This is an old RBI paper (released in 2008) and I happen to go through it only now. The timing is more appropriate now as we go through a agri crisis.
The paper was written by Prof. Pulapre Balakrishnan, Ramesh Golait and Pankaj Kumar. It highlights the supply side constraints in Indian agriculture.
The Study addresses slow growth of the agricultural sector since 1991. The Study documents the movement of the factors that have been recognised as determining agricultural growth during this period with a view to identifying the proximate causes of the slowdown. The focus in this Study is exclusively on crop agriculture. Factors, such as, relative price movement at the aggregate and at the disaggregated (crop-wise) level, import penetration, shrinking farm size, investment in agriculture, research and extension and agriculture credit have been investigated to ascertain their impact on agricultural growth in India since 1991.
The major findings of the Study are :
- The Study does not find evidence to the contention that relative price movement might have played a determining factor in explaining slow growth of agriculture since 1991. The profile of relative prices over the past 15 years indicates too mild a shift, if at all, to consider relative price movements as central to understanding the slowing of agricultural growth since 1991. The role of import liberalisation in determining this price movement appears to be marginal too, except perhaps for some crops in some periods.
- The Study finds that smaller farm holding-size, by making it more difficult for the majority of Indian farms to access new technology and adopt more efficient forms of farm production organisation, may have adversely affected agricultural growth.
- The Study reveals that among the factors likely to be responsible for slow growth is stagnation of public investment for almost a quarter of a century, along with a slowing of irrigation expansion since 1991.
- The Study observes that production is increasingly being carried out in a more open economy, even though import penetration is very low currently for most crops. The Study suggests the need for expansion of publicly-provided research and extension to support farming under a changed environment.
- The Study documents, public expenditure on research and extension, historically low as a share of agricultural output in India by international standards, has registered a slower growth in real terms since 1990.
- The Study cautions against the reading that greater spending alone is the solution to the current impasse in Indian agriculture. The Study provides evidence, intended as an illustrative case, that steady growth of real expenditure since 1991 has actually coincided with a slowing rate of expansion of the percentage area irrigated. This indicates a declining efficiency of public investment and suggests that governance is as much an issue as greater allocation of funds.
Much of this is well-known but the authors put it nicely. The low investment in agriculture research (pathetic actually) is a point made in very few papers on agricultural economics. The authors also point the idea is not simply throwing too much money into agriculture (which we always do) but make it more efficient.