly, the adverse

with between 1 and 10million, and 85 cities with

effects of global climate change. Given the limitations

around a million.4

on expanding cultivable area and rising water distress, the only way to meet Indias food needs will be

Global agricultural prices on the rise

through dramatically increasing productivity and the

efficiency of water use.

Already, it is apparent that the declining and low

agricultural prices of 19702006 have been replaced

Indias rising affluence and growing middle

by a long-term trend of significantly higher real

class

prices, which peaked in 2011 and are expected to

drop only gradually by 2020to a level about 40%

Indias economy has been on a fast growth track,

higher than in 2000. The rising food and agricultural

with economic growth jumping from an average 3.5%

prices of the past five years have been driven by

during 195079 to 8.5% in 200307, with expecta-

permanent structural changes in global supply and

tions that it could edge up to 9.0% or more over the

demand.

next 30 years. Where would this land India by 2039?

On the demand side, rapid economic growth

The Centennial Groups India 2039 report and its

and rising incomes in emerging economies (such

more recent Asia 2050 study postulate that continu-

as India, China, Southeast Asia, and more recently,

ing rapid economic growth could make India, now

Africa) have boosted the rate of global demand

the worlds 12th largest economy, one of the three

expansion. This first factor, dampened somewhat

largest by 2050second only to China and close to

by the global economic crisis of 200709, seems

the United

States.1

This rise would transform India into an affluent

country, with average living standards in 2039 com-

to be back in full operation. Second, population

growth continues at a fairly rapid pace in South and
Southeast Asia, and especially in Africa. Third, the

parable to those in many European countries today

(such as Portugal). Indeed, with average per capita
1 Kohli, Sharma, and Sood 2011.

2 Kohli and Sood 2010.

3 Kohli and Sood 2010.
4 Kohli and Sood 2010.

Price changes in real terms, % (201120 compared with 200110)

Figure
1

Real agricultural prices to remain higher

60

50

40

30

20

10

10

Wheat

Maize

Rice

Oilseed Oilseed Vegetable Raw

meal
oil
sugar

Beef

Pigmeal Poultry

Fish

Butter Cheese

Skim Whole Ethanol Biodiesel

milk
milk
powder powder

Source: OECD and FAO.

emergence of a large middle class, rapid urbaniza-

increasing for water and land. Public investments in

tion, and global growth have increased the demand

agricultural R&D have declined globally, except in

for a larger and more varied food supply. Fourth,

China. Petroleum prices have permanently raised

from 2000 to 2010, OECD countries expanded

agricultural production costs. And the partial reform of

biofuel mandates, which are being met by the con-

OECD support policies for agricultural production has

version to ethanol of sugarcane (especially in Brazil),

slowed production growth.

maize (especially in the United States), and oilseeds

Against this backdrop, real prices for food and

(especially in Europe and Southeast Asia). Given

the inputs for agricultural production are expected

rising food prices, these mandates have either been

to be higher for the current decade than for the past

maintained or increased, tightening the link between

one (figure1)especially for two key inputs, energy

oil prices and food prices.

and fertilizer. Energy prices, now 250% higher than in

On the supply side, we equally expect ongo-

2000, are expected to drop somewhat, but they are

ing trends to continue into the next decades. Most

still expected to remain about 175% higher by 2020.

profoundly, the rate of increase in global supply has

Fertilizer prices are now 170% higher than they were

slowed over the past two decades for five main

in 1990, and by 2020 are expected to drop but stay

reasons. Rates of investment in agriculture are

about 80% higher.6

lower worldwide, rebounding only since the onset

of higher global agricultural prices.5 Competition is

5 Fuglie 2008.

6 OECD-FAO Agricultural Outlook 20112020.

rural sectors
In parallel with the plausible transformation of
Indias economy, we expect Indias agricultural economy to change dramatically. The share of industry as
a whole rose from about 20% in 1960 to a little under
30% in 2009, while the share of manufacturing alone
has stayed disappointingly at around 15%.7 The share

Figure
2

Value added (% of GDP)

Changing shape of Indian agricultural and

The share of services in GDP is rising

60
Services
50

40

of services, however, has risen from less than 40%

to around 55% (figure 2). The share of agriculture in

Agriculture
30

GDP has been steadily falling, from above 40% in the

1960s to about 15% in 2010, and it is expected to fall
to about 5% by 2040, thanks to rapid economywide
growth (figure3). Since 1990, agricultural growth has
not managed to go much beyond 3.3% a year, and
there have been subperiods when growth was considerably lower (table 1).

Industry
20

Manufacturing
10
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: World Bank, WDI 2011.

How about the demand for food? Continuing population growth and rapid inclusive economic growth
are expected to drive food demand up sharply, alter-

Figure
3

Agricultures share in GDP will

continue to fall steadily

of demand will depend on the overall income levels

and their distribution. Overall, it is expected that as

Percent

ing the sectors composition. But the composition

100

Indian society becomes more affluent, the demand

for more high-value agricultural commodities, such

75

will continue to increasewhile the demand for grains

and other staples that have dominated Indian agricul-

50

ture will continue to decline, at least in relative terms.

Nonagriculture

as fruits, vegetables, meat, fish, and dairy products,

Under one scenario of the Parikh-Binswanger model

25

5% and within it grains and other staples drop to only

1% of GDP, accounting for only about 20% of total
agriculture value added (compared with about 50%
now).

Agriculture

(annex 1), agricultures share of Indian GDP drops to

1980

1990

2000

2010

2020

2030

2040

Source: Binswanger-Mkhize 2011; MOA 2011.

7 15% is the estimated figure for 2009/10; 16% is the figure for 2008/09.

7
India 2039Transforming Agriculture

Table
1

Agricultural GDP growth rates, 19802010 (%)

19801985
Agricultural growth rates
By decade
19802010
Source: MOA 2011.

19851990

6.1

2.8
4.5

19901995

19952000

3.3

3.1
3.2
3.3

20002005
1.5

20052010
3.0

2.3

A Vision of Indian
Agriculture in 2039

The vision of what Indias economy in 2039

should and can look like, with an affluent and

Many farmers will conduct their agricultural

operations part-time

modern agricultural sector, will require fundamental

changes in both the demand and supply sides of

By 2039, Indias agriculture will be dominated

Indian agriculture. The vision is based not on pro-

by part-time farm households, with a few full-time

jections but on what we believe Indian agriculture

farmers at the topin keeping with ongoing trends

needs to look like to match the economys progress

and the pattern of other countries that have already

as a whole. This vision is plausible, but it is by no

experienced the commercialization and moderniza-

means certain.

tion of their agriculture. Women will play an increasing

role in these farms as managers and workers, partly

Our vision of Indias agricultural sector in 2039

because their opportunities in the rural nonfarm

is the outcome of an India that has achieved rapid

and urban sectors are more limited than those of

economywide growth, as well as rapid agricultural

men. The part-time farmers will derive more of their

and rural nonfarm growth. Agricultural growth is

incomes from nonfarm activities than from agriculture;

primarily driven by agricultural diversification, rapid

small farmers will focus much more on horticulture,

technical change and productivity growth, and

milk, eggs, and fish.

improvements in water-use efficiency and irrigation

Rural incomes and wages will be a multiple

combined with much more effective implementation

of what they are todayagricultural wages could

of officially adopted policies and strategies.

increase manyfold from current levels over the next

By 2039, Indian farms will comprise modern,

30 years. The combination of rising agricultural and

market-oriented small farms that use state-of-

rural nonfarm incomes will support rapid income

the-art technology to achieve efficient agricultural

growth in rural areas, including rapid rural wage

production. Farms will use advanced biological

growth: rural-urban incomes and consumption ratios

and mechanical technology for crops, horticulture,

will be improving, or at least not deteriorating, and

livestock, and aquaculture. Machinery rentals, water

rural poverty will decline rapidly.

markets, and cooperation in marketing and input

supply and contract farming will realize economies of

The composition of food demand will

scale.

change

Accordingly, the living standards of the entire

rural population in 2039 will have improved dramati-

Agricultural production will be driven by consumer

cally: everyone will have access to protected water

demands for a highly diversified basket of high-value,

supplies, modern sanitation, and 24/7 electricity sup-

often information-intensive, commodities (that is,

plies. Almost all citizensincluding womenwill be

horticultural and dairy products), while the demand

literate, having attended at least primary school. Easy

for traditional grains and other subsistence crops

access to modern telecommunications will allow

will decrease in relative (though not absolute) terms.

even rural Indians to access the latest information.

To cater to this high-value demand, agricultural

production will become highly diversified across

more flexibility for implementers at state, district, block,

regions, states, and villages.

and village levels. Many of them will also empower the

Consumer demand will drive the already observ-

final beneficiaries, who will do more in planning and

able trends toward traceable agricultural output and

implementing the schemes. Roles and accountabilities

quality controlproviding additional income opportu-

will be clarified and strengthened, along with monitor-

nities for the agricultural sector.

ing and impact evaluation. As a consequence, the

implementation of agricultural and rural development

The private sector will be the most

programs will be significantly improved, more transpar-

important actor in value chains and in

ent, and less a source of corruption (box 1).

agricultural services, while the public sector

will attend to parts of the agricultural sector

Irrigationwith water a critical constraint

where the private sector is less interested

to Indias agriculturewill have become an

efficient modern sector by 2039

By 2039, the relative roles of the private and

public sectors will have changed significantly. Given

Water management will have become more

the highly diversified agricultural production and the

efficient: canal irrigation systems will have shifted to

vast variations in Indias soil, water, and weather, the

more demand-driven modes of providing water in a

private sector will provideaccording to its compara-

timely and controlled manner, primarily through using

tive advantagemost location-specific inputs and

pipes rather than open canals. Private or cooperative

services to farmers. The public sector will become

water providers will develop and run these networks,

more focused on remote regions with poor agricul-

rather than the irrigation bureaucracies. The ground-

tural endowments and less favorable prospects for

water situation will be rendered less critical through

rural development (such as rainfed farming, semiarid

pervasive strategiesat both the public and private

and arid areas, and tribal areas).

levelsthat improve the efficiency of water use at all

Based on continuing trends, the private sector will

levels, ranging from water harvesting to groundwater

have substantially expanded its use of mobile applica-

recharge and improved micro-irrigation technologies.

tions of agricultural information to use modern tech-

Electricity supplies for irrigation will have become

nologies and practices and gather important, timely

reliable, and subsidies reduced, or replaced, by direct

information on input and output markets and offer it

payments. Command-and-control interventions to

to farmers and other segments of the value chain.

control groundwater extraction may be required only

in some of the most critical watersheds.

Public agricultural and rural programs will be

consolidated and significantly decentralized

Remaining constraints in the marketing of

to best address the location-specific needs

agricultural commodities will have been

eliminated. Prices will be market-driven

Agricultural and rural development programs of

with few price controlsif any

the center will be consolidated from the hundreds of

central and centrally sponsored schemes to a sharply
reduced set of block grants that will provide much
10

In 2039, India will have one single national market

that allows the unhindered flow of all agricultural

Box
1

New drivers of the rural nonfarm sector

Urban growth, in addition to agriculture, has emerged as an important driver of nonfarm rural
growth and rural poverty reduction, and will likely remain so as India continues to urbanize
In the 1980s, 4 in 10 rural jobs were in the nonfarm sector, but in 2010, the number rose to 6 in 10
(Himanshu and others 2011). Given the large size of the rural labor force, these numbers mean that the rural
nonfarm sector has emerged as the largest source of new jobs in the Indian economy.
The rural nonfarm sector has been much more dynamic than the farm sector, both in GDP growth and
employment generation (box table1). Since as early as 1983, rural nonfarm GDP has grown at between
4.5 and 5.5percentage points faster than agricultural GDP and 1.3percentage points higher than total
GDP growth. In the last decade, employment growth in rural areas has come primarily from rural nonfarm
employment, while on-farm employment has decreased in line with trends in other countries. Given the large
size of the rural labor force, these numbers mean that the rural nonfarm sector has emerged as the largest
source of new jobs in the Indian economy.
Box table 1. Trends in agricultural wages and in national, rural nonfarm, and agricultural GDP
(annual rates of growth, %)
Rural nonfarm
employment

GDP

Agricultural GDP

19832004

3.3

5.8

2.6

7.1

198393

2.5

5.2

2.9

6.4

19932004

3.7

6.3

2.4

7.7

Years

Rural nonfarm GDP

Note: GDP at factor cost at 1993/94 prices. Agricultural GDP, originating in agriculture, forestry, and fishing.
Source: Himanshu and others 2011.

In addition to the traditional linkages between agricultural and rural nonfarm growth, increased demand
in the rural nonfarm sector is the result of rising incomes driven by construction for new infrastructure, trade
and hotels, and communications (for example, STD/PCO booths). These are not the only technical changes
driving the rural nonfarm sector, but they are certainly important ones.
What we are currently observing among farmswhich on average are declining in both land and
household sizeis not only the diversification of agricultural production to higher value products, but also a
shift to more remunerative self-employment in the nonfarm sector. There is thus already a marked observable
tendency of Indias agriculture to move to a productive and modern model of part-time farming. As the Indian
economy grows, we expect the nonfarm sector to continue to grow as well.
It appears that the driver is more dynamic near urban centers than far away from them, consistent with
strong linkages between urban and rural nonfarm growth. As India urbanizes, the growth of the nonfarm
sector in rural areas will continue to be the significant driver of growth.

11
India 2039Transforming Agriculture

products and inputs. The existing constraints on agri-

flow, and the Brahmaputra 20%, by 2065a frighten-

cultural marketing through regulated markets will have

ing prospect given that more than 250million people

been eliminated by 2039, and marketing and value

now rely on these rivers.1 With current irrigation

chains will have modernized at an accelerated pace

techniques, these losses in river flow could mean that

from the farm to the retail outlets. Flourishing com-

25million fewer people (roughly 10% of the current

petition in marketing will reduce the current exces-

population) could rely on the Indus for food produc-

sive markups in the value chainand thus assist in

tion; the Brahmaputra would feed between 28million

combating food inflation while offering the farmers a

and 41million fewer people,2 underlining the need for

greater share of the market value of their outputs. All

sharp improvements in water-use efficiency.

classes of farmers will have a wide range of choices

As a result of climate change, significant reduc-

along the value chain, including the choice of retailers

tions in crop yields are expected in most countries,

and processors that demand high-quality outputs.

unless counteracted by adaptive practices and more

Information to enable such choices will be available

technical change. In India, the potential decline in

through the many m- and e-applications. Most prices

yields is estimated at roughly 14%, under a scenario

will be market-driven, with few, if any, price controls.

where the international community is unable to take

meaningful action to curtail climate change.3 With

Indian agriculture markets will be more

action by developed countries alone or concerted

integrated with global markets, with

action by developed and emerging countries, it is

domestic prices aligned with broader global

estimated that agricultural yields in India will still suffer

trends

dramatically, with yields falling around 11%. These

yield losses will have to be compensated by even

By 2039, the countrys economy will be even

more integrated with the global economyas its

more technical changes and productivity growth.

The impacts from climate change will be significant

international profile and its policies, including those in

between now and 2039, but they will be even greater

agriculture, will draw intense interest worldwide. With

in years beyond. This disturbing projection means that

India as the worlds leading producer and consumer

it will be crucial for agriculture to adopt adaptation

of most food products, domestic prices will be

measures to prevent such large yield losses.

aligned with developments in international markets.

To realize the above vision, the
The effects of climate change will pose

transformation of Indias agriculture

significant new challenges: agricultural

necessary by 2039 is predicated on four

yields will decline and real agricultural

necessary, interlinked, and simultaneous

prices will rise

subtransformations

The consensus is that global temperatures are

rising; 2039 will be hotter than today. In such a world,

Transformation 1. From traditional grains

to high-value crops and livestock products. The

billions will experience significantly altered water supplies. The flow of rivers from the Himalayas will likely
be disrupted. The Indus River could lose 8% of its
12

1 Hepburn and Ward 2010.

2 Hepburn and Ward 2010.
3 Kohli, Sharma, and Sood 2011.

agricultural sector moves away from the produc-

The preferred scenario

tion of traditional cereals to the production of

higher value horticultural cash crops and livestock

The preferred scenario is a vision of Indian agri-

products. As India becomes more affluent, domes-

culture in 2039, in which subsistence agriculture in

tic demand for higher value crops will increase.

poor rural India will be replaced with an affluent, effi-

Internationally, prices for foodgrains will increaseso

cient sector supplying the food needs of an affluent,

India should align its agricultural sector to benefit

highly urban India. It can be achieved only with bold

from these changes.

institutional, policy, and program changes encapsu-

Transformation 2. From production based on

lated by the four transformations.

low labor costs to efficiency and productivity-driven

These transformations can take place only if:

growth. Agriculture moves away from production

1. Public programs are focused and made more

that is based on low labor costs to production that

uses improved and appropriate technologies, including modern information techniques. Subsidies in the
agricultural sector have led to an inefficient use of

effective.
2. Water is recognized as a critical constraint to
Indian agricultural production.
3. Modern technologiessuch as Bt and other

inputs and environmental degradation. Their reform

GM seeds, state-of-the-art irrigation, and

will contribute to efficiency in agricultural input

improved mechanizationare made available

usethe crucial factor for the protection of Indias

by rationalizing the institutional landscape to

already damaged, quickly eroding natural resource

promote their widespread use.

base. The efficiency of input use supported by

technical change is at the heart of a new agricultural
revolution.
Transformation 3. From wasteful to efficient
water use. The use of waterIndian agricultures most

4. Agricultural research and extension become

much more effective.
5. The value chain from farm to markets is further strengthened.
6. Incentivesthat is, pricesare established

critical constraintis highly inefficient. Despite dwin-

that are internally fair, consistent, and

dling surface water and groundwater resources, all

transparent.

economic sectorsespecially agricultureuse water

as if it were an abundant resource. This is clearly

The business as usual scenario

unsustainable. At the core of water reforms will be the

articulation of water markets (for surface water and

The cost of not achieving the vision is large. If India

groundwater) with prices that reflect the scarcity and

cannot transform its agricultural sector, and is stuck

opportunity price of water.

with a low productivity scenario, the following is likely.

Transformation 4. From public support and

Slow agricultural growth could result not only from

protection to an even greater involvement of the

reduced economic growth and demand for food but

private sector in the value chain. Farming moves from

also if technical change in agriculture remains slow,

being protected and supported by the government

services for part-time smallholders are not scaled up

to having the private sector play a much stronger role

and improved, and technology adoption is limited.

throughout the value chain, especially the parts of the

Slower agricultural growth would reduce

value chain from the farm to the market.

rural nonfarm sector growth, which under a slow

13

India 2039Transforming Agriculture

14

economic growth scenario would also suffer from

If technical change in agriculture is significantly

reduced urban spillovers. Rural income growth

impeded, this would initiate a vicious cycle by

and wage growth would be lower. Rural-urban

which services for part-time smallholders are not

incomes and consumption ratios would deterio-

scaled up and improved, and entrepreneurial

rate, and rural poverty would decline more slowly,

opportunities in the rural nonfarm sector are less

even in better located and endowed rural areas.

prevalent.

Legacies of the Past

and Key Challenges

A look back at the past 30 years provides vital

production: rice and wheat, fruits and vegetables,

insights. Agricultural production has been growing

commercial crops, livestock, and animal products

but not at its currently targeted level of 4%. It has

(table 2 and figures 5a and 5b).

Another plus is that Indias agricultural exports

fallen short of the target, at around 3% during the latest 11th Plan period, even if it has recovered from 2%

have increased steadily, from 5% in 1990 to 16%

during the 10th Plan period.

today, with agricultural imports valued at around 11%

of productionmaking India a net exporter of agricul-

Over the past 30 years, Indias agricultural

tural products (figure 6).

Yet another plus is that since the 10th Plan period,

production has been growing, with livestock and

nonstaples (cereals) up more sharply than agriculture

private investments have risen substantially as a

as a whole (figure 4a). The shares of fruits and veg-

percentage of agricultural GDP. In addition, the private

etables in agricultural production have been growing,

sector has emerged as a key driver of many compo-

while cereals have been shrinking (figure 4b). Despite

nents of agricultural and rural development.

All nonfarm development and all farm investment

increases in absolute volume of production, agricultures share of GDP has been falling steadily, from

are private activity (figure7). Moreover, the private

35% in 1980 to 15% today.

sector is transforming the marketing system from

On the plus side, India enjoys a significant

farm to consumer. It has become a major source of

footprint in global agricultural production, ranking

new technology, services, and logistics. It has entered

in the top five in most relevant categories of crop

agricultural extension in a significant way through

Figure
4b

Agriculture and livestock production

800

Percent

Rs. Crores 200405 prices (thousands)

Figure
4a

700

Agriculture production breakdown

100

Livestock

75

600
500

Fishing

Livestock
Other agriculture products
50

400

Fruits and vegetables

300

Pulses and oilseeds

25

200
100
0
198081

Agriculture
198586

199091

199596

200001 200405

Source: India Ministry of Agriculture, Directorate of Economics and Statistics (http://eands.

dacnet.nic.in/latest_2006.htm).

0
198081

Cereals
198586

199091

199596

200001 200405

Source: India Ministry of Agriculture, Directorate of Economics and Statistics (http://eands.

dacnet.nic.in/latest_2006.htm).

15

Table
2

Indias position in global agriculture, 2007

Food production (million tonnes,

unless otherwise indicated)

India

Total cereals

World

% share

Indias
rank

Behind

260

2,351

11.1

China, United States

76

606

12.5

China

Rice (paddy)

145

660

21.9

China

Total pulses

14

56

25.4

77

909

8.5

China

177

1,357

13.0

Brazil

Wheat

Vegetables and melons

Livestock and animal products
Cattle (million heads)

106,100

679,207

15.6

Eggs

Milk

2,670

63,411

4.2

China, United States

Meat

6,508

269,149

2.4

China, United States,

Brazil, Germany

Source: MOA 2010.

Figure
5b

Share of global rice production

40

Percent

Percent

Figure
5a

China

Share of global wheat production

25

20

30

China
15

20

United States

India
10

10

India

Russian Federation
France

Indonesia
5
Bangladesh
Vietnam

1980

1985

Source: FAO Stat 2011.

16

1990

1995

2000

2005 2008

1980

1985

Source: FAO Stat 2011.

1990

1995

2000

2005 2008

contract farming. It is providing piped water in canal

Figure
6

Agricultural imports and exports

systems to irrigators. It is providing agricultural credit

Rs. Crore

through contract farming and microfinance. And in

places, it is assisting in the administration of land

600,000

record systems.

Agricultural production

So why is India not reaching its agricultural pro-

500,000

duction growth target of 4%? In the late 1990s and

early 2000s, Indian agriculture went through a crisis

400,000

that had its origin, to some extent, in poor rainfall,

300,000

India

but more because of declining agricultural prices,

low public and private investment, and a slump in
productivity growth. All these negative factors have

200,000

now been reversed, and agricultural growth has

accelerated to around 3%, still short of the 4% Plan

Agricultural exports

100,000

target. However, irrigation growth has also declined. It

Agricultural imports
0
1990/91

will take continued high investment levels, additional

1995/96

2000/01

2005/06

2009/10

productivity, and irrigation growth to further accelerate agricultural growth.

Source: MOA 2010.

A critical element will be further accelerating

growth in total factor productivity (TFP)a measure of
Private investment in
agriculture is rising

Figure
8

Agricultural total factor

productivity growth in India
has shot up to almost 4%

Annual TFPG growth (percent)

% of GDP

Figure
7

1
Private

Public
200405

200506

200607

200708

Source: MOA (2011) as per Central Statistical Organisation, New Delhi.

200809

0
1975

1980

1985

1990

1995

2000

2005 2008

Source: Fuglie (personal communication with Binswanger-Mkhize).

17
India 2039Transforming Agriculture

the efficiency of all inputs to the production process.

will be needed to sustain agricultural and economic

Studies show that TFP in Indian agriculture did not

growth?

increase during the 1960s and the 1970s, but it rose

In an open economy the rising food demand

2% a year in the 1980s, as the Green Revolution

could be met by imports, but natural and political

spread to all regions and most crops (figure 8). It then

economy constraints limit the proportion of food that

declined sharply to almost zero around 2000, but

can be imported without putting the food security

started to recover in 2003 to reach an unprecedented

of the Indian population at risk. The threat of climate

high level of close to 4% in 2006/07.1

change is generally considered to increase the

This recent rise may indicate that India has over-

vulnerability of Indian agriculture, just as in the world

come its slump in agricultural productivity growth.

as a whole, and is expected to lead to global price

China also had no TFP growth in the 1960s and

increases. Using a dynamic programming model of

1970s, but its TFP growth was close to 3% in the

the Indian economy (annex 1), Parikh and Binswanger

1980sand then shot up to an astonishing 4.2% in

find that higher agricultural growth may be neces-

the 1990s, slipping back to 3% in the first seven years

sary to supply the increasing demand for agricultural

of the 2000s. This means that China had TFP growth

commodities driven by population growth and higher

close to or far above 3% for nearly 30 years, by far

per capita incomes. The need for higher agricultural

the worlds most prolonged period of such rapid

growth is the outcome of three joint country-specific

growth (box2).

constraints on the total availability of agricultural

The bottom line: TFP growth in India increased in

output in India, incorporated into the model: limited

the last decade. Low water-use efficiency and a slow-

resources of land and water, combined with limita-

down in irrigation are major reasons for concern.

tions on food imports arising from food security

considerations.

National food security, productivity, and

irrigation growth

Parikh and Binswanger find that under the

models assumptions, future growth rates of 810%
of the Indian economy would be commensurate with

Continuing population growth and rapid eco-

and future economic growth will have transformed

and change its composition. Net sown area has

agriculture toward the consumption and production of

been around 140million hectares for many years.

higher value horticulture, livestock products, and fish,

Agricultural output can increase only through invest-

with a reduced share of food grains.

ment, expansion of irrigation, more appropriate input

Much higher agricultural growth can be achieved

use, and technical progress. Since intensification

by a combination of sharply accelerating the growth

will soon run into diminishing marginal returns, and

rates of agricultural productivity and yields, higher

water availability is limited, technical progress will

water-use efficiencies in agriculture and continued

become the ultimate source of agricultural growth.

rapid growth in irrigation, and moderately higher agri-

What rate of total factor productivity in agriculture

cultural prices (needed to spur investments).

1 Fuglie 2008, 2010

18

agricultural growth rates in excess of 45%. High past

nomic growth will rapidly drive up food demand

Box
2

The structural and agricultural transformations in China and in India

Chinese economic growth started accelerating in 1984, in the wake of the economic reforms that started
around 1980. In each decade since, agricultural growth was faster than in India, reaching 4.9% a year
between 1980 and 2009. It slowed in the first decade of this century, but less than in India, to 3% a year.
Between the 1980s and 2009, the share of agriculture in GDP dropped from around 30% to about 10.6%
(about 15% in India). Because of the large migration from rural to urban areas, the agricultural labor force
declined from about 64% to 40% in the same period, which is in sharp contrast to the much slower decline in
India.
After the mid-1980s, nonagricultural labor productivity started to move ahead of agricultural labor
productivity at an accelerating rate. The ratio of nonagricultural to agricultural labor productivity has now risen
to about 6.0:1, compared with Indias 4.2:1. Clearly, both in the gap between the agricultural output and labor
share, and in the intersectoral productivity differential, China has also has not yet reached the turning point in
its structural transformation where agriculture and nonagriculture start converging.
Crop productivity started to rise rapidly through the 1990s and the first decade of the 2000s, growing
at more than 5% during the three years to 2009. Labor productivity grew at nearly 4.5% during the 1990s,
slowing a bit to 2.9% in the 2000s. Total factor productivity (TFP) rose at nearly 2.5% in the 1980s, compared
with a little below 2% in India. It rose to 4.2% in the 1990s (while TFP growth in India slowed to below 1.5%)
and 2.7% in the first seven years of the 2000s, a full percentage point faster than in India. No other country
or subregion has recorded TFP growth rates above or around 3% for nearly three decades. The fast TFP
rates are partly explained by the marked slowdown in the growth of the population and in the agricultural
labor force in the last decade to 0.7% and 0.1%, respectively, and partly by the exceptional growth in public
agricultural research spending.
Cropland in China expanded significantly during the 1980s. Since then, it first stagnated and started
to decline at nearly 1% a year in the first decade of this century, a decline that accelerated sharply to 2.2%
in the three years to 2008. These trends are mirrored in a decline in cropland per worker, which has now
fallen to 0.25 hectare per agricultural worker, only 39% that of India. Over the past half century, the share of
cropland irrigated rose from 30% to 52%, compared with 37% in India today.
In China, the share of cereals declined much more sharply than in Indiafrom around 40% in 1980 to
only 20% in 2009. During the entire period the shares of pulses and oilseeds and of other crops did not
change much. The share of horticulture (including starchy tubers) rose from about 16% to about 26% today,
slightly higher than the 22% share in India. Since the early 1980s, the share of livestock rose from 25% in
1983 to about 42% by 1997 and then stayed much the same. This compares with a share of livestock of
about 28% in India today. In India, the bulk of livestock consumption is eggs, poultry, and especially milk,
while in China, the share of milk is negligible and the bulk of livestock consumption is meat, poultry, and
eggs. As a consequence, China now imports significant quantities of feed grains and oilseed cakes.
Chinas structural transformation is following more closely the past patterns of the developed world
and of East Asia, with rapid rural-urban migration of labor, labor scarcity for agriculture, and some land
consolidation toward larger farms. Four factors account for the difference with India:
First, the population growth rate has declined much more sharply than in India, slowing the growth of
the labor force.
(continued)
19
India 2039Transforming Agriculture

Box
2

The structural and agricultural transformations in China and in India (continued)

Second, the share of manufacturing in the economy is more than twice as high, and the sector has
grown very rapidly.
Third, irrigation has grown faster and covers a greater proportion of agricultural land than in India.
Fourth, for the last three decades, agricultural TFP has grown much faster than in India.
These factors together mean that Chinas agricultural growth has been significantly faster than in India for
the past three decades, although these two growth rates have converged to 3% a year. As a consequence
of all these factors, we do not see the bottling up of labor in rural areas that has been characteristic of India,
but instead a rising labor scarcity. Agricultural mechanization is progressing rapidly. The farm population and
labor force is getting older, more dominated by females.
How different are the water sectors in China and in India?
The differences between China and India with respect to water merit some reflection. First, a simple yet
stark difference: electricityincluding that for agricultural usesis metered (both at the point of use and
at the transformer) and charged throughout China. If nothing else, this sets a natural limit to the amount
most farmers are willing to spend in their search for very deep groundwater. A part-time farmer-electrician
functions as a commission agent of the township electricity bureau to collect the fees.
Somewhat harder to describe are the structure and workings of government, and in particular the
water sector institutions, at the six different government levels in China. The most prominent feature is
the substantial authority of the local government at the township and village level. This level must support
itself entirely out of local taxes and is therefore directly accountable to the local population for the quality of
services it provides. It forms a kind of anchor for the enormous, extremely fragmented national bureaucracy.
Even by Indian standards, the water sector is largewith some 40,000 staff deployed in water bureaus
throughout each province, not counting locally funded village staff.
The vertical and horizontal fragmentation would be worse if it were not for a bottom-up initiative coming
from townships and villages to consolidate all water-related agencies into water resource bureaus, then
broaden their roles by renaming them water affairs bureaus. This first reform step is expected to yield much
greater benefits once the functions of the Ministry of Water Resources at the top have been consolidated,
and the vertical fragmentation is reduced if not removed.
Purists comparing the Chinese system with that in some industrialized countries gripe at the lack of
organization into river basin agencies. But moving in that direction at this stage of Chinese development
would take the only effective part of the governmentthe local governmentout of the picture. The nine
dragons (meaning many masters) will no doubt continue to manage Chinas water for quite some time. But
the process set in motionparticularly from the township and village on upwardimplies a genuine and
overdue reorientation of the large water bureaucracy from water resource development to water resource
management. In pursuing this gradual reform, the authorities decided to maintain the size of the bureaucracy
but imbue it with a service-oriented spirit.
Source: Binswanger-Mkhize and others 2011; Ackermann 2011.

20

Framework to Achieve
Indias Agricultural
Transformation
To achieve the vision of a commercial, modern
agricultural sector that matches Indias economywide

programs and by decentralizing away from centrally

sponsored programs to states and villages.

transformation and that can significantly increase agricultural yields and improve sustainability, India must

Building block 1: Improving productivity

radically transform the sector. We propose a new

in crops and livestock through new

agricultural revolution in which the efficiency of input

technologies and a more efficient use of

use and technical change are the sectors dominant

inputsincluding land, fertilizer, irrigation,

objectiveachieved through reforms on both the

state-of-the-art technology, seeds, and

physical and the administrative fronts.

investment

If agricultural yields are to be increased with

Productivity improvements in Indian agriculture

fewer inputs, developing, transferring, and adopting

are vital to accelerate Indias agricultural growth, to

technology will play the crucial role in agricultures

offset the impacts of climate change, and to compen-

transformation. The sectors TFP growth, now around

sate for rising farm wages.

3%, will need to stay at or above 4%. The anticipated

damaging effects of climate change on agriculture

New and better technology for crops and livestock

and the increased competition for water resources

cannot be offset unless there is an acceleration of
TFP growth.
How can this hugely complex task be achieved?
Our analytical framework rests on six building blocks:

For India to improve agricultural productivity and

increase yields, it needs widespread use of quality seeds of well-performing crop varieties. While
traditional approaches to plant breeding will continue

Building block 1: Improving productivity in

to gradually produce new better seeds, biotechnol-

crops and livestock through new technologies and a

ogy in a broad sense of the term is an indispensable

more efficient use of inputsincluding land, fertilizer,

resource in this context. Molecular breeding, in

irrigation, state-of-the-art technology, seeds, and

particular marker assisted selection, backcrossing

investment.

and recurrent selection are mainstay activities by

Building block 2: Improving water use and

efficiency.

private sector seed companies and agribusinesses.

Bt and other GM seeds are part of the solution. What

Building block 3: Improving the efficiency of

the public must understand is that improved biotech

farming services and practicesincluding agricultural

seeds can provide a win-win way out of productivity,

research and extension services.

resilience, and sustainability bottlenecks and lead

Building block 4: Improving the efficiency of the

to higher yields. Biotech seeds have been bred for

farm-to-market value chainincluding storage, trans-

important traits that include herbicide tolerance; viral,

port, and infrastructureby removing the remaining

fungal, and insect resistance; abiotic stress tolerance;

constraints on the private sector.

induction of male sterility; and delayed fruit ripening.

Building block 5: Improving agricultural pricing

and subsidy reforms.
Building block 6: Improving public program
implementation by consolidating existing fragmented

For example, herbicide-tolerant rapeseed, soybean, and sugar beet allow postemergent herbicides
to substitute for tilling of land, boosting carbon
sequestration, equivalent to 3.9million tons of carbon
21

reduce fuel use for tractors. And they mitigate the

need for pesticides, reducing pesticide poisoning and
adverse environmental impacts.1
Given the lack of international evidence on damage from Bt and other GM crops, and the significant
potential productivity, food security, and sustainability
benefits, policymakers need to rethink the regulatory
framework and its implementation. This will mean
tackling regulatory bottlenecks that restrict the availability of improved seed, at both the national level (such
as restrictions that hinder research and innovation)
and the farm level (such as input supply constraints).

Figure
9

Real credit from formal sources (Rs per ha of croploand)

in 2008, or 6.4million cars on the road. They also

Real volumes of agricultural

credit have increased sharply

15

10

In effect, the current regulatory mechanisms for

seed adoption have to be made consistent and less
uncertain. Currently, 14 biotech products are passing
through various stages of regulatory assessment
including rice, maize, mustard, sugarcane, groundnut,

197180

198190

19912001

200109

Source: Binswanger-Mkhize 2011.

eggplant, okra, cauliflower, tomato, papaya, and watermelon. But the regulatory uncertainties make it hard to

led to fast-growing demand for mechanization, even

predict when some of them might receive approval.

in places commonly considered backward (such as

For livestock and fisheries, past productivity

Kalahandi). But the availability of suitable machines

improvements have been as impressive as for crops.

and implements is not matching demand, highlighting

Further improved breeds will also come from conven-

the need for better public-private cooperation. Ideally,

tional breeding, and for poultry and fish may involve Bt

the private sector should lead in developing new

and other GM organisms. New veterinary drugs and

technologies, while the public sector oversees testing

vaccines will come primarily from the private sector,

and standards.2

as will machinery and improved feed mixes. Fodder

constraints for milk production will require improved

Building block 2: Improving water use and

water-use efficiency and improved fodder crops.

efficiency

Credit for investments

Water is a critical constraint to Indian agriculture.

Future actions must significantly improve the effi-

In recent years, there has been encouraging

ciency of water use.

growth in agricultural credit (figure9), yet there remain

serious quantitative and qualitative concerns, espe-

22

The current water debate in India is almost exclu-

cially where the financial inclusion of poor marginal-

sively focused on whether surface water schemes

ized farmers is concerned. Rising rural wages have

are preferable to groundwater use and on how to

1 Binswanger and Parikh 2011.

2 Ferroni and Dasgupta (2011), private communication.

ply. But this focus misses the real issue, which is

how the country can deliver water reliably and use
it more efficiently. The focus should be not on water
resource development (the product) but on water
resource management (the service). The reality is that
further surface water development will not reduce

Figure
10

Million ha

build new infrastructure to increase the water sup-

Surface water irrigation is stagnant

40

30

the demand for groundwater unless it can meet the

requirement of timely water delivery without discriminating against tail-enders and small farmers.

20

Expanding irrigation and efficiency of water use

Surface water
Groundwater

10

With limited cultivable land, increasing water

availability is critical to increase yields, improve the
0

productivity of other inputs (such as fertilizer), and

enlarge cropped area through multiple cropping.
Yet despite several decades of large and expensive

1960/61

1970/71

1980/81

1990/91

2000/01

2007/08

Source: Ackermann 2011.

government programs to expand traditional surface

irrigation systems, the area under surface irrigation

Future expansion will become even tougher, given

in 2007/08 was the same as in 1980/81and since

that climate change is expected to drastically alter

1990/91 surface water irrigation area has gone

Indias surface water. Moreover, with more than

down. Also striking is the fact that the area irrigated

5,000 large dams in India, new and large surface

by groundwater wells is now more than twice that

water storage options are economically questionable.

from canals (figure10), even though most of these

Peninsular rivers are already heavily regulated, and

wells are private ones built by farmers at their own

additional dams on Himalayan rivers would not add

cost. Alarming trends have been the slowdown in the

significantly more irrigation. Two cases underscore

expansion of irrigated areas from that source and the

the difficulties:

decline in water tables in large areas.

The Sardar-Sarovar project on the Narmada

River is more than 10 years behind schedule

How much additional land is India likely to irrigate

in the coming years? Estimates show that if India,

and has already cost more than 10 times its

which currently has about 56million hectares of

estimated cost.3

irrigated land, continues on its current path it could

reach 90million hectares by 2039.
Prospects to expand irrigated land are con-

With the Ganges system, only about a fifth of

its usable water resources could be captured
even if it were feasible to build all possible

strained largely by the difficulties of constructing

dams under considerationa virtual impos-

new dams, canals, and distribution systems, and the

sibility given the current unfavorable climate

accompanying political and societal frictionssuch as

for new dam construction.

interstate water disputes and displaced populations.

3 Ministry of Water Resources 2006.

23
India 2039Transforming Agriculture

There also are enormous operational problems

Indeed, the use of groundwater may have been the

with surface water irrigation. Water is not equitably

single most important factor contributing to poverty

distributed. Distributor canals are not properly

reduction in India.

maintained. And the tail-enders do not receive their

Extensive groundwater use has, however, come

fair share of water. The fundamental problem: most

at a tremendous costone that will have severe

of Indias canal systems are designed for extensive

social and environmental consequences if not

rather than intensive cultivation. While this orientation

checked. Groundwater tables in northwestern India

might be desirable for maximizing the social produc-

and in many hard rock areas of peninsular India have

tivity of water, it is certainly not consistent with maxi-

dropped dramatically. Limiting groundwater extrac-

mizing of private goals. Farmers at the head of the

tion by restricting the number of subsidized pumps

canal draw as much water as they can for intensive

is what the Model Groundwater Act seeks to do.

cultivation, depriving the tail-enders.

But the act is extremely difficult to implement in a

Surface water can be provided reliably, but doing

setting where there are tens of millions of small-scale

so requires that service providers be responsive

independent irrigators. International experience is not

to farmer demand, have a clear mandate, and be

encouraging: even in Spain it has been only partly

accountable. There are some successful (public)

successful.5

examples in India, where the irrigation department

is limited to accountable, bulk water supply, within a

Improving efficiency

system that it can manage. But the more common

experience is that irrigation departments have strong

to improve water-use efficiency in agriculture and

and build new structuresbut limited incentives to

address the countrys groundwater challenge. Three

ensure that the irrigation potential is actually used, or

ways to do this: making groundwater use sustainable,

that operation and maintenance are carried outall

reorienting surface irrigation infrastructure to meet the

the more since their budgets are not linked to farmer

needs for reliable, on-demand water, and reducing

payments. So, financial constraints are not the

water consumption through improved agricultural

reason for poor performance, and increased water

productivity.

charges will not solve the problem of poor service by

themselves.4
Groundwater now irrigates more than twice the

24

Innovative, indirect instruments are required

bureaucratic and engineering incentives to design

Using groundwater sustainably. One of the

most promising levers to manage groundwater
abstractions involves separating agricultural from

area irrigated by surface water, and does so more

domestic electricity feeder lines. By providing reliable

efficiently than surface water (less evaporation, no

electricity for a limited number of hours, some states

siltation). It is used extensivelyin all countries, not

have significantly reduced electricity consump-

just Indiabecause it is available when and where

tion while economizing on groundwater draft. Take

needed, and in easily controlled amounts. This is

Gujarat. When the supply of electricity where farm

especially true for India, where declining farm sizes

wells are supplied power was restricted to scheduled

(75% of farms are smaller than one hectare) increase

fixed hours and stable voltage through separate feed-

the urgency to maximize returns to scarce land.

ers, power supply to agriculture fell from 16billion

4 Ackermann 2011.

5 Shah 2009.

units in 2001 to 10billion units in 2006. Groundwater

already replenishing groundwater stocks. This can

drafts fell 2030%. And the Gujarat governments

be planned in such a manner as to optimize surface

electricity subsidies came down from $786million in

water and groundwater use. Especially in the eastern

2001/02 to $388million in

2006/07.6

Ganga basin, conjunctive managementcombined

Artificial groundwater recharge has many

with extending a dual electric grid to regions now

advantages. It is local. It does not disadvantage

using diesel and kerosenecould significantly and

downstream users. It does not displace people. And

equitably improve agricultural production. In addi-

it involves little, if any, evaporation loss. Of course,

tion, irrigation departments can be responsible for

it requires energy to pump it up, but it should nev-

bulk water supplies from rivers and main canals from

ertheless be the first line of defense. The scope is

which private irrigation service providers draw water

substantial: 36.4billion cubic meters of water can be

and deliver it up to tens of kilometers away through

stored, which translates to irrigating 3.65million addi-

surface or buried pipes. This provides reliable and

tional hectares of land. If efficiency of water use were

even pressurized water for micro-irrigation and drink-

higher, it could irrigate 5million hectares. Programs

ing while reducing the stress on groundwater. Using

are now emerging in western and peninsular India to

pipes instead of open canals (using the canals as

replenish groundwater.

trenches for new piped water systems) avoids wasting

Other methods for sustainable groundwater

valuable farmland, reduces transaction costs, and

use range from popular movements to build water

saves significant amounts of water by preventing

harvesting structures to large-scale water recharge

evaporation.

programs using the millions of old dug wells in the

100 districts most affected by groundwater deple-

A greater role for the private sector

tion. These efforts will need to be supplemented with

high-quality technical support to ensure that they

Faced with inefficient public irrigation programs,

are effective and consistent with improving water

the private sector is getting more involveda move

balances from a river basin perspective. In some

that should be allowed and further encouraged. Private

areas of peninsular India, information and education

actors (including water providers and those overseeing

campaigns show promise in persuading users to limit

common-property resources, such as water-user asso-

groundwater abstractions to sustainable

levels.7

Water-use efficiency can also be increased

sharply by accelerating the introduction of drip and

ciations) can make more rational decisions because

they operate at decentralized, location-specific levels.
Private operators have already become distribu-

sprinkler irrigation and the use of less water in paddy

tors of water from canal irrigation in pipes over long

rice production. Gujarat has the most effective

distances, especially in Maharashtra. This model

program to support these investments that could be

should be generalized across India, with the irrigation

emulated elsewhere.

departments concentrating on bulk water supply

Reorienting surface irrigation infrastructure.

while the private sector distributes water on demand

By default, seepage from many of the large surface

via pipes to irrigators who will pay the private provider

irrigation systems (reservoirs, tanks, and canals) is

for the service.

Self-regulation by farmers sharing a small aquifer

6 Shah and Verma 2008.

7 Ackermann 2011.

can be effective, particularly when empowered with

25

India 2039Transforming Agriculture

information on the state of the aquifer. Recent reports

Agricultural research

speak highly of efforts by more than 500 farming communities in seven drought-prone districts of Andhra

From the 1960s to the 1980s, public R&D invest-

Pradesh to self-regulate groundwater abstraction at low

ments in agriculture paid off handsomely in the

cost, while increasing farm incomes.8 This approach

remarkable successes of Indias Green Revolution.

involves intensive farmer education through barefoot

But in the 1990s, this type of R&D funding slowed,

hydrologists who raise awareness about the ground-

the result of questions about its focus, relevance, and

water situation and the effects of pumping groundwater

returns. At about the same time, agricultural produc-

at different times. As many as one million farmers

tivity decelerated (see figure7). Farmers seemed to

participate in crop water budgeting. The key to the

suffer from technology fatigue, and uninspired pub-

programs success is the unique hydrogeological set-

lic research institutes proceeded with a business-as-

ting for the communities participating: the groundwater

usual attitude.9

in this hard rock area of Andhra Pradesh is confined

Public agricultural research continues to be

to relatively small aquifers, so that actions of individual

important, but it needs to be streamlined to get more

farmers or communities directly affect water availability.

bang for the buck. The shortfall between real and

But water-user associations will not be able to

field trials points to the public research systems

function if they remain dependent on the irrigation

inability to shift from its commodity-based research

departments. They must become fully autonomous,

thrust to the required systems approach that focuses

with rights to set and collect water charges and retain

on the farm-level problems specific to agro-climatic

revenues. They will also need sustained technical and

zones. The 12th Plan is likely to recommend a signifi-

management support. Moreover, even with the wide-

cantly increased investment in R&D.

spread establishment of (private) water markets, public

The good news: as public research funding

sector interventions will remain important. So, policy-

waned, private sector research grew, and the trend

makers should rethink the subsidies that have encour-

is continuinga sign that the private sector can take

aged inefficient water usesuch as those for electricity

over many agricultural research and development

that promote excessive groundwater pumping.

activities.10 But even though private research capabilities are good, and becoming better, the private sector

Building block 3: Improving the efficiency of

does not want to invest where the profit potential is

farming services and practicesincluding

limited because of difficulties in appropriating the

agricultural research and extension

returns (for example, pure-line sections and research

services

into sustainable production practices). It thrives on

high-value, high-margin seedssuch as vegetables,

Reforms need to focus on stepping up public and

cotton, maize, sunflower, research varieties and

private agricultural research, improving public and

hybrids of cereals, coarse grains, oilseeds, and jute.

private extension services, and strengthening PPPs

Nor is there private involvement in breeding major

and NGOs.

commercial crops like sugarcane and potato. The

public sector will continue to be responsible for the

8 Binswanger-Mkhize and de Regt 2009.

26

9 Ramasamy 2011.
10 Ramasamy 2011.

areas where the private sector has little interest, and

develop and transfer technology through a strong

private technology generation depends on a stream

private sector and through PPPs.

of more basic innovations that emerge from the

national and international public research system, as

Agricultural extension

well as the international private sector.

Most proposals for the public sectors organiza-

Agricultural extension deals with disseminating

tional and regulatory reform have been around for half

new technologies and improving practices to reduce

a decade or more, and it is high time they are acted

yield gaps between potential and actual yields in

on and consistently implemented. The recommenda-

farmers fields. In India, as elsewhere, extension has

tions of the Swaminathan and Mashelkar Committees

a mixed record. However, we can see many dynamic

on the reorganization of ICAR should be reviewed and

changes and innovation in the public, private, and

reforms along these lines implemented. A National

NGO sectors, and through mobile applications

Institute of Abiotic Stress Management has already

(especially interactive next-generation platforms). As

been established in Baramati, and the National

in marketing and agricultural research, many exciting

Institute of Biotic Stress Management (near Raipur)

innovations are spreading. A dynamic and pluralistic

and the Indian Institute of Agricultural Biotechnology

system of extension that addresses the needs for dif-

(in Ranchi) are being set up.

ferent types of farmers is emerging.

Despite the obvious benefits, until recently there

Agricultural extension services from the public

has been limited interest among ICAR and other

sector continue to be weak, with little accountability

national agricultural research institutions to partner

for verifiable results. By many accounts, the private

with the private sector.11 Such partnerships could

actorsespecially the input dealers and suppliers

include areas where the private sector has little incen-

are providing more effective extension than public

tive on its own. The public sector needs to rethink its

providers, especially in high-potential areas and for

attitude and reach out to the private sector, explore

medium to larger farmers. NGOs have also entered

partnership possibilities with specific companies (or

the field in promising ways but on a small scale. The

groups of them) for specific purposes (such as plant

key unresolved issues for agricultural extension are

breeding and seed systems development), and com-

how to reach the increasing number of small and

municate the social gains possible under PPPs. Many

part-time farmers, many of them women, and to

interesting examples could illuminate the way forward:

reach poorer farmers where the private sector has

a few international agricultural research centers (such

little interest. Coverage will only diminish as farm

as ICRISAT, IRRI, and CIMMYT) have PPPs with

sizes become even smaller and part-time farming,

private companies in plant breeding and genotyping/

especially led by women, becomes more common.

phenotyping.12

The productive potential of small and part-time farm-

The government also needs to play

an enabling role and provide suitable incentives to

ers could be multiplied with the right technologies,

services, mentoring, and market access.
The challenge is to expand coverage to all farmers

11 A few PPPs listed in ICAR annual reports tend not to be PPPs in a real
sense but client relationships where publicly developed lines or traits are
passed on to private companies for a fee. PPPs are properly defined as partnerships that involve shared risks, benefits, and obligations.
12 Ferroni and Dasgupta 2011.

operating under conditions where there is potential for

growth through agriculture. This requires stepped-up
contributions from all extension providersNGOs, the
27

India 2039Transforming Agriculture

for-profit private sector, and the public sector. Public

and organizational issues are being addressed. The

and private extension systems should complement

responsibility to bring these systems to full effective-

each other and operate in partnership rather than at

ness belongs to the states, and unless they step up

cross-purposes.

their leadership and finance, as Gujarat has done,

The centrality of markets should be recognized

and with this the need to incorporate sourcing of

little will happen.

The comparative advantage of the public sector is

inputs and prospects for product sales into the

to focus on the lagging states and the lagging areas

extension agenda. This can be done in cooperation

in states where the private sector has no incentive to

with the private sector, such as rural business hubs

be present.

where they exist. To reach into the lower strata of

farm capability, the public sector should expand its

Building block 4: Improving the efficiency of

cooperation and partnership with NGOs that can act

the farm-to-market value chainincluding

as effective retailers of extension and agricultural

storage, transport, and infrastructureby

support services at the block and village level. The

removing the remaining constraints on the

public sector should also expand partnerships with

private sector

the private sector to bring the latter into work with

smaller farmers. Public-private partnerships can

The private sector is leading improvements in

take advantage of technology that is developed in

markets and in the value chain that would lead to

the private sector more than in the public sector (for

higher farmgate prices and lower consumer prices.

example, mechanization, some hybrids, agrochemi-

But the remaining constraints on the private sector

cals, and some transgenic seeds). Finally, high priority

and farmers own organizations must be addressed.

should be attached to training input dealers, given

their importance as sources of extension advice for

traditional markets, with the private sectorwhether

Agricultural Extension Management) is a model that

modern or traditionalas the main driving force.13

could be followed.

In fact, the rise of modern private retail food chains

India has undertaken major institutional reforms

in India over the past six years has been among the

to address the weaknesses of the public sector in

fastest in the world, growing at a 49% nominal rate

agricultural extension. The most prominent recent

per year on average, and bouncing back to growth

one involves the Agricultural Technology Management

after a dip in the recent global slowdown. The great

Agency (ATMA), which has been scaled up in parts

majority of modern private retail (around 75%) has

of the country after a successful pilot. But imple-

arisen in 200610. These changes are especially

mentation bottlenecks have emerged because of

vibrant downstream (in the retail segment) and mid-

constraints in qualified manpower, insufficient techni-

stream (in the food processing and wholesale/logis-

cal and financial support, lack of a framework for

tics segments). The governments direct role (as buyer

implementing public-private partnerships, and weak

and seller) is only 7% of Indias food economy.

links to extension units such as Krishi Vigyan Kendras

and others. It is encouraging that under the 2010
modified guidelines of ATMA, important institutional
28

A quiet revolution has been transforming rural

farmers. The work of MANAGE (National Institute of

Despite such impressive changes, significant marketing barriers remainshowing that Indias progress
13 Minten and Reardon 2011.

could be even higher and reach its intended agricul-

infrastructure and agricultural transport, the public

tural output growth target of 4% if implementation

sector has a vital role.

barriers are effectively removed. One key barrier: poor

Government interventions were intended to

roads and a lack of electricity in the poorer regions

integrate markets, reduce speculation, and address

like Eastern Uttar Pradesh. Another barrier: foreign

perceived exploitation of farmers and consumers by

direct investment constraints in food retail (unlike

the private traders. The APMC objective was to regu-

most of Asia, and especially China and Southeast

late agricultural markets and establish a large number

Asia), which means forgoing investment capital and

of market yards. While some have argued that the

expertise, and the benefits of increasing competition.

regulated marketing system has served farmers well

But this constraint may be moderate because domes-

over time,15 this view is questioned owing to several

tic retail investment is far more vigorous In India than

problems with the regulated system. These include

in many other countries.

farmers being prohibited from selling outside the mar-

Also highly problematic are the remaining policy-

keting yard, the large area served per market yard,

based limitations to direct procurement from farmers

the presence of bureaucrats in managing APMCs, the

by retailers, processors, and modern wholesalers.

creation of barriers to entry for newcomers, and the

These include either partial or slow liberalization of

use of market fees as a source of government income

wholesale markets (APMC reform); limits on private

rather than for reinvestment in market infrastructure.16

sector procurement, storage, and sales to traders

(for example, Storage Control Orders under the

Many states are already amending the Agricultural

Essential Commodity Act); and the regulatory and

Produce Marketing Committee acts

fiscal uncertainty and transaction costs (like double

taxation for interstate movements). Compounding

The APMC acts have been revised in several

matters are the well-intentioned but distorting series

states to allow for more competition and greater

of marketing acts, such as the Essential Commodity

participation of the private sector, thus raising the

Act, which restricts the movement and storage

prices that farmers receive. This positive develop-

of agricultural products, the Agricultural Produce

ment needs to be followed through: the improved

Marketing Act, under which agricultural marketing

profitability of higher value commodities should be

takes place through a licensed trader system, and

regarded as the catalyst of a virtuous cycle that

the Small-Scale Industry Reservation, under which

enhances private sector involvement. But the process

most food processing was reserved for small firms

needs to be completed. The distortions in food grain

until

1997.14

Another priority area concerns waste and spoilage

markets put a large wedge between the consumer

price and the producer price. So, producers get less

rates, which are reportedly large and can be reduced

than they should and consumers pay more than

substantially in the spirit of achieving greater outputs

they need. As one study notes, well-functioning

with fewer or better-used inputs.

private markets require completing the reform of the

The private sector has a comparative advantage

in agricultural marketing. Even though the private sec-

APMC act, permitting direct purchase from farmers,

abolishing restrictions on storage and movement,

tor has a logical comparative advantage in marketing

14 Minten and Reardon 2011.

15 Acharya 2004.
16 Acharya 2004.

29
India 2039Transforming Agriculture

permitting warehouse receipts and opening import

Higher farmgate prices will enable greater

and export by private traders. Farmers and consum-

investments

ers can be protected from the excesses of markets

through appropriate but minimal interventions by the
government.17

The higher international prices have already

penetrated the Indian economy, and have been
accompanied by significant increases in support

Building block 5: Improving agricultural

prices over the past few years. While these hurt poor

pricing and subsidy reforms

consumers, they also spur agricultural investments

and improve farmer incomes. It will be important to

In the recent past, international agricultural prices

have been rising sharplya move that appears to

continue to protect poor consumers (both rural and

urban) through the public distribution system.

be structural. Over time, Indias domestic consumer

prices will (and should) rise to international levels.

Higher agricultural prices will necessitate a fresh

Distortions in food grain markets have driven a large

look at food subsidies and the public distribution

wedge between consumer prices and producer

system

prices, and will continue to do so, making prices less

than effective as an incentive. With distorted prices,

The reform of food subsidies is under discussion

producers get less than they should, and consumers

as part of the preparation of the Rights to Food Act.

pay more than they need to.

The fertilizer subsidy has already been made more

efficient by linking it to the nutrient content of fertilizer.

As economywide growth increases, the negative

Its transformation into a cash transfer is under prepa-

effects of higher prices on consumers will have to be

ration. Reforms of electricity subsidies have been

weighed against the advantages of higher prices for

attempted by several states at great political costs

producers. As real agricultural wages increase, per-

and with little lasting impact. In OECD countries,

haps by several hundred percent, the incomes of the

reforms of agricultural input and output subsidies

poorest and most disadvantaged groups in India, the

have not succeeded unless they were replaced by

agricultural workers, will improve; the countervailing

more direct income transfers.

element is that higher agricultural wages will reduce

farm profits and agricultural growth.
Agricultural price levels will have to be managed

The general principle of subsidy reforms for agriculture and food should be to transform the subsidy
into some form of cash entitlement, possibly linked

the same way as the issues associated with agricul-

to the purchase of inputs or food. When this is done,

tural growth and food security: by increasing the rate

subsidized input or food prices that differ from market

of TFP growth in agriculture and the rate of growth of

prices disappear. So do all associated opportunities

irrigation and water use efficiency; by the diversifica-

for diversion and corruption, as well as the cost of

tion of agriculture toward higher valued commodities;

acquisition, storage, and physical distribution of the

and in the case of rising agricultural wages, through

inputs or the food, which can instead be left to the

agricultural mechanization.

private sector. The income transfer corresponding

to agricultural subsidies can be targeted to farmers,

17 Shahidur, Gulati, and Cummings 2008, p.8.

30

perhaps on the basis of their agricultural area, and be

capped to a maximum to avoid excessive subsidies

because they are inefficient, are likely to damage the

for the better-off.

environment, are not well targeted to the poor and the

In the case of the food subsidies, in addition

small farmers, and are often associated with corrup-

to these principles, we offer the following recom-

tion. The fertilizer subsidies may encourage overuse

mendations. Instead of targeting the poor, which

of fertilizers and damage soils. The electricity subsidy

inevitably leads to great difficulties in defining pov-

encourages inefficient water use and groundwater

erty and to large errors of exclusion and inclusion,

depletion.

the food subsidy should be a universal entitlement

Continued input subsidies cloud the pricing

that excludes the clearly identifiable well-off and rich,

picture even further. Not only do they distort prices,

such a all those who pay income tax, those who

but many of them have led to uneconomical input use

own motorized vehicles, and all those in an organ-

that has caused environmental degradation of Indias

ized sector, including government, with monthly

resource base. The subsidies are large, pervasive

emoluments of more than Rs 15,000. Cash transfers

covering fertilizer, food, irrigation, and electricityand

(or food stamps) should cover a broader set of foods

not shrinking (table 3). In 2008/09, they reached 2.2%

than foodgrains, and therefore somewhat improve

of GDP. It would be better to shift these funds to sup-

the low expected impact of the program on nutrition.

port more productive investments.

The cash transfers should be to the women of the

household through Aadhar cards. The problem of

Agriculture would benefit from better functioning

traders charging high market prices in remote areas

land markets in rural areas

can be resolved by encouraging cooperative societies and even fair price shops that stick to prices

Current constraints on land sales and rentals

announced every week by the government. Mexico,

reduce farmers ability to get access to land. Reforms

for example, has 22,000 cooperative DICONSA

to improve land markets will encourage needed

stores in remote areas of Mexico that sell food and

investments and ensure land right security, allowing

other necessities, and compete with private traders.

land to be used as collateral. Land rentals have been

The minimum price support system could be

an important avenue for land access for poor, land-

redesigned by giving a much greater role to private

scarce, and landless households, helping reduce

traders who would purchase and hold stocks with

poverty. It has been shown that those who rent land

government support, as is common in most OECD

obtain higher returns to their labor than are available

countries. Combined with the reforms of the food

in the casual labor market.

subsidies, this would then allow a redirection of the

In theory, land sales markets transfer land to more

mandate of the FCI to the management of a much

efficient producers, who increase their incomes. In

reduced buffer stock.

practice, this has occurred; but weather shocks have

encouraged distress sales by poornot necessarily

Input subsidies are distorting prices in an

inefficienthouseholds. In areas where employment

environmentally damaging way

guarantee schemes were operating, the distress sales

were reduced, and it is expected that the Mahatma

Input subsidy reforms are needed because the

fiscal costs have become excessive (table 4), and

Gandhi National Rural Emplotyment Guarantee Act

(MGNREGA) will further prevent such sales. With
31

India 2039Transforming Agriculture

Table
3

Subsidies are large, pervasive, and not shrinking (% of GDP)

200405

200910

Fertilizer (total)

0.4

0.7

Indigenous fertilizer

0.3

0.2

Imported fertilizer

0.0

0.1

Sale of decontrolled fertilizer with concession to farmers

0.1

0.5

Irrigation

0.3

NA

Other subsidies given to marginal farmers and farmers cooperative societies

in the form of seeds, development of oil seeds, pulses, cotton, rice, maize, and
crop insurance schemes, price support schemes, and so on

0.1

NA

Total inputs

0.9

>1.5

Electricitya

0.5

NA

Food subsidy

0.7

0.7

NA is not available.
a. includes all subsidies to Electricity Boards and Corporations. Separate estimates of electricity subsidies accountable exclusively to the agricultural sector are not available.
Source: India Ministry of Agriculture, Directorate of Economics and Statistics (http://eands.dacnet.nic.in/latest_2006.htm).

such safeguards in place, constraints on land sales

The design of public programs in the agricultural

among land reform beneficiaries and in tribal areas

sector is faulty in that it allows fragmentation. But

can be safely eliminated.

program design is less of a problem than the actual

Further actions to improve the functioning of land

implementation of policies. Institutional reforms will

markets in rural areas include providing land to land-

need to be properly sequenced. First-round reforms

less and land-poor people; eliminating remaining con-

should consolidate fragmented, overlapping public

straints on land rentals; strengthening land inheritance

programs. Second-round reforms should change pub-

rights for women; clarifying and recording rights in

lic programs from centralized silo structures to block

marginal areas traditionally outside the system and in

grants that go down to the state or possibly even

tribal areas; and improving land administration in rural

local levels. Such decentralization will align incentives

areas through computerization and spatial records.

to ensure accountability and the flow of funds for the

effective implementation of agricultural programs.

Building block 6: Improving public program

implementation by consolidating existing

Consolidating public programs

fragmented programs and by decentralizing

away from centrally sponsored programs to
states and villages

Funds from the center and the states are fragmented into a large number of overlapping centrally
sponsored schemes, a development that the govern-

Institutional reforms of public sector agricultural

32

ment identifies as a major problem to tackle. This

programs will need to consolidate fragmented public

[proliferation] has led to poor implementation, duplica-

programs and decentralize centrally sponsored

tion, lack of convergence, and suboptimal results.

schemes to the state or even the village.

There is an urgent need to transform the system and

sharply reduce the number of schemes. This will

simple guidelines to evaluate the bids. Accountability

enable more focused and effective implementation.

within the community would be ensured by a variety

A Committee under Shri B.K. Chaturvedi, member,

of mechanisms, including community finance and

Planning Commission, has been appointed to review

audit committees, checks signed by at least two

the entire gamut of Centrally Sponsored Schemes.18

members, project financial accounts open to the

Reforms to consolidate have been outlined, but they

general assembly, and random audits.

now need to be implemented. The draft proposal of

the review commission recommends that the centrally

Decentralizing public programs

sponsored schemes in the six departments that deal

with agriculture and rural development be reduced from
41 to 18. Other recommendations include:

Review physical norms, including variations

planners and policy implementers to communities as

for northeast, tribal, or coastal areas, or other

full participants with increasing responsibilities. In the

special areas. Allow for variations of norms at

process, community participation has evolved from

the state level.

mere consultation to participation in project planning,

Revise financial norms every two years, with

co-financing, and runningand then to the commu-

revisions linked to the wholesale price index.

nity empowerment model. Under this model, respon-

Reform procedures for fund transfers to the

sibility for planning and implementation is entirely

state budgets, bringing an end to all direct

devolved to communities, along with the government

transfers to districts or other independent

financial resources.

bodies or societies by the end of the 12th

Globally, agricultural and rural development strategies have shiftedfrom top-down prescriptions from

With greater devolution of powers, communities

Plan.

and local governments are more willing to co-finance

Share experiences among states and with the

projects and raise revenues, leveraging central and

center.

state resources. Local priorities and preferences, and

Strengthen monitoring and evaluation of all

local knowledge, including that of women, receive

centrally sponsored schemes on a regular

greater weight, leading to better adaptation of and

basis, by ministries and independent evalu-

satisfaction with government programs. The greater

ators. Use the services of the Independent

accountability of local government and service

Evaluation Office of the Planning Commission.

providers to citizens in turn enhances government

The transfer of funds to communities requires a

responsiveness, reduces absenteeism, improves

number of accounting and accountability innovations,

program quality and timeliness, reduces costs, and

which amount to a form of local and community

improves accountability (women are particularly good

governance reform. Funds would be transferred in

at ensuring accountability). In addition, local govern-

tranches to community bank accounts and become

ance is needed to deal with the complex problems

the property of the communities, eliminating the need

of 8% growth and competition for land, water, and

to use government procurement and accounting

environmental resources. The stronger local govern-

methods. Instead, the community would be required

ance and peoples empowerment should also help

to obtain three bids from three providers, following

produce the 45% agricultural growth required in an

18 Government of India, Approach to the 12th Plan (2010), p. 8.

environmentally and socially sustainable way.

33

India 2039Transforming Agriculture

Institutions at the lower levels (such as the

passage of the 1993 constitutional amendment, is

Panchayati Raj institutions) are not yet ready to

that most Panchayati Raj Institutions do not have the

ensure the expected results from effective local

capacity to adequately carry out the responsibilities.

governance

To overcome this legitimate concern, the responsible

government bodiesat both the national and state

While many functions have been partly or fully

levelsmust redouble their efforts to build capacities

transferred to the Panchayats through the 1993 con-

of all Panchayati Raj Institutions. This task must be

stitutional amendment, the transfer of funds remains

assigned the highest priority.

limited. Few functionaries have been transferred to

the Panchayat system, especially at the village level,

Overcoming bureaucratic and political opposition

or made accountable to it. Panchayats are reluctant

to greater decentralization, community

to use their fiscal powers, which reduces their fiscal

empowerment, and consolidation of central

fitness and accountability. Most system funds come

programs will require political leadership at the

from plan expenditures of the center and the states,

center and in the states

and are fragmented into a large number of overlapping centrally sponsored and state schemescen-

Decentralization and participation have been

tralizing power in the ministries at the national and

advocated in the 11th Plan as the only way to resolve

state level and effectively clawing back the powers

Indias difficulties in implementing its agricultural

that were to be devolved.

and rural development programs. There is broad

Funds from centrally sponsored schemes can flow

consensus on the Panchayati Raj reforms required

from central departments to state departments, to the

among scholars and the Administrative Reforms

Panchatyati Raj system, or to parallel state and district

Commission, Finance Commission, and Planning

bodies, and from there down to the correspond-

Commission. Reforms include strengthening

ing entities at the block or the village level or to the

the legal framework, streamlining fiscal relations

communities. Adding to the confusion, the programs

between the central government, states, and local

are managed through a large number of government

governments, and developing a competent profes-

entities. And funds arrive in narrow silos that are not

sional staff of the Panchayati Raj Institutions. Yet

fungible across local development objectives, making

there has been little follow-up to these insights and

convergence of programs at the local level almost

recommendations.

impossible. In addition, funds arrive in bits and pieces

The reality is that constitutional and legislative

at separate times, with unpredictable delays. Many

reforms are often not enough. They have to be

government programs are implemented either depart-

complemented by administrative and fiscal reforms,

mentally or through parallel bodies. The sole excep-

and most important, strong direct support from the

tion has been the MGNREGA, which is implemented

head of government. Over time, the opponents to

through the village Panchayat. Planning requirements

decentralization find that a reformed system provides

are often excessive, and planning at the district level

them with more opportunities for developmental and

is neither participatory nor effective.

political success.

A common reason given for the inadequate

decentralization to the Panchayats, despite the
34

* * * * *

To conclude, most observers of Indias agricul-

also concentrate more on areas that are not of inter-

ture believe that its problems have less to do with

est to the private sector, and collaborate more with

policies than with actual policy and program imple-

the latter.

mentation. Fortunately, at all links of the agricultural

Equally important, the enormous challenges of

value chainfrom extension services to storage

agricultural growth, natural resource management,

facilities and marketing arrangementsprivate

and social services for rural areas must be resolved

actors have started to complement public institu-

with greater citizen empowerment and decentraliza-

tions, and are often providing better services. While

tion. Such reforms have long been under discussion

the private sector is moving quickly to transform

in India, but initiatives have so far failed to bring them

research, extension, and value chains according to

about. Reforms will have to be driven primarily by the

its comparative advantage, most public sector insti-

states, with support from strong incentives and per-

tutions and programs for agriculture require urgent

haps further legislative interventions from the center

reforms, often along lines long recognized but not

as well. The reforms will not come about without

yet implemented. The public sector institutions must

pressures from below as well as from the very top.

35
India 2039Transforming Agriculture

Annex 1
National Food Security, Productivity,
Irrigation Growth, and Trade
The Model, Assumptions, and Results

Trends that motivate the model structure

are agricultural. Crop production from irrigated and

unirrigated lands is distinguished so that there are

Continuing population growth and rapid economic

40 production activities. The model covers the whole

growth will rapidly drive up food demand and change

economy, captures macro feedback, and ensures

its composition. Net sown area has been around

macro balances. It has 20 consumption classes, 10

140million hectares for many years. Agricultural

rural and 10 urban. Of these classes, five are at much

output can increase only through investment, expan-

higher consumption than observed today, classes into

sion of irrigation, more appropriate input use, and

which people will be moving as their incomes rise.

technical progress. Since intensification will soon run

Each class has its own expenditure system. Income

into diminishing returns, and since water availability is

distribution is determined every period endogenously,

limited, technical progress will become the ultimate

depending on the level of aggregate consumption

source of agricultural growth. What rate of total factor

and prescribed parameters of the log normal income

productivity in agriculture will be needed to sustain

distributions for rural and urban consumption. Rural

agricultural and economic growth?

people migrate to urban areas depending on the rela-

In an open economy the rising food demand

could be met by imports, but natural and political

tive GDP from agriculture and nonagriculture.

The production activities are based on the social

economy constraints limit the proportion of food that

accounting matrix for the year 2003/04. Rural con-

can be imported without putting the food security

sumption depends on income from agriculture as

of the huge Indian population at intolerable risk. The

well as from rural nonfarm activities. India has seen

threat of climate change is generally considered to

recently rapid growth in rural nonfarm employment.

increase that vulnerability of Indian agriculture, just

But data are not available that would permit us to

as in the world as a whole. It is expected to lead to

endogenously determine the level of nonfarm activity

global price increases and make reliance on imports

in rural areas. Parikh and Binswangers model there-

less acceptable. Will accelerating productivity growth

fore used an indirect approach where total rural con-

and sustained expansion of irrigation support the

sumption expenditure is related to agricultural GDP,

higher agricultural growth needed? Will domestic

on the ground that rural nonfarm activities are still

agriculture be able to provide the required food in the

linked significantly to agricultural growth. Thus overall

long termsay over the next three decades? Or will

rural consumption is related to agricultural GDP,

limits to agricultural growth impose limits to economy-

while urban consumption is related to nonagricultural

wide consumption and income growth? What would

GDP, using statistically estimated relationships. The

be the role of imports?

estimated multipliers for agriculture and nonagriculture are consistent with the rising share of nonfarm

Model features

income in rural consumption.

Once the aggregate consumption is deter-

Parikh and Binswanger developed a multisectoral,

mined for rural and urban areas, total population

dynamic programming model that has the needed

is distributed between urban and rural populations

structure and features to address the issues of food

based on an exogenously stipulated urban-rural

security, productivity and irrigation growth, and trade

consumption parity ratio. The model assumes a per

over the next 30 years. It has 28 sectors, of which 15

capita consumption parity ratio of 2.35 as reflected

37

in the social accounting matrix of 2003/04. Because

availability of different types of investment goods. In

the National Sample Survey data already show an

addition, when the model maximizes GDP, it imposes

urban-rural consumption parity ratio of 1.75, Parikh

a discount rate of 3% and minimum growth of private

and Binswanger let the urban-rural parity ratio decline

consumption of 3%. When the model maximizes

from 2.34 in 2003 to 1.75 by 2039.

consumption, it instead stipulates an upper bound on

A particularly important feature of the model is a

demand system that can predict the consumption
behavior of income classes at much higher income

Government consumption growth is set at 9%.

Net sown area is kept constant at 140million hec-

levels at which income elasticities of demand for food

tares, and the ratio of net irrigated area to net sown

will be much lower than today. Parikh and Binswanger

area increases from 0.45 in 2003 by a prescribed

were able to estimate a nonlinear demand system

rate that varies from scenario to scenario. In the refer-

based on National Sample Survey (NSS) and Central

ence scenarios it grows at 1% per year. Thus the net

Statistical Organization (CSO) data without having to

irrigated area increases to 90million hectares in 2039.

make ad hoc assumptions about consumer behavior

From 1980 to 2007 India has added only 20million

at very high income levels. The model then uses

hectares of net irrigated area, and if it continues to

these estimates to generate linear approximations of

grow it can reach 90million hectares by 2039. This

the demand system for each separate consumption

would be too optimistic if the intersectoral competition

class, which together approximate the nonlinear

for water and environmental concerns becomes even

demand system in a piecewise manner.

more important as a consequence of the lowered

Consumption estimates derived from the NSS

estimates of available water in India, if the stagna-

data are lower than the CSO national accounts data.

tion in development of surface irrigation schemes

Parikh and Binswanger ensure that the demand sys-

continues, and if efficiency of use cannot be greatly

tems are made consistent with the national accounts

enhanced. Nevertheless, Parikh and Binswanger have

data by making it consistent with the social account-

used this less pessimistic growth rate of irrigation to

ing matrix for 2003/04 in which private consumptions

reflect the emphasis being placed in five year plans

reflect the higher CSO consumption estimates. This

on improvements in water-use efficiency and rapid

has been done by adjusting upward the committed

development of irrigation. In two alternative scenarios

consumption levels for each expenditure class.

the model explores the impact of lower and higher

The model in most scenarios maximizes the

present discounted sum of private consumption

38

the growth rate of private consumption in each year.

levels of irrigation development.

The model incorporates import and export

over 10 time points four years apart. In one scenario

constraints on all sectors. For example, in the refer-

it maximizes the present discounted value of GDP.

ence run, the imports of wheat and rice are limited

The base year is 2007, and the last year is 2039. The

to 3.0% of domestic availability (or 3.1% of domestic

constraints ensure commodity balances, capacity

production), close to self-sufficiency. This reflects the

constraint of each production activity, balance of pay-

strong policy preferences of Indias policymakers for

ments, land constraints, and upper bounds on trade

national food security that are consistent with the

for different commodities. Investment is constrained

large size of Indias population. Coarse cereal imports

by the availability of domestic savings with a marginal

are limited to 10%, milk and milk product imports

savings rate of 35% and on foreign inflows, and by the

are limited to 6%, and animal products and forestry

products to 30% while imports of all other agricultural

With these growth rates, the share of agriculture

commodities are limited at 15% of availability (17.6%

in GDP goes down to 5% by 2039, and the share

of production). The import constraints imposed on

of GDP from food grains sector to only 1%. The

other sectors of the economy are much wider than

industry share increases from 30% to 45% at the end

seen historically. The import constraints on food com-

of the period, while the share of services decreases

modities are relaxed significantly in some scenarios

from 54% to 40%. The per capita food consump-

compared to what India has had in the past three

tion increases very moderately from 139 kg/person

decades, but such higher import bound may be con-

in 2007 to 142 kg/person in 2039. The per capita

sidered to reflect Indias increasing openness.

consumption of rice (52kg/person in 2003 to 38 kg/

person in 2039) and coarse cereals (32 kg/person in

Model scenarios and findings

2007 to 20 kg/person) decreases, while that of wheat

(45 kg/person in 2007 to 62 kg/person in 2039), other

Scenarios are not predictions, but tools to explore

lentils (3 kg/person to 7 kg/person) and pulses (7 kg/

the economic consequences of alternative assump-

person to 15 kg/person) increases. The share of food

tions. In the reference run, total factor productivity

grain consumption in total consumption of agricultural

growth in agricultural sectors is set at 2%, a rate that

commodities declines, while the shares of fruits and

was achieved in the 1980s and again in 200307,

vegetables, vegetable oils and oilseeds, plantains,

but that, like the irrigation assumption in the base run

milk and milk products, eggs, meat and fish, and

of 90million hectares, may be a bit on the optimistic

other crops increase. The most significant increase

side. In the nonagricultural sector TFP growth is set

is seen in horticulture and especially in milk and milk

at 3.0%. It may be noted that over and above the

products, which rise from 17% of total consumption

prescribed TFP growth rates, Parikh and Binswanger

expenditures to 31%. These trends have already been

have fuel use efficiency growth of 1.5% and electricity

captured in our vision for the farm sector.

use efficiency growth of 1.0%; the efficiency of use

With the same assumptions, much higher eco-

of wheat, rice, and other agricultural commodities as

nomic growth rates are possible if instead of maximiz-

intermediate inputs grows at 1.5%. Thus the overall

ing consumption growth, we maximize GDP growth

productivity growth would be significantly higher than

in the model. The model then sharply increases

the weighted average of the TFP growth of 2% for

investment growth at the expense of consumption

agriculture and 3% for nonagriculture assumed in

growth. We impose a lower bound on the annual

many of the scenarios.

consumption growth rate of 3% (compared with the

To achieve a widely shared growth scenario, we

7.7% achieved when maximizing consumption). The

maximize consumption in most of the scenarios. In

economic growth rate rises to an enormous 15.25%,

the Reference Scenario GDP agriculture grows at

while the agricultural growth rate also rises slightly to

4.25%, total consumption at 7.7%, and GDP at 8.4%.

4.42%. Poverty declines only to 111 million people.

Between 2007 and 2039 total consumption per

Because the nonagricultural sectors grow much

capita would rise nearly 11-fold while GDP would rise

faster than the agricultural sectors, rural incomes lag

13-fold. The number of people below the poverty line

behind, and migration shoots up to 592 million peo-

would decline from 359 million in 2007 to 4 million in

ple, and the rural population declines to 40% of the

2039, all of which would be in rural areas.

total population. Clearly such a high rate of remaining

39

India 2039Transforming Agriculture

poverty in the face of extremely rapid growth would

than slow it down. If we combine the high agricultural

be unacceptable to Indias policymakers, who would

productivity growth with the high growth of irrigation

much prefer the widely shared growth achieved by

and the high import constraints, agriculture could

maximizing

consumption.1

The much higher agricultural growth rate needed

in the reference scenario can be achieved by a

grow at 6.3% a year, consumption per capita at

11.6%, and GDP at 11.7%.
The relationship between the economywide

combination of sharply accelerating the growth rate

growth rate and the agricultural growth rate in our

of agricultural productivity, achieving higher water-

model that arises when we maximize consumption is

use efficiencies in agriculture, returning to historically

the consequence of the joint imposition of constraints

higher growth rates of irrigation, and relaxing the

on agricultural imports and irrigation, and the high

tight bounds on agricultural imports. Increasing the

emphasis placed on consumption growth. It implies

agricultural TFP growth rate to 3%, which China has

not only that there is a fixed volume of agricultural

achieved over the last three decades, leads to an

commodities around, but also that consumers

agricultural growth rate of 5.6%, which can support

compete sharply with the nonagricultural sectors for

an economywide growth rate of 1.4%. Conversely,

agricultural output that the latter need as intermedi-

increasing irrigation growth back to 1.5%, as achieved

ate inputs. When the economy grows faster, with

in previous decades, will lead to an irrigated area of

given import bounds, higher agricultural growth

108 million hectares that can support an agricultural

rates are needed to supply the more rapidly growing

growth rate of 4.9% and an economic growth rate

demand for food by consumers and of agricultural

of 9.4%. Finally, increasing food imports that would

products as intermediate inputs in the nonagricultural

allow food grain imports of 69 Mio tons by 2039 and

sector. Conversely, the higher agricultural growth

other much higher agricultural imports would increase

rate then permits a higher economywide growth as

the agricultural growth rate from 4.25% to 4.43% and

the demand for intermediate inputs is no longer a

support an economywide growth rate of 9%. If India

constraint. We especially emphasize the first inter-

were to become a major importer of food grains, world

dependence, as the second one from agricultural

markets would undoubtedly be able to support these

growth to economywide growth may partly, but not

levels of food grain imports by 2039. Higher imports

fully, be a consequence of our linear model structure.

of food would allow India to focus more on agricultural

The results from the different scenarios suggest that

products where it has comparative advantage and

the current growth target of 4% for agricultural growth

therefore would accelerate agricultural growth rather

may be insufficient to support the economic growth

target of 910% to which India aspires.

1 A growth rate greater than 15% over more than 30 years is of course highly
unrealistic, but any intermediate growth rate of consumption between 7.7%
in the reference scenario and the Growth First scenario could be achieved by
varying the minimum consumption growth rate in the model between 3% and
7.7%. The model illustrates several further points. The total factor productivity
growth rate of 3%, combined with the other productivity improvements, is able
to support very high growth rates if growth is maximized. The constraints on
imports of nonagricultural commodities and on foreign investments are also
more than ample to achieve high growth. And finally the fact that in spite of
slow consumption growth the agricultural sector grows faster than in the reference run suggests that the use for agricultural commodities as intermediate
inputs in the rapidly growing nonagricultural sector is a major demand force
for agricultural output.

40

On the downside, under the low import scenario,

if the growth rate of total agricultural factor productivity were to slow to 1.5%, or if irrigation growth
were to slow to 0.5% to achieve only 70million
ha, the agricultural growth rate would slow down
to 3.6% in both scenarios, with consumption per
capita growing between 6.2% and 6.4% and GDP
between 7.3% and 7.4%. Of course if both irrigation

and technical change were growing at the slow rate

in agriculture of 2% is able to support GDP growth

of growth, the impacts would be more severe, and

of only 7.23%. Even at that rate, GDP per capita still

the growth of agriculture would most likely go down

reaches in 2039 a level nine times the level in 2007

to around 3%.

and per capita consumption becomes six times

Under widely shared growth, the model scenarios

higher. Lowering TFP growth in nonagriculture by 1

suggest that under widely shared growth, the Indian

percentage point leads to small reduction in growth,

population may continue to be predominantly rural.

because it does not relax the constraint on total food

Across the scenarios, of the total population of 1,511

availability in the country. But lowering TFP growth

million people, the urban population ranges from 529

in agriculture by only 0.5 percentage point lowers

to 635 million, and is the higher the higher the rate

GDP growth to 6.4%. Raising TFP growth to 3%,

of economic growth. In 2039 the share of the rural

similar to Chinese levels, raises GDP growth to 9.5%.

population in the total population ranges from 65%

Global warming will further increase the need for TFP

when the rate of productivity growth or irrigation

growth.

growth is at the pessimistic levels to 58% when we

Increasing irrigation growth to 1.5% a year, which

combine fast technical change and irrigation growth

raises the net irrigated area to 108 million hectares by

with higher import constraints. Only in the growth-

2039, increases the growth of agriculture by 1.34per-

first scenario is this conclusion altered, with the rural

centage points, GDP by 2.13percentage points, and

population share falling dramatically to 40%.

consumption by 2.62percentage points. Again, global

Our analysis illustrates the very high gains from

warming and urban competition for water will increase

higher productivity growth in agriculture. Similarly,

the needs for water harvesting and increasing the

the significance of increasing irrigation through water

water-use efficiency of irrigation.

harvesting, efficiency increase using micro-irrigation

The import constraints on food imports used in

and better management of expanded conven-

the model runs discussed above are especially tight

tional storage systems cannot be overstressed.

for food grains, which are limited to 6 million tons by

Small gains in agricultural growth and somewhat

2019 and 9 million tons by 2039. If the food import

larger gains in economic growth are feasible with

limits are relaxed, this would involve 70million tons of

expanded constraints on food imports that would

food grain imports as well as high imports of many

lead to around 70million tons of food grains by

other food commodities. Higher imports of food would

2039. World markets would most likely be able to

also accelerate the agricultural growth rate, because

provide the increased import requirements, and

the country could change its agricultural output mix

perhaps even higher ones. The question is whether

to commodities in which it would be a more efficient

the country would or should accept such import

producer. World markets would most likely be able to

dependence, a significant issue for agricultural policy

provide the increased import requirements, and per-

in the future.

haps even higher ones. The question is whether the

country would accept such import dependence.

Implications of the model findings

Only high growth of agriculture will provide the

agricultural and food supplies that the economy

In the base scenario, with slow development of

irrigation and tight import constraints, a TFP growth

will demand with double-digit growth and limited

imports. For that we need to increase TFP growth
41

India 2039Transforming Agriculture

in agriculture and water-use efficiency so that with

in horticulture and milk and milk products. These

the available water as large an area as possible can

trends are captured in our vision for the farm sector.

be irrigated. TFP growth of 3% in agriculture (as

realized by China over the last three decades) and

economic growth rates the Indian population

in nonagriculture is consistent with growth of GDP

is likely to continue to be a predominantly rural

exceeding 11%. If trade bounds are also released,

population. Across the different scenarios, the rural

agricultural GDP can rise at 6.17%, GDP growth rate

population ranges from 531 million to 629 million

can exceed 11.5%, and per capita consumption will

in 2039. Migration increases from 116 million in the

grow at 10.95%.

base run scenario to 168 and 209 million in the high

Due to growth and migration there is a continuing

growth scenarios. Despite such high migration the

shift in food consumption pattern in the economy.

share of rural population is still around 60%. People

The per capita food consumption increases very

will have to find self-employment and employment

moderately from 136 kg/person in 2003 to 142 kg/

in the rural nonfarm sector and combine farm and

person in 2039. The per capita consumption of

nonfarm income, as stated in our vision.

rice (52kg/person in 2003 to 41 kg/person in 2039)

42

The model scenarios show that, despite high

The decrease in poverty is particularly rapid in the

and coarse cereals (31 kg/person in 2003 to 22 kg/

rapid growth scenario with higher irrigation, higher

person) decrease while that of wheat (44 kg/person

food import limits, and Chinese productivity. The

in 2003 to 60 kg/person in 2039), grams (3 kg/person

poverty is more persistent in the rural areas and is

to 6 kg/person) and pulses (6 kg/person to 13 kg/per-

brought down to negligible levels only with double-

son) increases. The most significant increase is seen

digit growth over three decades.

Annex 2
Background Papers

Ackermann, Richard. New directions for water management in Indian agriculture.

Deb, Uttam, Cynthia Bantilan, and G.V. Anupama.

Drivers of change: dynamics of rural livelihoods
and poverty in SAT India.

Binswanger-Mkhize, Hans, and Kirit Parikh. The

future of Indian agriculture and rural poverty
reduction.

Deininger, Klaus, and Hari Nagarajan. Land policy

and administration in an environment of rapid
economic growth.

Binswanger-Mkhize, Hans, K. Pradhan, and Sudhir

Singh. Impact of changing prices and rising
wages of Indian agriculture, 19992007.
Binswanger-Mkhize, Hans, and Alwin dSouza. India
19612000: Structural transformation of the Indian

Ferroni, Marco, and Yuan Zhou. Review of agricultural extension in India.

Headey, Derek, Alice Chiu, and Suneetha Kadiyala.
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