Chapter III Syllabus: Sectoral Trends and Issues (a) Agricultural Sector: Problem of low productivity; Green Revolution and its impact; Land Reforms; Problems of rural credit and marketing. (b) Industry and Service Sector: An overview of industrial growth during pre-reform and post-reform period; Role of Public Sector: its performance and the issue of disinvestment; Role of MSME sector, problems faced by the MSME Sector; Role of the Service Sector: growth of banking and insurance sector during the post-reform period. (c) External Sector: Problem of unfavourable balance of payments and policy measures. Introduction: In this chapter, we shall discuss in detail about the sectors we have briefly described in Chapters I and II. To be specific, we have already noted: (i) The decline in the relative importance of the agricultural sector in respect of its contribution to national income. On the other hand, we have also mentioned that agriculture still provides livelihood to nearly 50% of India’s total workforce. (ii) Similarly, the failure of the industrial sector to contribute a larger share in the national output was noted with some concern. (iii) The growing importance of the service sector – both in terms of contribution to GDP and employment generation – was mentioned in some detail. (iv) Finally, it was noted that India has opened up on the external front in the last two-and-a-half decades and her Trade-GDP ratio has increased sharply in the post-reform era. In this chapter, we shall discuss in detail the four different sectors mentioned above, namely, (i) agriculture, (ii) industry, (iii) services, and (iv) external sector. We start with agriculture. The Agriculture Sector Agriculture constitutes a very important sector in Indian economy. It provides the livelihood for nearly half of the Indian workforce, and in that sense alone, is the backbone of our society. It also provides food security to the nation – the most basic of human needs. In terms of sheer size and expanse, it is one of the world leaders. In terms of productivity, however, it ranks quite low. Let us now provide some basic details about our agricultural sector. Parameter Size/Quantity/Other relevant details Remarks Total arable land 159.7 million hectare Second largest in the world Arable land per capita 0.123 hectares Occupies a low position in world ranking - Net irrigated crop 35% Percentage wise low but total area out of total area wise among the largest in cropped area the world - Net irrigated area out of net sown 48% area Major agricultural Rice, wheat, buffalo milk, cow milk, In many of these, India is among products (according to sugarcane, cotton, pulses, potatoes, the largest producers in the value of production) fruits & vegetables world Production of food grains 252 million tonnes in 2015-16 Increased from 51 million tonnes in 1950-51 Wheat and rice accounted for 78% of the food grains production in the country Agricultural growth Low and volatile, especially in the recent Above 5.5% in 2005-06, but 0.4 years in 2009-10 and – 0.2 in 2014-15. Agricultural productivity Low Discussed below in detail Importance - Providing livelihood to 50% of National Food Security Act was Indian workforce enacted in 2013. The Act aims to - Provides food security for the provide food and nutritional nation. security to people by ensuring access to adequate amount of quality food at affordable prices The problem of low productivity: We have seen above that the agricultural sector in India is a huge one in terms of size and expanse, but the agricultural productivity is low. We shall now discuss the problems and causes of low productivity, and also briefly touch upon the measures recommended/adopted in India to overcome the problem. What is productivity in agriculture? As in any production process, productivity measures the input-to- output relationship. In simple terms, if more input is needed in one country or region to produce the same quantity of output compared to another country/region, we shall say that productivity is lower in the former and higher in the latter. Now three basic inputs are needed to produce an agricultural output – land, labour and capital. Of course, the three work together and calculating the productivity of a single input is an extremely complex exercise. Moreover, simply the measurement of total quantity of inputs used may be very difficult in respect of labour and capital. Table 3.1: Yield of Rice and Pulses (Kg/hectare) in Select Countries (2014) Country/Region Crop Rice Pulses World 4546 909 India 3576 659 China 6832 1724 Indonesia 5130 Not a major pulse producing country Bangladesh 4628 -do- Vietnam 5737 -do- Brazil 5212 1030 Myanmar 3888 1422 Source: Agricultural Statistics at a Glance (2016), Ministry of Agriculture & Farmers’ Welfare, Government of India It is seen from the above table that in respect of rice – of which India is a leading producer – the average yield per hectare of land is lower than not only that of China and Brazil, but also than of Indonesia, Myanmar, Vietnam and even Bangladesh. Moreover, our yield per hectare is significantly lower than the world average. Similarly, our pulse yield per hectare is lower is lower than countries like China, Brazil and Myanmar. More important, India’s productivity is lower than even world productivity. So, the problem of low productivity of agricultural output is clearly shown in all types of data. Now the question is: what are the causes of low productivity in the agricultural sector in India? We shall briefly discuss the main reasons below. Causes of low productivity Excessive Pressure of Population on Land: Uneconomic land-holdings: As per Agriculture Census 2010-11, small and marginal holdings of less than 2 hectare account for 85 percent of the total operational holdings and 44 percent of the total operated area in India. Now, small farm sizes inhibit mechanization. This creates difficulties in (i) Application of modern inputs, (ii) Adoption of scientific land improvement, (iii) Water conservation and (iv) Plant protection measures. Inadequate access to irrigation and dependence on monsoon: We have earlier presented data on currently available irrigation facilities in India. According to Economic survey 2018, only 48% of net sown area has some irrigation facility. If calculated as a percentage of gross cropped area, the percentage is even lower at 34.8%. [Note: In gross cropped area, the same land may be counted more than once if multiple cropping is practised, while under the net sown area data, a land is counted only once, no matter how many times it is cropped]. Unscientific use of soil nutrients resulting in loss of fertility of soil: Modern methods of farming involve use of chemical fertilizer – the use of the so-called NPK package (application of Nitrogen, Phosphorous and Potassium nutrients). Land degradation: Low rates of investment and capital formation: Lack of access to formal agricultural credit: Agricultural marketing – Overview and Problems Agricultural marketing can be defined as the commercial functions involved in transferring agricultural products from producer to consumer. Agricultural marketing includes all activities involved in moving agricultural produce from producer to consumers: (i) Through time ( that involves storage), (ii) From place to place (that involves transport), (iii) In different forms (that involves processing) and (iv) Through the smooth transfer of ownership at various levels of the marketing process without either the buyer or the seller turning into a price-maker (when the other becomes a mere price taker). The National Commission on Agriculture (Part XII of its report, 1976) defined agricultural marketing as a process which starts with a decision to produce a saleable farm commodity and it involves all aspects of market structure of system, both functional and institutional, based on technical and economic considerations and includes pre and post- harvest operations, assembling, grading, storage, transportation and distribution. The Indian Council of Agricultural Research defines agricultural marketing as involving three important functions, namely (a) assembling (concentration) (b) preparation for consumption (processing) and (c) distribution. The objectives of an efficient marketing system are: 1. To enable the farmers (producers) to get the best possible returns to their labour and investment, 2. To provide facilities for buying all produce the farmers plan to sell at a price that provides them a positive incentive to produce again. 3. To reduce the price difference between the primary producer and ultimate consumer. 4. To make available all agricultural products to consumers at reasonable prices. Problems of agricultural marketing: Poor storage facility: A major deficiency of the Indian agricultural marketing is lack of store houses. Inefficient and inadequate transport facility: Lack of perfect knowledge: Without such knowledge, farmers cannot take advantage of higher and lower prices in different markets. Too many intermediaries or middlemen: Lack of a sound agricultural credit system: Lack of infrastructure: Lack of a National integrated market: Government Initiatives to solve the problem of agricultural marketing The governments over the years have tried to address the problem of agricultural marketing. The steps may be briefly outlined as follows: 1. Building marketing institutions: The marketing institutions can be grouped into - Public sector organizations, including Food Corporation of India (FCI), Cotton Corporation of India, Jute Corporation of India, Commodity Boards, Commission for Agricultural Costs and Prices etc; State Agricultural Marketing Boards, Central and State Warehousing Corporations, Agricultural Produce Market Committees etc. - Cooperatives and - Other formal/informal bodies The role and functions of each of these differ and include policy formulation, implementation, supervision and facilitation in respect of the markets. 2. Building a strong cooperative network: In India, there is a four-tier structure consisting of - Primary marketing societies, - District or regional cooperatives, - State marketing federations and - National level marketing cooperatives.