This drastic change in one sector – agriculture – is propelling the entire economy of the state.Here are some key drivers of agricultural growth in Madhya Pradesh and the lessons that the state holds for other large ones of India.
The farmers in MP have seen their cumulative income rise by 32 per cent in the past one year mainly due to diversification of farm activities to high value crops from cereals, and better road infrastructure.
This drastic change in one sector – agriculture – is propelling the entire economy of the state so much so that from the per capita net state domestic product of Rs 15,400 in 2004-05, MP finally breached the Rs 50,000 mark in 2014-15 at current prices, registering a three-and-a-half times higher growth on the key economic metric.
Given this tremendous record, Chief Minister Shivraj Singh Chouhan was asked to give a presentation during the governing council meet of NITI Aayog which was held recently. He presented a road map to achieve Prime Minister Narendra Modi’s goal of doubling farmers’ income by 2022.
In his presentation, Chouhan mentioned five areas where the governments need to focus on: decreasing the cost of cultivation; increasing productivity, shift in farm activities towards high value crops; better prices for farm produce; and risk mitigation through a comprehensive system of insurance and timely compensation.
An excellent paper , authored by India’s preeminent agriculture scientist Ashok Gulati and his team came in handy for us to understand the key drivers of agricultural growth in Madhya Pradesh and the lessons that it holds for other major states of India with somewhat similar characteristics.
Diversification
Diversification from cereals and pulses towards high value crops, livestock and fisheries is one of the major factors behind the agricultural growth in MP. In the last five years alone, the state’s gross state domestic product (GSDP) in animal husbandry has grown from Rs 8,976 crore to Rs 33,751 crore and in fisheries from Rs 650 crore to 1,805 crore.
Apart from this, milk production recorded an increase from 6.4 million tonnes in 2006-07 to 10.8 million tonnes in 2014-15. Vegetable production increased from 3.6 million tonnes in 2010-11 to 14.2 million tonnes in 2013-14, taking the state from thirteenth to fourth place in vegetable production. Meat production tripled from 20,000 tonnes to 60,000 tonnes.
The following charts from the ICRIER paper illustrate the success of MP in diversifying farm produce.
Fruits and Vegetables
Milk production
Meat Production
Fish Production
Irrigation
Irrigation has played a pivotal role in scripting the spectacular success story of agriculture in the state. Gross irrigated area increased from a meager 4.3 million hectares in 2000-01 to an impressive 10.3 million hectares in 2014-15. In 2000-01, the irrigation ratio in MP was 24 per cent, was 17.2 percentage points lower than the all India average. By 2013-14, the ratio dramatically increased to 41.2 per cent, reducing the gap with the all India average to just 6.2 per cent, which is a pointer to impressive irrigation infrastructure the state has developed. By 2014-15, the irrigation ratio in MP reached 42.8 per cent.
The MP government managed to establish an impressive network of irrigation infrastructure comprising dug wells, tube wells, tanks/ponds and government canals, through a combination of public investment and incentivising private sector investment. Area covered under tube well irrigation increased from 0.9 million hectares in 2000-01 to 3.2 million hectares in 2013-14, dug wells from 1.9 million hectares to 3.3 million hectares, irrigation facilities though government canals increased from 0.9 million hectares in 2000-01 to 1.8 million hectares in 2013-14, and irrigation through tanks increased from 0.1 million hectares to 0.3 million hectares.
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Electricity
The government made the following interventions to improve the electricity situation for agriculture use in the state:
- Ensured 24 hour power supply in the state, out of which eight hours was exclusively for agriculture purpose.
- Provided power to agriculture on a flat rate of Rs 1,200 per year, with the provision to pay in two installments.
- Provided separate rural feeders for agriculture; 43,517 villages have been provided with a separate feeder of 11 KW line comprising 71,688 Km and 1,516 transformers of 21 KW.
- Aggressively implementing Deen Dayal Upadhaya Gram Jyoti Yojana (DDUGJY) a centrally sponsored scheme, which was initiated in 2014 with separation of feeders for agricultural and non-agricultural consumers.
The share of agriculture in total power consumption in MP is around 33.7 per cent, which is much higher than the national average of 20.8 per cent and higher than in states like Karnataka (33.7 per cent), Punjab (30 per cent), Gujarat (23.6 per cent), and Maharashtra (22 per cent).
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Roads
The third important factor that has contributed to agricultural growth was the building of all-weather roads. Road density in MP had increased from 526.8 per thousand sq km in 2000-01 to around 742.3 per thousand sq km in 2012-13.
The surfaced roads as a percentage of total roads have increased from 49 per cent to 68 per cent during same period. This enabled farmers to access markets over a larger area, and thereby reducing their market risk.
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Procurement
Due to availability of better roads, more power and increased irrigation, the productivity of farms increased. This was especially true for wheat production as shown in the chart below. This was mainly because the state government gave a bonus of Rs 100 per quintal on the minimum support prices (MSP) for wheat over and above the centre’s MSP between 2007-08 and 2012-13 and Rs 150 per quintal in 2013-14 and 2014-15.
The result of this was that once a paltry contributor to the procurement pool, the state became the second largest contributor in just one decade.
However, this was achieved through various steps taken by the government.
- Compared to two other big contributors to wheat procurement pool, Haryana and Punjab, MP kept taxes on MSP low which meant private players bought more from MP than Haryana and Punjab.
- Unlike Haryana and Punjab, MP decentralised its procurement process. It chose to do procurement through co-operative societies instead of arhatiyas.
- More production meant more wheat started coming into mandis choking the roads. Manual payments to farmers was a slow and corruption-prone process. MP digitised the process through ‘e-Uparajan’ initiative with an aim to enable a smooth and efficient procurement.
- Increase in production and procurement meant that the state needed more storage facilities. It has greatly expanded its capacity. The government is also focusing on opening more cold storages for perishable produce.
Mechanisation and farm credit
Mechanisation enhances productivity. However, small land holdings have proved to be a lacuna in universalisation of mechanisation. To make it more affordable to small farmers, MP launched yantradoot scheme under which farmers can rent farm equipment instead of paying big buck to buy them. The government also encouraged youth to open custom hiring centres by giving subsidy and lucrative bank loans. The government has also provided some small equipment to farmers free of cost.
This has resulted in a spurt in use of agriculture machinery as the charts below show.
Non-availability of credit is a big problem for farmers. In 2012-13, MP launched a new loan scheme through state owned co-operative banks, bringing the interest rate from a high of 16-17 per cent in 2006-07 to zero. As a result, disbursement increased from Rs.33.3 billion in 2006-017 to Rs.112.1 billion in 2013-14.
Madhya Pradesh’s agriculture success story is a lesson worth learning for many states of India who are struggling to get their agriculture moving. The literally central state of India has many lessons which may prove central to the country’s agricultural story in the twenty-first century.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.