No.s 39 & 40, June 2005

No.s 39 & 40
(June 2005):

Examining the Current Boom

Budget 2005-06:
II. The Shaping of Agriculture by External Interests

A second major expectation was that the new government would provide more funds to the agricultural sector, which has been facing a prolonged, severe crisis under internal and external 'liberalisation':

– Agricultural investment has fallen from an already very low 1.9 per cent of the Gross Domestic Product (GDP) in 1990-91 to 1.3 per cent in 2003-04. (Economic Survey2004-05, p. 184) Thus a sector which still accounts for 21-22 per cent of GDP accounts for just 5.7 per cent of total investment.

– Direct credit to agriculture fell from 13.8 per cent of net bank credit in June 1990 to 7.2 per cent in March 2003 (RBI, Basic Statistical Returns; see Aspects no.s 36 & 37, p. 36).

– Output growth has plummeted during the period of “reforms”: annual average growth of agricultural production fell from 5.2 per cent during the 1980s to 1.8 per cent during 1994-95 to 2003-04 (Reserve Bank of India, Annual Report, 2003-04).

– Agricultural income per capita of rural population  grew (in real terms) at less than 0.9 per cent a year during the 1990s, as compared to 1.6 per cent a year during the 1980s.1;

– Peasants are losing their land: The proportion of landless households among the rural population has risen from 35 per cent in 1987-88 to 41 per cent in 1999-2000; the proportion of landless and marginal combined has risen from 55 per cent to 63 per cent in this period.

– Employment growth in agriculture – the biggest employer – has fallen to virtually zero during the period of the reforms (see Aspects no.s 36 & 37).

– Reports of starvation deaths in Maharashtra, Orissa, Rajasthan, West Bengal, and Madhya Pradesh, and thousands of suicides of indebted peasants in eight or more states, were expressions of this much more widespread crisis. 

Agriculture is a natural process, and therefore always much more prey to uncertainty than industry; but small-peasant agriculture in a backward economy like India’s is even more so. Only 40 per cent of India’s net sown area is irrigated, and the percentage is much lower for many crops – jowar (8 per cent), bajra (8 per cent), maize (22 per cent), pulses (13 per cent), oilseeds (23 per cent), and cotton (34 per cent). State procurement is largely confined to rice and wheat, and to a much lesser extent cotton.

A fresh source of uncertainty has been created with the opening up to agricultural imports. After the formation of the World Trade Organisation, imports of a number of agricultural products have increased dramatically, albeit on a low base. Between the triennium ending 1993-94 and the triennium ending 2003-04, the volume of imports of crude rubber grew by 126 per cent; of raw cotton by 536 per cent; and of edible oils by 2,379 per cent. (Economic Survey, 1997-98 and 2004-05) Imported edible oils constituted a few percentage points of domestic consumption in the mid-1990s; they now make up nearly half.

Nor is the impact restricted to such cases. Even in crops where the volumes have not grown so sharply, the very scope for imports, when international prices are depressed, offers traders a stick with which to beat down the prices paid to peasants. Fluctuations in international prices in the new 'globalised' market can thus play havoc with the livelihood of Indian peasants, and help intensify surplus extraction from the peasantry.

In these circumstances support from the State was all the more required. (Even if one were to buy the argument that Indian agriculture should be “exposed to competition” from imports, it would require extension services and irrigation in order to compete.) At the time of the initiation of the 'reforms', the public sector had a certain establishment in the areas of crop husbandry, soil and water conservation, animal husbandry, dairy development, fisheries, forestry, storage and warehousing, agricultural research and education, promotion of cooperatives, price intervention and marketing. No doubt these programmes were meagre compared to the requirements of India’s agriculture. However, the post-1991 period saw a cutback in even these expenditures. Between 1990-91 and 2002-03, spending by state governments on agriculture fell from 1.22 per cent of GDP to 0.79 per cent. Similarly, their spending on irrigation fell from 1.25 per cent of GDP to 0.94 per cent. (It is worth keeping in mind that only about half of the states’ spending on irrigation consists of capital expenditure, ie, creation of assets.)

Table 3: State Governments’ Expenditures on Agriculture and Irrigation as % of GDP

Agriculture & Allied Activities
Irrigation & Flood Control

RBI, Handbook of Statistics on State Government Finances, 2004; RBI, Handbook of Statistics on the Indian Economy, 2003-04.

In the 2005-06 Union Budget, there is an increase of almost 30 per cent for agriculture. But this increase is, like much else in this Budget, deceptive: the Centre’s spending on agriculture has fallen so steeply during the liberalisation era that in 2004-05 it was, in real terms (that is, after discounting for inflation), about 20 per cent lower than in 1990-91. Even after the increase in the 2005-06 Budget, the figure is almost the same as the allocation of 1990-91 in real terms (see Table 4). The figure for irrigation will be almost the same in 2005-06 in real terms.

Table 4: Centre’s Expenditure on Agriculture, 1990-91 and 2005-06, in Current Rupees and Constant (1993-94) Rupees

2004-05 RE
2005-06 BE
Agriculture (current Rs bn)
Agriculture (in 1993-94 Rs bn*)
Irrigation & Flood Control (current Rs bn)
Irrigation & Flood Control (in 1993-94 Rs bn*)

* using the GDP deflator up to 2003-04, and assuming five per cent inflation in 2004-05 and 2005-06.
RE – Revised Estimates
BE – Budget Estimates
Union Budgets, 1991-92 and 2005-06

As a percentage of GDP, of course, the decline is very steep: the Centre’s spending on agriculture falls from 0.49 per cent in 1990-91 to 0.21 per cent in 2005-06. In the case of irrigation, it falls from 0.06 per cent of GDP to 0.02 per cent of GDP. 

Table 5: Centre’s Expenditures on Agriculture and Irrigation as % of GDP

Agriculture & Allied Activities
2005-06 BE
Irrigation & Flood Control
2005-06 BE

BE – Budget Estimates
Union Budgets 1991-92 and 2005-06.

The meaning of the “diversification” mantra
Apart from the paltriness of the allocations, another disturbing feature of the budget for agriculture is that it plugs the “diversification” line. Chidambaram declared in his Budget speech that “more needs to be done” to shift away from foodgrains, and that the Ministry of Agriculture would prepare a “roadmap for agricultural diversification.” Accordingly the largest hike in the agriculture budget is a new National Horticultural Mission, with an allocation of Rs 6.3 billion in 2005-06. Another Rs four billion is allocated for a new scheme to promote micro-irrigation (drips and sprinklers), targeted at the same sections engaged in “diversified”, commercial crops. Thus some 62 per cent of the increase in the allocation to agriculture is on these two counts alone, benefiting fruits, vegetables, and flowers. These are aimed at the export market, processed food companies and the urban well-to-do.

By contrast, allocations for foodgrains, oilseeds, cotton, animal husbandry, dairy development, and fisheries, that is, the activities that engage the overwhelming majority in agriculture, are stagnant or reduced. The allocation for soil and water conservation is virtually frozen.

Foodgrains, oilseeds, and cotton are in fact in need of various types of public sector investments today. As we have often mentioned in Aspects, India is not self-sufficient in foodgrains in the real sense; it only seems to be so, and even to have a surplus, because consumption of foodgrains is low and declining. That in turn is so because people lack the purchasing power to buy their fill of foodgrains (see Aspects no.s 36 & 37, pp 130-31). This has worsened with the great drought of employment under the post-1991 policies. Moreover, yield growth (that is, growth of output per hectare) of foodgrains has fallen precipitously during the last decade, to well below the growth of population (see Aspects no.s 36 & 37, pp 79-80). If the present trend continues, even the depression of consumption of the poor will not save the country from increasing reliance on grain imports.

No doubt, foodgrains are supported by large-scale public procurement in northwest India. But procurement, while necessary, is not sufficient. An environmental crisis faces the region of surplus foodgrains, particularly Punjab, which, if unaddressed, will culminate in a major food shortfall. This needs to be addressed with a variety of measures – for example, draining water-logged areas, using traditional methods to replenish water-tables which have sunk dangerously low in other areas, subsidising the spread of less water-intensive and capital-intensive techniques and varieties, rotating crops to restore the fertility of the soil, and so on. Some of these methods might involve a short-term decline in production, which would be made up for by more reliable long-term growth and improved margins. The ordinary peasant, treading a cycle of debt and repayment, would not opt for such methods on his/her own, as they involve substantial investments and uncertainties; moreover, many of them cannot be carried out effectively by an individual farmer. These methods would require collective action, substantial State investments, solid guarantees, and widespread campaigns. At the same time procurement of foodgrains would have to be continued, storage facilities expanded, and prices of agricultural inputs reduced, all implying State intervention.

State procurement at remunerative prices would be required to provide incentives for grain-growing peasants in water-rich eastern India (where today peasants sell their crop at prices that leave them little to eat, let alone invest); large State investments would be required to hike yields in the perennially drought-affected regions of Maharashtra, Gujarat, Karnataka, and Andhra Pradesh.

Oilseeds, which once benefited from State intervention from the mid-1980s, saw that intervention evaporate in the mid-1990s, with the result that output dropped sharply (see Table 6). Now, as noted above, the country has developed heavy dependence on imported edible oils. 


Table 6: Index Numbers of Output of Oilseeds (Base: Triennium ending 1981-82 = 100)

Avg of triennium ending 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04
217.3 213.9 218.1 205.5 198.2 188.2 171.2 190.2

SOURCE: Economic Survey, different issues


Cotton production too has seen a decline (see Table 7). Here the consequences of the State’s abdication of its responsibilities are dramatically visible in the suicides of thousands of cotton growers. The reduction of already meagre bank credit; the failure to provide the peasants reliable seeds from public sector firms, or to regulate private seed companies; the failure to monitor pesticide firms and dealers; the failure to educate peasants regarding proper use of pesticides; the failure to punish seed and pesticide companies and dealers that sell substandard goods and promote over-use of pesticide; the failure to procure cotton from the peasants at remunerative rates (and in Maharashtra, the failure to actually pay the peasants after having acquired their crop) – all these failures of the State to intervene have dealt a blow to cotton production, and opened up scope for imports. In line with this policy of abdication, the Government has closed its eyes to the bollworm pest devastating the cotton crop for the last decade and has failed to fund research on solutions to this menace. Instead the UPA government has given clearance to the multinational firm Monsanto’s genetically modified variety, Bt cotton, with its dubious claim to resistance to the pest, in effect pushing peasants towards dependence on it.

Table 7: Index Numbers of Output of Cotton (Base: Triennium ending 1981-82 = 100)

Avg of triennium ending 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04
172.8 168.2 165.6 153.7 147.8 137.6 125.1 144

SOURCE: Economic Survey, different issues




1.Calculated from RBI, Handbook of Statistics on the Indian Economy, 2003-04, and Economic Survey, 2004-05; we take “rural population” rather than just those employed in agriculture, because the proportion of unemployed in the rural areas has increased. (back)


NEXT: Spending on Military and Police – No Budget Constraint


All material © copyright 2014 by Research Unit for Political Economy