By LEAD Research Team
India’s public expenditure on agriculture is one of the highest in the Asian region; yet, agricultural productivity remains relatively low. The main policy instrument used for domestic agriculture seems to be focus on some form of a subsidy. More than three-fourth (close to 80%) of public spending in agriculture has been on input subsidies such as fertilizers, electricity, and water; credit subsidies have also increasingly become a popular tool. In 2006, the RBI enacted an interest subvention scheme that brought down interest rates on short-term crop loans to 7% from the market rate of 9%, with the government paying a 2% interest subsidy to banks. In 2008, The Agricultural Debt Waiver and Debt Relief Scheme was implemented by the government in which 39 million farmers received state-supported relief for their defaulted farm loans.
At this point, the public discourse often turns towards a debate on whether subsidies had a proportional impact on productivity and income. But the bigger concern is that the entire discourse on agricultural policy is set up to reach a conclusion only on this one question. There are a multitude of challenges affecting agricultural productivity and profitability that subsidies/credit policies alone cannot address–these include land rights, irrigation and infrastructure, cropping practices, price fluctuations, poor quality of inputs, lack of storage facilities, poor markets, low investment in research, knowledge gaps, and weak extension services.
This is not to say subsidies do not play a significant role. Many of the developed nations today enacted heavy subsidies to confront early challenges in agricultural development. But most all countries that have struggled with agricultural policies throughout history have faced very similar issues. The debate therefore needs to be broadened, and policy-making should be imagined through a historical and comparative context. Beyond the policy itself, the successes and failures behind the specific delivery channels should be examined closely. Vietnam, for example, began to invest heavily in irrigation facilities and adoption techniques, which resulted in a dramatic shift in productivity. Malawi emphasized local village structures, in which village meetings were held to decide on the allocation of vouchers to poor farmers to buy imported fertilizer. Germany implemented agricultural tariffs, which proved to be costly in the short-run but promoted overall economic growth through re-investment. South Korea implemented subsidized fertilizers in state-owned enterprises and sold them to farmers through state-controlled agricultural cooperatives.
All these initiatives were successful in yielding positive agricultural outcomes. Though the policies varied widely, the success of these initiatives can be attributed to the design of the delivery channels (i.e. efficient state-owned fertilizer companies and transparent village power structures). But in order to begin the discussion on delivery mechanisms and draw lessons from history, there has to be a more fundamental shift in how we think about policy. Successful agricultural policies in the past have i) substantially experimented with new policies and institutions ii) moved beyond a debate of ideological positions of public vs. private and also iii) situated agricultural policy within education and primary healthcare contexts instead of applying it as an independent instrument. Prioritizing these factors can begin the process of implementing more imaginative and effective policies, especially in the agriculture sector.