Agricultural Investment

Summary

Dr. G.V.K. Rao — then Chairman of Agricultural Finance Corporation Ltd. and a former Member of the Planning Commission — diagnoses why Indian agricultural growth slackened in the 1980s and lays out an investment-and-credit programme to revive it. Although agriculture’s share of GDP had fallen to about 28 per cent, the sector still supported roughly 70 per cent of the labour force and supplied wage goods, industrial raw material and export earnings. Foodgrain output grew at only 1.7 per cent per annum during the first seven years of the eighties, a slackening Rao attributes to a relative decline in investment in agriculture.

The pamphlet argues that future growth must come from intensification, technology upgrading and watershed-based rain-fed farming, and lists nine concrete investment areas — better water management in existing irrigation projects, bio-technology applications, a National Poultry Development Board on the Operation Flood model, drip and sprinkler irrigation, food processing, afforestation of 40 million tree-less forest hectares, sericulture, agricultural exports through APEDA, and horticultural marketing infrastructure modelled on the Delhi NDDB scheme.

The second half of the booklet is a credit-supply calculation. The share of agriculture in total investment had fallen from 26.1 per cent in the First Plan to 11.9 per cent in the Seventh, and real gross capital formation in agriculture had actually contracted at 2 per cent per annum between 1979-80 and 1987-88. Rao estimates the Eighth Plan credit requirement at Rs. 53,600 crores against an institutional supply of Rs. 39,200 crores — a gap of Rs. 14,400 crores. To close it he proposes raising the credit-deposit ratio per the Narasimham Committee, exempting incremental rural deposits from SLR and CRR, freeing co-operatives from official interference so they function like business institutions, mobilising rural surpluses through bonds and mutual funds, and recovering the Rs. 8,026 crore overdue book (55 per cent of demand) so that lendable resources can be recycled.

Rao closes by emphasising that volume of credit alone will not suffice: project formulation, monitoring, cost-effective alternatives to expensive hard-rock dug-wells, and community participation through watershed-style compact-area development are equally necessary to maximise returns on agricultural investment.

Key points

• Agriculture’s share of GDP has fallen to about 28 per cent but the sector still supports nearly 70 per cent of the labour force and supplies wage goods, industrial raw material and a growing share of exports.

• Foodgrain growth slowed from 4 per cent per annum in the post-Green-Revolution years to only 1.7 per cent per annum in the first seven years of the eighties, rescued to 3.1 per cent only by exceptional 1983-84 and 1988-89 harvests.

• The share of agriculture in total investment fell from 26.1 per cent in the First Plan to 15.1 per cent in the Sixth and 11.9 per cent in the Seventh; real gross capital formation actually declined at 2 per cent per annum between 1979-80 and 1987-88.

• Future growth must come from intensification and technology upgrading — watershed-based rain-fed farming, biotechnology, horticulture and floriculture, oilseeds and pulses, post-harvest technology, and agri-business.

• Nine specific investment heads are identified, including World Bank-style irrigation upgrades, a National Poultry Development Board on the Operation Flood model, drip irrigation on 1,00,000 hectares with a 50 per cent government subsidy, and afforestation of 1.5 million hectares per year.

• Eighth Plan term-credit requirement is estimated at Rs. 53,600 crores against institutional supply of Rs. 39,200 crores, leaving a gap of Rs. 14,400 crores at 1991-92 prices.

• Proposed remedies: raise the credit-deposit ratio per the Narasimham Committee, exempt incremental rural deposits from SLR and CRR, free co-operatives from official interference, and mobilise rural savings through bonds, mutual funds and other instruments.

• Recovery of the Rs. 8,026 crore overdue book (55 per cent of demand in 1989-90) and cost-effective project design — not interest-rate manipulation — are presented as the binding constraints on rural credit performance.