In 1961, India was on the brink of famine. Shortages all over the country had caused the government to import major food grains from other countries and with over 40 percent of India’s GDP supported by the agricultural sector at the time, there were grave concerns over the human impact on the country’s impoverished population. However, a series of agricultural innovations collectively dubbed the ‘Green Revolution’ helped avert this crisis, and in the two decades that followed, use of advanced machinery, chemical fertilisers and hybrid seeds helped increase India’s agricultural productivity by nearly threefold. Agriculture today remains a critically important part of the economy, despite lagging behind services and manufacturing in terms of growth, and employs approximately 50% of the country’s labour force . While India is today a large producer of important food grains such as rice and wheat, and is largely food self-sufficient, its agricultural sector faces a number of structural challenges that undermine productivity. The requirement to address these structural challenges, eliminating important bottlenecks, and boosting agricultural efficiency, has clearly been recognised. Beyond simply closing Indian agriculture’s productivity gap however, there is an opportunity for the sector to have a transformational impact, not just on India but also on the rest of the world. Creating a scaled 21st century advanced agricultural sector that leverages technology and R&D would make India one of the world’s leading agricultural producers, accelerating its growth rate to 11.8% by 2030 (with a significant amount of this growth generated in rural India), while also positioning the country as an important contributor towards global food security. From a domestic political perspective, India’s ruling party, the BJP, clearly remembers the power of the agricultural voting community in India, who ousted the incumbent BJP-led government in 2004 despite its success in delivering GDP and exports growth. While that may not be the deciding factor in the next election, it is one that the government will do well not to ignore.
India’s Need for a New Green Revolution
In the two and a half decades since India’s economic liberalisation, domestic and foreign investment in India (and therefore growth) has been heavily weighted towards services and industry, while agriculture has been left behind. The physical reality of this gap is obvious: while many IT campuses in Bengaluru would not look out of place in today’s Silicon Valley, small-scale subsistence farms in India look more like their US counterparts from a century ago. Today, 65% of the country’s population lives in rural areas and the sector employs c.50% of the labour force, or 260m people, while only generating 16% of GDP. This implies that per capita output of India’s agriculture labour force is c.70% lower than the national average, and c.80% lower than for industrial and services workers respectively. Agriculture has grown at only 2.5% p.a. over the last 25 years (vs. 7% and 8% growth for industry and services, respectively, over the same period) and the sector’s productivity remains significantly lower than other major economies .
India’s agricultural sector was not always the laggard it is today. In the early 1960s, India was transformed by a ‘Green Revolution’ , that rapidly improved agricultural productivity and provided a blueprint for other less developed countries to build their agricultural capacity . This episode in India’s history demonstrates that with focus and investment, the country has the potential to radically transform its agricultural sector. However, while the genesis of the Green Revolution was rooted in the need for survival, given India’s food shortage in the face of a massive and growing population, today it is a question of lost opportunity and spreading the benefits of a booming economy to the majority population that is rural, which proves to be a much weaker rallying call.
Given all of the above, can India’s agricultural sector catch up to its services and manufacturing sectors in terms of productivity and growth (if not scale)? The answer is of course: “Yes”. However, without comprehensively addressing four major long-standing structural issues which have led to the current situation for the sector, it is likely that not much will change and India’s farmers will remain poor and excluded from the rapidly emerging new India:
- Challenge 1: Improving Farmer Access to Modern Farming Practices and Information. Farming practices followed in India today considerably lag behind the methods followed in other parts of the world. Indian farming still suffers from a lack of mechanisation; using only 15 tractors per 1,000 hectares of agricultural land (vs. Japan, which uses 461 tractors, and the United Kingdom, which uses 88 tractors), while practices followed for seeding, irrigation and plant protection are either outdated or dependent on manual labour. This can largely be attributed to the fact that most Indian farmers do not have access to the solutions used in more developed nations, either because India’s farmers lack access to information on global agricultural developments or are too poor to afford them. Unfortunately, this is a vicious circle where the lack of education and capital repeats means that the farmer, and rural population as a whole, never breaks the paradigm and so never get the education and capital they need, leaving India’s rural population and the sector as a whole, immobilised. Solving for this challenge is critical if India hopes to improve its agricultural productivity levels to those of other Asian economies.
- Challenge 2: Enabling Land Consolidation. Indian farmers’ land holdings, always sub-scale, have been in continuing decline, due to a combination of growing population, and inadequate growth in off-farm employment opportunities (commensurate to overall labour force growth). The average size of agricultural land holdings in India per farmer has decreased from 2.3 hectares in 1970 to 1.2 hectares in 2011, well below the global average of 3.7 hectares. The increased fragmentation of India’s agricultural land has resulted in poorer access to credit for farmers, a lack of mechanised equipment (since most mechanised equipment is too large for these holdings) and an over-reliance on agricultural middlemen to aggregate output.
- Challenge 3: Increasing Direct Government Investment, (rather than only subsidy). Nearly 80% of government investment in India’s agriculture sector today is in the form of crop price support or input subsidies for agricultural inputs, including fertilizers, power and water. It would be more prudent for these funds to be channeled into investments that support productivity and the long-term competitiveness of the sector (such as technology and modern equipment), which are estimated to be three to four times more effective than investments on subsidies. As things stand, however, this type of investment is being made almost exclusively entirely by the private sector, a state of affairs that is not sustainable for long-term sector growth.
- Challenge 4: Improving Institutional Credit Availability for Farmers. As highlighted above, an important consequence of increased agricultural land fragmentation in India is a lack of institutional credit available to farmers. Recent surveys reveal that only 14% of marginal farm holding (less than 1 hectare) owners and 27% of small farm holding (less than 2 hectares) owners are able to obtain credit from formal institutions. The majority of farmers are therefore either forced to borrow money at a significantly higher cost from local, unorganized lenders – with many borrowers subsequently unable to service these financing costs and being forced to relinquish their land – or rely on out-dated, manual labour for their operations.
Each of these challenges has been extensively researched by leading Indian and international organisations and think tanks and their solutions are also clear. The issue, however, has always been about timing. The approximately 260 million people that are currently employed in India’s primary sector form an important political voting group for the country’s fragmented political landscape. As a result, big-ticket reforms in the sector have been few and far between, with successive governments either too afraid to alienate India’s farmers by implementing bold, but unpopular measures, or unable to build the political consensus (particularly among regional political parties) required to pass important agriculture-related legislation. Within this context, Prime Minister Modi’s government finds itself in a unique situation, currently holding an overwhelming majority in the lower house of parliament while gaining strength in the upper house and controlling state legislatures that represent a little over 40% of India’s population. Given that simply having an opportunity does not yet ensure success, the threat of inaction is substantial too. While the Modi government does not have an effective opposition, it does have the salutary lesson of the electoral defeat of the BJP-led government in 2004 outlined above. If the government hopes to transform India’s agriculture sector, it will need to form a bold vision of what agriculture could mean to India and expend some of its political capital to engage with farmers, local political leaders, consumers, academia and industry bodies and launch a number of scaled and radical initiatives.
Developing a 21st Century Agricultural Powerhouse
Accordingly, the big question facing Mr Modi is what is a vision worthy of India as a 21st Century power, given both the expectations he has created, and the fact that half of Indians live as subsistence farmers, whose lot has worsened since the 1960s, both in comparative, and in many cases, in absolute terms.
The vision has to be along the lines of “Feeding India, Feeding the World”. India’s next Green Revolution would need to create an agriculture ecosystem extending far beyond basic farming and encompassing: an industrial eco-sysem (including allied industries such as agri-chemicals, agri-technology, agricultural equipment, biotechnology and organic foods), new land ownership rules (which enable farmers to consolidate land), new financing provisions (which turn farmers into shareholders) and the growth of new service models (which enable third party providers to enable farmers to outsource farming to specialists). The result has to be globally competitive scale and value and if the country gets it right, it will also provide an exemplary new way of feeding the world.
The first step to addressing the pressing challenges is developing a growth blueprint for the agricultural sector, one that implements the necessary reforms to close the gap between India and the rest of the world in terms of 20th century farming, while sowing the seeds for a 21st century agricultural sector. This blueprint will need to focus on four clear areas:
- Area One: Productivity - Comprehensive Structural Reform to Enable Scale and Modernisation.India today has a bigger base of fertile land than China’s and an agricultural labour force of the same size, yet it produces only a third of its neighbour’s agricultural output by value. As highlighted above, this is due to a lack of capital, subscale operations, inefficient distribution and infrastructure and out-dated farming methods. Addressing these issues, and bridging the productivity gap, will require passing difficult reforms. Potentially transformative but politically contentious reform areas include amending laws enabling agricultural land aggregation, rolling back agricultural input subsidies and eliminating powerful middlemen from the country’s agricultural supply chain infrastructure. Achieving some, or all of these reforms will likely set the stage for the next wave of development.
- Area Two: Knowledge - Driving and Investing in Agricultural Innovation and R&D.Today, the country spends only 0.7% of its agriculture GDP on research and development, less than half the global average. Given how far behind India lags its peers, there is a lot that basic knowledge and education can achieve. To truly transform, India will need to become a playground for world science on an unprecedented scale. With traditional agriculture and agri-chemicals sectors entering a period of consolidation globally (e.g. DuPont’s merger with Dow Chemicals, and Bayer’s acquisition of Monsanto ), the next phase of agriculture growth is likely to be driven by a new generation of technologies, and India has the potential to play a leading role in its development and application given the mass of its land and its low state of development today. Going forward, the country can become the host for the investment in and the application of disruptive technologies. These could include (a) the development of new nutritious foods and crop protection technologies, (b) mass production through vertical farming, and (c) promoting innovative aquaculture on a large scale through its vast water resources, cultivating micro-organisms such as algae as an alternative source of protein and reducing dependence on traditional food sources . Becoming the platform for the development and application of these technologies would not only help develop India’s agricultural sector, it would establish India as the next generation agricultural nation.
- Area Three: Model - Creating a Next Generation Agriculture-Industry Ecosystem.The long-term ambition for policymakers in the country needs to be to create a truly modern agriculture ecosystem that extends far beyond basic farming. The blueprint for agricultural reform in India needs to plan for the creation of an industrialised and innovative farming sector, that supports (and is eventually supported by) a number of allied industries. These could include, agricultural equipment, agricultural financing (in a manner that incentivises farmers to re-invest the savings generated by access to less punitive credit facilities), packaged and organic foods, biotechnology and agri-chemicals and fertilizers. This new agriculture industry ecosystem should also provide for the creation and growth of new service models, which allow farmers to outsource activities to third party agriculture specialists. Successfully re-structuring agriculture in India will result in the creation of a diversified and vibrant sector (much like one that exists in the United States today ) that will help nurture a series of innovative Indian companies born of success from the crucible of hardship that is Indian agriculture today.
- Area Four: Value Creation - Creating Global Leaders Across the Agriculture Value Chain.For India to truly establish itself as a 21st century agricultural powerhouse, it will need to foster the scaling of Indian companies to join the ranks of global agriculture industry leaders. Successfully executing the first three steps outlined above result in the creation of corporate giants across three broad areas. The first is global sales and distribution, since Indian companies will export billions of dollars worth of food produce to other countries. The second area is agriculture services, where India can replicate the model followed by companies in its information technology sector, leveraging its vast talent pool and significant cost advantage over developed markets, to develop specialist agriculture capabilities and business models that can then be exported as a service around the world. Finally, Indian companies can also assume a leadership position when it comes to agricultural intellectual property given the numerous solutions that it will have developed out of the necessity to deal with land diversity encompassing everything from deserts to rainforests to mountains. While government spending and academia will likely drive the first wave of agri-innovation in India, the private sector will be a significant participant in R&D and the large-scale commercialisation of disruptive agri-technologies. Companies that operate in this space will find significant global demand for their intellectual property, and could rapidly emerge as global agri-technology giants.
Critical to building a new and successful model is the recognition that change is not possible without the full and willing participation of farmers, government and the enterprise. Each stands to gain from this change. There is enough for each to gain from the process and success is thwarted without each playing their role. The stage is set for a revolution where the only thing to do is to overhaul the existing agriculture model and where there are no real robber-barons to fight.
Big Ideas to Kick Start the Revolution
While blueprints can take years or decades to fully-implement, revolutions require While blueprints can take years or decades to fully-implement, revolutions imply rapid change, and the overthrow of the old order in favour of the new and agriculture in India is an old order ready to be overthrown. rapid change, and the overthrow of the old order in favour of the new. India will need to act decisively and on a large scale if it is to kick-start its next green revolution. For one thing, India’s sheer size means that gradual change will take decades and the country’s history has shown that incremental reforms, if agreed upon at all, happen only very slowly. Mr Modi’s government will need to act boldly if it is to kick-start a revolution. This will require the cumulative impact of multiple big ideas implemented across all four areas of the larger agricultural blue print laid out above. These could include the following:
The Prize: Successfully Transforming India’s Agriculture Sector Could Add up to US$4.3tn to the Country’s GDP
Successfully addressing the challenges facing Indian agriculture is not an option for a government with the ambition to transform India. The prize is indisputably high, socially, economically and politically. If India can become a global agriculture leader, it will not only secure the country’s food demand, it will enable the industry to become a significant global force and a key plank of the nation’s economic trajectory over the next fifteen years. Critically, a large portion of the economic growth it generates will be focused on rural India, increasing the prosperity and livelihoods of a vast majority of the 800mn underprivileged Indians living in the country’s villages. As can be seen from the two scenarios below, the level of incremental growth generated by agriculture in India will be determined by the extent to which India is able to fundamentally transform the sector over the next decade.
- Scenario One: Bridging the Productivity Gap Yields an Incremental 1% to take GDP Growth Rate to 8.6%. By simply implementing the reforms required to help bridge the agriculture productivity gap to other emerging market economies like China, India’s agriculture sector can contribute an additional US$1.1tn to the country’s economy by 2030. This in itself would represent a 1 percentage point increase in India’s economic growth path, and further help cement its position as the world’s fastest growing economy.
- Scenario Two: Knowledge and Innovation Driven Agriculture Transformation Yields an Incremental 4.3% to take GDP Growth Rate to 11.8%.Should India however execute a series of changes that impact the very nature of Indian agriculture, along the lines of the Big Ideas outlined above, the impact on its economy will be fundamental. By focusing on innovation, and pioneering new, rather than following existing advanced farming techniques, India’s agriculture sector would be worth US$6tn, and become one of the growth engines of an economy that it helps expand to nearly 12%.
Beyond generating significant economic growth for its own economy, India’s agriculture sector has a potentially crucial role to play on the global stage. By 2050, the world’s population is expected to reach nearly 10bn and exceed 12bn by the end of this century. Current agricultural practices are unlikely to meet the burgeoning food demand and every plot of poorly utilised agricultural land in today’s world already amounts to gross negligence. India has the second largest stock of arable land globally and the world will need to pay attention to how well India uses this land. Moreover, as per capita incomes in the developing world continue to rise, an increasing number of people are projected to transition to more western levels of caloric intake and diets, consisting of heavily energy inefficient food stuffs , which will put a further strain on global agricultural production. Agriculture is also one of the largest emitters of greenhouse gases , and thus a major contributor to global climate change, and there is a pressing need to develop more environmentally sustainable farming practices. Also, agriculture is the world’s largest consumer of water (92% of global freshwater was consumed by agriculture in 2012), and the escalating intensity of cultivation will likely not only have devastating ecological effects, but also signification geostrategic implications, with many seeing freshwater as the 21st century’s oil, conferring power on those who control access and triggering conflicts over its ownership. By executing the full scope and scale of an ambitious agricultural vision, India could become an integral part of the solutions to each of these problems.
Successfully transforming India’s agriculture sector has the potential to have a far-reaching impact on India’s overall success, in fact the impact is greater than the government’s current ‘Make in India’ initiative or the US$100bn+ in foreign direct commitments that the country has attracted in the last two years. Becoming a leader in agriculture enables India to transform into a nation that feeds the world. The psychological impact of unburdening itself from the poverty that plagues nearly half the nation’s population sets India on a powerful economic and political growth trajectory. Indeed, a modern agricultural platform makes India a first world contributing international citizen. With China exerting its might in the South China Sea through creating new land in the form of islands and disputing land and territorial ownership, India has the chance to build power and influence in a very different manner. If it can unlock the value of its agricultural land, India can exemplify leadership based on feeding the world, a path and position that is eminently peaceful, constructive and beneficial to the world’s people and consistent with its highest philosophy and aspirations. In a world filled with talk of walls, wars and the reasons we should hate each other, this would be a welcome story.
1. Source: CIA World Factbook
2. For example, China’s agricultural output per worker is nearly 4 times that of India’s
3 The ‘Green Revolution’ refers to a series of R&D and technology transfer initiatives that increased agricultural production worldwide, particularly in the developing world in the 1960s
4. A number of countries in Africa, including Guinea, Malawi and Mozambique have tried to incorporate elements of India’s Green Revolution into their own agriculture sectors
5 These include OECD, the World Bank and NABARD
6 For a comprehensive analysis of reforms required to bridge the agriculture productivity gap, please refer to the World Bank’s research article titled, “India: Issues and Priorities for Agriculture” ( https://www.worldbank.org/en/news/feature/2012/05/17/india-agriculture-issues-priorities)
7 Source: Planning Commission of India
8 DuPont and Dow Chemicals announced a merger of the two companies in December 2015 Bayer AG announced a US$62bn acquisition of Monsanto in May 2016; Source: Bloomberg
9 Source: Science Daily
10. The value of the agriculture and other allied industries sector in the United States today is approximately US$1tn (based on the market capitalization of US companies in the farming, agriculture equipment, packaged foods, fertilizers and agri-product sectors); Source: Capital IQ
11. Source: The Wire
12. Source: Science Magazine
13. The energy required to produce one pound of beef or pork – global demand for which has increased by 5% per annum over the last ten years – is more than 10x the energy required to produce a pound of corn
14. One third of global greenhouse gas emissions today are from the agriculture sector. Source: Consultative Group on International Agricultural Research (CGIAR