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India's agriculture sector is heading for doom. And, if the government is not doing anything to change its faulty subsidy policy, the disaster may happen too soon.
If a European Commission-financed study, released in Paris last week, is any indication, the agriculture policies in India were the most disastrous.
The countries studied consist of three large developing ones (Brazil, India and South Africa), four formerly planned economies (Bulgaria, Romania, Russia and Ukraine) and China, which combines some features of both the groups.
The new study is by the inter-governmental think tank of 30 rich industrial countries, the Organisation for Economic Cooperation and Development, and is financed by the European Commission.
According to the study, while the role of agricultural growth in raising rural incomes and reducing poverty varies form one country to the other, in India, there is no evidence yet that rural employment schemes and large infrastructure development schemes are successful in raising the income of poor rural households by diversifying sources of income.
The Green Revolution in India brought about large gains in production but in recent years, food crops in particular have reached a plateau with deteriorating land quality and water shortages posing serious problems for future increases in output, the report said.
India has only 4 per cent of world water resources for 16 per cent of the population and the lack of water is a serious issue.
Stating that the demand for water is rising rapidly for both non-agricultural and agricultural users, it said in the future serious conflicts will arise for water.
Reviewing government support to agriculture in India, the report said that their support to agriculture was dominated by market price support and input subsidies, the least efficient and most distorting ways of providing agricultural assistance.
Besides, the share of MPS and input subsidies in total support has been growing. Such measures misallocate resources and are not well targeted to specific outcomes, the report said.
These countries account for 44 per cent of world population and 30 per cent of the agricultural output and produce over 40 per cent of cereals and meat and over one-half of all fruits and vegetables. Most production is consumed domestically, with the group accounting for less than 10 per cent of world agro-food trade.
With the exception of Brazil and South Africa, the share of agriculture in GDP has virtually halved over the 1990-2005 period for the countries under review, the OECD said adding that agriculture's traditional high priority in the policy agenda may diminish in coming years.
Another worry for a country like India is that there has been labour shedding from agriculture, particularly rapidly in China and India, where strong economic growth and some labour market reforms have opened off-farm employment opportunities.
Pointing out that under-pricing of fertilisers, power and irrigation in India does not improve income distribution in rural areas and is environmentally harmful, it said that one of the key emerging challenges is how to improve competitiveness on both the domestic and export markets.
Redirecting resources from input subsidies to infrastructure, while reforming land ownership and formal leasing frameworks that constrain agricultural production could efficiently address this challenge, the report said.
The study is important because the continued stalemate in multilateral trade talks under Doha Round is partly due to the stand of the G-20 alliance in the WTO - led by Brazil, India and South Africa - that the rich world heavily subsidises its farmers, which distort the grain prices in the global market and this should be addressed urgently and squarely.