Sunday, 15 September 2024

Revolutionizing Dairy: Integrating Global Best Practices, AI Innovations, and the Role of Major Companies and Startups in India

 

Introduction

The dairy industry is undergoing a profound transformation driven by the integration of global best practices and cutting-edge technologies. In India, which holds a significant position in global dairy production, the adoption of these practices and innovations is crucial for enhancing productivity, ensuring high-quality products, and expanding export markets. This blog explores how global best practices and AI technologies are reshaping the dairy sector, with a particular focus on India, and highlights the pivotal roles played by major dairy companies and startups in driving these changes.

 

1. Embracing Global Best Practices in Dairy Production

The global dairy industry has long been a leader in adopting best practices to optimize production, improve quality, and ensure sustainability. Indian dairy producers are increasingly integrating these practices to enhance their competitive edge.

1.1. Automated Milking Systems (AMS)

In the Netherlands and Denmark, AMS are widely used. These robotic systems automate the milking process, reducing labor costs and improving efficiency. They provide real-time data on milk production, cow health, and feed consumption.

Indian dairy giants such as Amul and Mother Dairy are beginning to implement AMS. Startups like Stellapps are also contributing by offering scalable solutions for automated milking and farm management. AMS adoption in India is still in its nascent stages, but its potential for increasing efficiency and productivity is significant.

1.2. Precision Agriculture and Feed Management

Precision agriculture techniques, such as GPS-guided tractors and drones, are used in the U.S. and Australia to optimize feed and resource management. This results in better-quality feed and higher yields.

Indian farmers are gradually incorporating precision agriculture technologies. Companies like AgroStar are providing tools and resources to help farmers implement these global best practices. Precision feed management is helping Indian dairy farms enhance feed efficiency and improve milk quality.

1.3. Quality Assurance and Traceability

Countries like New Zealand and Canada have established comprehensive quality assurance and traceability systems. These systems ensure safety, build consumer trust, and facilitate access to international markets.

Indian dairy companies such as Parag Milk Foods are adopting similar systems. Startups like FarmLink are also enhancing traceability and quality control through technology. Implementing robust quality assurance practices helps Indian producers meet international standards and gain market access.

 

2. AI’s Impact on the Dairy Industry: Enhancing Practices and Productivity

Artificial Intelligence (AI) is revolutionizing the dairy industry by optimizing various aspects of production and management. Here’s how AI is making an impact:

2.1. Real-Time Quality Monitoring

AI-powered sensors and systems monitor milk quality parameters in real time. These technologies detect contaminants, deviations, and potential quality issues, ensuring that milk consistently meets safety and quality standards.

Major dairy companies like Amul and Hatsun Agro Product are adopting AI technologies for quality control. Startups such as SigTuple are developing AI-driven solutions for analyzing milk quality, leading to better product consistency and safety.

2.2. Optimizing Farm Management

AI-powered wearable sensors track cow health, detecting early signs of illness and optimizing nutrition. This results in better milk quality and higher yields. AI is increasingly used in Indian dairy farms for optimizing feed, monitoring cow health, and improving overall productivity. Companies like Vetsak and startups like Fasal are providing AI-driven solutions to enhance farm management.

2.3. Processing and Handling

AI enhances processing techniques such as pasteurization and cold chain management. These technologies ensure high-quality milk, reduce spoilage, and improve overall efficiency. Indian dairy processors like Kwality Dairy are integrating AI into their operations. Startups like Aibono are also working on AI solutions to improve handling and quality control in dairy processing.

 

3. AI's Role in Improving Dairy Exports: Quality, Efficiency, and Traceability

AI is also playing a crucial role in improving dairy exports by enhancing quality, efficiency, and traceability. This is essential for Indian dairy producers aiming to expand their presence in international markets.

3.1. Quality Compliance and Assurance

AI systems ensure that dairy products meet international quality standards. These systems are critical for maintaining safety, nutritional requirements, and product consistency.

Indian dairy exporters, including companies like Amul and Mother Dairy, are leveraging AI to ensure compliance with global standards. Startups like FreshToHome are using AI to maintain high-quality standards and enhance their export capabilities.

3.2. Enhancing Traceability and Transparency

Combining AI with blockchain technology provides enhanced traceability. This integration tracks products from farm to consumer, ensuring transparency and building consumer trust. Major dairy firms like Parag Milk Foods are adopting AI-driven traceability systems. Startups such as Turtlemint are working on blockchain and AI solutions to improve traceability and meet international buyer demands.

3.3. Optimizing Supply Chains

AI optimizes transportation routes, inventory management, and cold chain monitoring. This ensures timely delivery, maintains product quality, and reduces costs. Indian dairy exporters are using AI to streamline their supply chains. Companies like Amul and startups like FarmLink are employing AI to enhance logistics, improve efficiency, and strengthen their position in global markets.

 

4. The Role of Major Dairy Companies and Startups in India

The transformation of India’s dairy sector is being driven by both established companies and innovative startups. Their efforts are crucial in integrating global best practices and AI technologies.

4.1. Major Dairy Companies

As India’s largest dairy cooperative, Amul is at the forefront of integrating global best practices and AI technologies. The company has adopted automated milking systems, advanced processing technologies, and AI-driven quality control.

Known for its extensive product range, Mother Dairy is investing in AI for quality monitoring, farm management, and supply chain optimization. Parag Milk Foods, a major player is enhancing its export capabilities by adopting AI for traceability, quality compliance, and supply chain management, positioning itself strongly in the international market.

4.2. Innovative Startups

Stellapps offers AI-driven solutions for farm management, including automated milking and real-time quality monitoring. The startup is helping dairy farms across India adopt modern technologies.

Specializing in AI-based solutions for health and quality monitoring, SigTuple is transforming how dairy farms manage cow health and milk quality.

By leveraging AI to maintain high-quality standards and efficient logistics, FreshToHome is expanding its reach in international markets, showcasing the potential of AI in enhancing dairy exports.

 

5. Conclusion

The integration of global best practices with advanced AI technologies is ushering in a new era for the dairy industry. For India, embracing these innovations is essential for boosting productivity, ensuring high-quality milk, and expanding export opportunities. Major dairy companies and innovative startups are playing crucial roles in this transformation, leveraging technology to meet international standards, optimize operations, and drive growth. As the dairy sector continues to evolve, the synergy between traditional practices and cutting-edge technologies will be vital for sustaining progress and meeting global demands.

This holistic approach—combining global best practices, AI innovations, and the dynamic contributions of both established and emerging players—sets the stage for a more efficient, sustainable, and competitive dairy industry, not just in India, but globally.

 

 

Tuesday, 14 May 2024

Driving Sustainable Development: The Vital Role of MSMEs in India’s Economy

Introduction

Micro, Small and Medium Enterprises (MSMEs) play a pivotal role in fostering sustainable development, particularly in a dynamic economy like India. With their inherent flexibility, adaptability, and local focus, MSMEs have the potential to contribute significantly to economic, environmental and social sustainability.

Economic sustainability

MSMEs play a crucial role in promoting economic sustainability by contributing significantly to employment generation, particularly in rural and semi-urban areas, creating livelihood opportunities for diverse workforce segments and contributing to poverty alleviation and inclusive growth. According to the International Labour Organization (ILO), MSMEs create more than two-thirds of all jobs worldwide. According to a recent report by McKinsey Global Institute, in India, MSMEs contribute 62% to employment as opposed to 77% in other emerging economies. India has emerged as the 3rd largest ecosystem for startups globally with about 1.13 lakh startups. Most of these are in the MSME sector which fosters entrepreneurship by providing platforms for individuals to turn innovative ideas into viable businesses, contributing to economic empowerment, innovation, and a culture of creativity and risk-taking. Lastly, MSMEs enhance the efficiency and competitiveness of the economy by adding value to raw materials and integrating into supply chains.

Environmental sustainability

MSMEs promote environmental sustainability by optimizing resource utilization, minimizing waste generation, and adopting cleaner production methods, thereby reducing their environmental footprint. Secondly, by investing in green technologies like renewable energy, energy-efficient processes, and eco-friendly materials, MSMEs can significantly contribute to mitigating climate change and promoting environmental sustainability. Lastly, by promoting sustainability standards and practices throughout the supply chain, MSMEs can drive the adoption of eco-friendly practices among larger enterprises, fostering a more sustainable business ecosystem.

Social sustainability

MSMEs are instrumental in promoting social sustainability, firstly, by fostering inclusive growth by bridging the urban-rural gap and offering employment opportunities to marginalized groups such as women, youth, and economically disadvantaged people. This empowerment includes economic participation and skill development. Secondly, MSMEs engage in community development through initiatives like corporate social responsibility (CSR) and community engagement programs. These efforts focus on investing in local infrastructure, education, healthcare, and environmental conservation, thereby contributing to overall community well-being. Lastly, many MSMEs in India preserve and promote traditional crafts and cultural practices, thereby conserving heritage and providing livelihoods to artisans and craftsmen, thus contributing to cultural sustainability.

Best Practices, Challenges, and Opportunities: Integrating Sustainability into MSME Business Models:

Best practices

Implementing best practices in sustainability is crucial for businesses aiming for long-term success. Firstly, stakeholder engagement is key. By understanding and collaborating with stakeholders, including employees, suppliers, customers, and local communities, businesses can develop sustainable solutions that meet their needs and expectations. Secondly, optimizing resource utilization and promoting energy and water efficiency not only reduces environmental impact but also cuts operational costs. Thirdly, investing in green technologies and innovation improves processes, products, and services, enhancing competitiveness and sustainability. Fourthly, obtaining certifications such as ISO 14001 and adhering to industry-specific sustainability standards enhance credibility and facilitate market access. Lastly, promoting sustainability throughout the supply chain by collaborating with suppliers, supporting ethical sourcing practices, and prioritizing suppliers with strong sustainability credentials ensures a holistic approach to sustainability.

 Challenges

MSMEs encounter several challenges in implementing sustainability initiatives. Firstly, they often face resource constraints, including limited financial, human, and technical resources, hindering investment in sustainable practices. Secondly, many MSMEs lack awareness and expertise in sustainability, necessitating education and capacity building to bridge the gap between awareness and implementation. Thirdly, upfront costs associated with sustainable practices may deter MSMEs from adoption of sustainable practices, despite long-term benefits. Fourthly, barriers to market access may arise due to lack of certifications, compliance with sustainability standards, or alignment with customer preferences. Fifthly, keeping up with evolving regulatory requirements related to sustainability poses a challenge, particularly for MSMEs with limited expertise and administrative capacity. The SEBI mandated Business Responsibility and Sustainability Reporting (BRSR) for the top 1000 listed companies in India furthers the case for a resilient and ESG compliant supply chain for corporates. Although the listed companies bear the responsibility to report, their MSME value chain partners have become integral to this process. Additionally, the EU's Carbon Border Adjustment Mechanism (CBAM) and the EU Corporate Sustainability Due Diligence Directive (EUCSDDD) may impact India's exports in carbon-intensive sectors like steel, aluminium, cement, and fertilizers, and require MSMEs which are part of the value chains, to comply with stricter sustainability standards, further complicating their operational landscape. Addressing these challenges is vital for MSMEs to thrive in an increasingly sustainability-focused business environment.

Opportunities

MSMEs have numerous opportunities to leverage sustainability for their advantage. Firstly, integrating sustainability into business models can provide a competitive edge by attracting environmentally and socially conscious consumers, enhancing brand reputation, and fostering loyalty. Secondly, meeting the growing demand for sustainable products and services enables MSMEs to access new market segments and tap into opportunities in the green economy. Thirdly, embracing sustainability stimulates innovation, enabling MSMEs to develop unique solutions that address sustainability challenges and meet evolving customer needs. Additionally, proactively addressing ESG risks enhances resilience and reduces vulnerability to regulatory and reputational risks, fostering long-term sustainability. Lastly, partnerships and collaboration with industry peers, academia, government agencies, and NGOs facilitate knowledge sharing and collective action to address sustainability challenges and capitalize on opportunities. By seizing these opportunities, MSMEs can thrive in an evolving business landscape focused on responsible and ethical business practices.

Green innovations, resource efficiency, and social responsibility

MSMEs are increasingly embracing green innovations, resource efficiency, and social responsibility to drive sustainability and competitiveness. Green innovations involve developing eco-friendly products, adopting clean technologies, and implementing sustainable practices, aligning profitability with environmental stewardship. Resource efficiency is crucial, achieved through optimized resource utilization, waste minimization, and sustainable supply chain practices, reducing costs and mitigating risks. Social responsibility extends beyond environmental concerns, encompassing fair labour practices, diversity promotion, and community support, enhancing social cohesion and economic development. By engaging stakeholders, fostering transparency, and upholding ethical standards, MSMEs can build trust and strengthen relationships.

Importance of supporting MSMEs with education, funding, and policy frameworks to help them play a key role in achieving sustainability goals

MSMEs are key drivers of economic growth, innovation, and social inclusion in India, yet unlocking their full potential as sustainability agents requires robust support mechanisms.

Education initiatives are essential to equip MSMEs with the knowledge and skills needed to adopt sustainable business practices. Tailored training programs on environmental conservation, energy efficiency, and social responsibility can empower MSMEs to integrate sustainability principles into their operations. Collaboration between government agencies, academia, and industry associations can facilitate knowledge dissemination and foster a culture of continuous learning within the MSME sector.

Access to finance remains a significant barrier for many MSMEs seeking to invest in sustainability initiatives. Innovative financing mechanisms, such as government-backed schemes, venture capital funds, and impact investment platforms, can channel capital towards sustainable MSME ventures. Under RBI's Priority Sector Lending, MSMEs can access bank loans up to ₹30 crore for specific purposes such as solar-based power generators, biomass-based power generators, wind mills, micro-hydel plants, and non-conventional energy-based public utilities like street lighting systems and remote village electrification. Incentivizing financial institutions to offer preferential loan terms and credit guarantees to MSMEs prioritizing sustainability can enhance access to affordable financing options. Green finance products from SIDBI  for MSMEs are  (i) Green finance scheme, (ii) End to end energy efficiency scheme. The Green finance scheme, credit support is provided to MSMEs executing projects/providing services, related to the activities i.e. Energy Efficiency, Renewable Energy, Compressed Bio Gas, Water & Waste Water Management, Solid Waste Management, E-Mobility, etc. The End to end energy efficiency scheme provides finance to export-oriented MSMEs for modernization diversifying into new products, technology upgradation, product R&D etc.

Facilitating the transfer of sustainable technologies from larger enterprises to MSMEs and providing research and development grants can support MSMEs in developing innovative solutions for sustainability challenges.

Policy frameworks play a pivotal role in creating an enabling environment for sustainable MSME development. Governments can formulate supportive policies, regulations, and incentives to encourage MSMEs to adopt environmentally friendly practices, invest in clean technologies, and adhere to social welfare standards. Aligning regulatory frameworks with international sustainability standards and promoting market-based mechanisms like carbon pricing and eco-labelling can foster a level playing field for sustainable MSMEs and drive market transformation towards greener and more inclusive economies.

Market access and certification are also crucial. Promoting certification programs recognizing MSMEs for sustainable practices and facilitating access to green markets can help MSMEs connect with buyers prioritizing sustainable products.

By investing in capacity-building, facilitating access to finance, and creating an enabling policy environment, we can catalyze a paradigm shift towards a more resilient, equitable, and sustainable future for India.

 

Thursday, 2 May 2024

Unlocking Potential: Strategies to Optimize India's Agriculture Value Chains

Introduction

India leads globally in milk production, with a significant increase from 146.3 MT in 2014-15 to 230.58 MT in 2022-23. However, the fruits and vegetables sector faces challenges due to supply chain inefficiencies, leading to around 30 percent wastage of agricultural produce. These inefficiencies, caused by multiple intermediaries and manual handling, result in reduced earnings for farmers, middlemen commissions, and significant wastage of fresh produce. This gap between farmers' earnings and consumer prices highlights the need for improved supply chain management to ensure fair remuneration for farmers.

Despite horticulture products having a shorter shelf life than milk, dairy farming proves more profitable for farmers. Higher price is realized by farmers in the dairy value chain compared to horticulture. This is attributed to greater levels of processing and value addition in the dairy industry, which extend shelf life and increase economic returns.

Efficient agricultural value chains play a critical role in reducing losses, extending shelf life, maintaining safety and quality, and ensuring timely delivery of perishable fruits and vegetables to consumers at affordable prices. This leads to increased profits for stakeholders, minimizes waste, and enhances product quality.

Dairy farming serves as a crucial source of secondary income for rural households in India, benefiting from reliable procurement and market linkage through cooperatives and the private sector. The success of the dairy industry is attributed to integrated cooperative systems that cover various stages from milk collection to distribution, minimizing seasonal impacts, facilitating retail distribution, and sharing profits with farmers. This cooperative model has the potential to double the income of smallholder farmers.

The Government of India's Committee on Doubling Farmers’ Income proposed the establishment of an Agricultural Value System Platform. This platform aims to promote modern, cross-regional supply chains and demand-driven trade in agricultural produce. By fostering market-linked systems and integrated supply chains, the platform seeks to increase the value obtained by farmers, ultimately contributing to the goal of doubling farmers' income.

Efficient Agriculture Value Chains: Lessons from Major Countries

Countries like the United States, Brazil, and China have developed efficient agricultural value chains through technology, infrastructure, and market-oriented policies, serving as global leaders in optimizing agricultural processes. In the United States, key factors include investment in agricultural R&D, mechanization, and advanced logistics. Brazil has capitalized on sustainable intensification practices, market-oriented policies, and agribusiness innovations. China has undergone significant transformation driven by technological adoption, rural infrastructure development, and supply chain integration. These successful models offer valuable lessons for India to enhance its agricultural sector.

Nurturing Globally Competitive Agri-Export Value Chains in India

India needs to focus on developing globally competitive agriculture value chains by prioritizing quality, efficiency, and market responsiveness across production and distribution. Leveraging technology, enhancing infrastructure, and implementing supportive policies are deemed crucial for improving competitiveness in both domestic and international markets. India's diverse agro-climatic zones offer opportunities to cultivate a wide range of crops, enabling the development of export-oriented value chains for commodities such as rice, spices, fruits, and vegetables. Maintaining high-quality standards, adhering to international regulations, and investing in market intelligence are essential for effectively capturing global market share. Strengthening agri-export value chains involves promoting value-added agricultural exports, establishing Agriculture Export Zones (AEZs), and integrating value-added products into Global Value Chains (GVCs). Initiatives like One District One Product (ODOP) and One Block One Product (OBOP) schemes aim to promote export clusters at the local level. Collaboration between government, industry, and stakeholders is crucial for driving innovation, scaling solutions, and addressing challenges facing Indian agriculture. Harnessing India's diverse geography and cultivating specialized value chains, ensuring high-quality standards, compliance with international regulations, investing in market intelligence, and promoting Brand India are essential strategies for realizing India's potential as a major player in global agri-trade.

Harnessing Technology for Efficient Agri-Value Chains in India

In recent years, India's agriculture sector has undergone a transformative shift driven by technological advancements. Technologies like AI, ML, Blockchain, drones, and IoT have been integrated across the agriculture value chain, from cultivation to retail. These innovations have revolutionized traditional farming practices, enhancing productivity and sustainability. Agtech startups and corporate entities like CropIn, AgNext, Ninjacart, and ITC have played a significant role in providing digital solutions for farm management, crop monitoring, and quality assessment. Additionally, technologies such as AI-powered sorting machines, blockchain-enabled traceability, and IoT-enabled tracking devices have improved processing, storage, logistics, and transportation, minimizing post-harvest losses and optimizing supply chain efficiency. Online platforms and mobile applications have facilitated direct farmer-to-consumer transactions, enhancing market access for small-scale producers. Government initiatives like NAIP, Digital India, and AIF aim to promote technology adoption and innovation in agriculture. The integration of technology across agriculture value chains holds immense potential for transforming India's agricultural landscape, fostering prosperity, and ensuring food security. Collaboration between stakeholders is crucial for driving innovation, scaling solutions, and addressing the challenges facing Indian agriculture.

Driving Inclusive Growth: Empowering Small Farmers through Agri-Value Chains in India

Ensuring the inclusion of small and marginal farmers in agriculture value chains is crucial for fostering inclusive growth. Farmer Producer Organizations (FPOs) play a pivotal role in empowering farmers by providing collective bargaining power, access to finance, technology dissemination, and market linkages. These organizations facilitate the participation of small farmers in value chains, enhancing their livelihoods and contributing to overall economic development. To maximize their impact, FPOs require institutional support, capacity building, and policy interventions. Strengthening FPOs can pave the way for a more equitable and resilient agriculture sector, where the benefits of growth are shared by all stakeholders.

Balancing Profitability and Planet: Achieving Financially and Environmentally Sustainable Agri-Value Chains

Sustainability has become a pivotal focus in modern agriculture value chains, driven by environmental concerns and economic uncertainties. Achieving a balance between profitability and planet stewardship entails practices that optimize input costs, improve yields, and ensure fair returns for farmers while minimizing environmental impact. Sustainability encompasses economic, environmental, and social dimensions, aiming to maximize productivity and profitability while minimizing resource depletion, pollution, and social inequities.

Embracing environmental sustainability involves adopting practices like conservation agriculture, agroforestry, and precision irrigation to preserve natural resources such as land, water, and biodiversity. Techniques like zero tillage, crop rotation, and organic farming enhance soil health, reduce erosion, and promote biodiversity, fostering resilience to climate change.

Reducing dependence on synthetic inputs mitigates environmental pollution and promotes ecosystem health. Practices like integrated pest management and precision agriculture optimize input use, minimize chemical residues, and foster biological pest control, ensuring sustainability.

Climate-smart agriculture practices play a vital role in mitigating greenhouse gas emissions and building adaptive capacity in farming communities. Sustainable agriculture value chains require collaborative efforts from various stakeholders to align policies, incentives, and investments with sustainability objectives. Strengthening Farmer Producer Organizations (FPOs), promoting inclusive business models, and investing in rural infrastructure are essential for empowering farming communities and promoting inclusive growth.

Enhancing crop yields and quality, securing fair prices and market access, and diversifying market channels are crucial for financial sustainability in agriculture value chains. Practices like precision farming technologies and efficient irrigation systems optimize input use, while market linkages and value chain integration enable farmers to negotiate better prices and reduce market risks. Fair trade practices and transparent pricing mechanisms promote equitable value distribution, contributing to the financial sustainability of agriculture value chains.

Overall, collaboration between governments, businesses, civil society, and farmers is essential for promoting sustainability along the entire value chain. By adopting practices that optimize input use, conserve natural resources, and ensure fair returns for farmers, agriculture value chains can achieve a delicate balance between profitability and planet stewardship, ensuring a sustainable food system for generations to come.

Conclusion

Establishing resilient rural infrastructure is pivotal for agricultural growth and mitigating post-harvest losses. Improving agricultural exports through enhanced product quality, standards, and export infrastructure can unlock new markets and bolster farmers' earnings. Embracing technological advancements can boost productivity, cut input costs, and expand farmers' access to markets and information.

Efficient agricultural value chains across production, processing, and marketing can empower farmers to capture more value, increasing their income. Encouraging farmers to transition to various sectors like agro-processing and organized retail can reduce disguised unemployment and boost crop productivity. Initiatives like FPOs/FPCs can aggregate produce, provide credit and inputs, and bolster bargaining power, transforming subsistence farming into viable enterprises.

India must prioritize developing globally competitive agriculture value chains, focusing on quality, efficiency, and market responsiveness. Comprehensive agriculture marketing reforms, improved infrastructure, and removing trade barriers can fetch better prices for farmers and minimize post-harvest losses. Upholding high-quality standards, complying with international regulations, and investing in market intelligence are crucial to seize global market share. These efforts would position India's agriculture sector to compete globally and propel the nation towards becoming a developed economy.

 

 

  

Tuesday, 9 April 2024

India's Journey Through the Fourth Industrial Revolution: Growth Prospects and Export Competitiveness

In the midst of the Fourth Industrial Revolution (IR-4), characterized by the fusion of digital, physical, and biological technologies, India finds itself at a pivotal juncture in its economic trajectory. As the global landscape continues to evolve, it is essential to assess India's growth prospects and export competitiveness in this dynamic context.

India's Economic Landscape

India has emerged as one of the world's fastest-growing major economies, fuelled by a burgeoning young population, vibrant entrepreneurial ecosystem, and ambitious policy reforms. However, to sustain this momentum and harness the opportunities presented by the Fourth Industrial Revolution, concerted efforts are required across various fronts.

The country has experienced a significant economic resurgence post the Covid-19 pandemic. In FY22, the economy witnessed a remarkable surge of 9.7%, followed by growth rates of 7% in FY23 and 7.6% in FY24 (Figure 1). The CAGR of real GDP over the last five years stands at an impressive 5.2%. Additionally, the average annual growth rate over the past three years remains robust at 8.1 percent. This recovery is attributed to substantial government investment in infrastructure, strong export performance, and relatively solid private consumption, especially in urban areas. Looking ahead to FY25, achieving a growth rate surpassing 6.5-% appears feasible, contingent upon significant boosts in private investments, public expenditures, export activity, and agricultural output, while maintaining focus on government capital spending.



Source: NSO, MoSPI, GoI

Growth Prospects

With a nominal GDP of $3.54 trillion in the fiscal year 2023-24, India currently holds the position as the world’s 5th largest economy. Projections suggest that by the fiscal year 2027-28, India is anticipated to surpass Germany and Japan, elevating to the position of the 3rd largest economy globally. According to the World Bank's criteria, India's per capita nominal GDP must ascend from $2,396 in the fiscal year 2022-23 to $21,668 (assuming a 2% global inflation rate) at a Compound Annual Growth Rate (CAGR) of 9.2% over the 25-year period concluding in 2047. Concurrently, nominal GDP must reach $35 trillion (at a CAGR of 10.1%) to attain the status of a high-income economy by 2047 (Figure 2). In real terms, GDP must sustain growth within the range of 7.5-8% over the next quarter of a century to ensure sustainability.

                                    Source: Data for 2024-25 - 2047-48 estimated by the author

India's reform priorities should include investment-friendly policies, including continued investment in infrastructure; easing FDI regulation; export-led manufacturing and services growth; significant increase in R&D investments for raising total factor productivity (TFP) in the major growth sectors to promote export competitiveness. 

In order to fully harness the opportunities presented by IR-4, which was advocated  by Klaus Schwab (2017), concerted efforts are necessary to leverage India's prowess in digital technologies and foster the development of smart manufacturing. The IR-4 offers India a significant chance for inclusive growth and socioeconomic advancement. With breakthroughs in artificial intelligence, robotics, biotechnology, and data analytics, traditional industries are experiencing profound transformations, ushering in an era of innovation-driven progress. India's strong foundation in information technology and software services positions it well to seize upon these technological disruptions and capitalize on the ensuing opportunities.

Moreover, government initiatives such as Digital India, Make in India, and Startup India are cultivating an environment conducive to innovation, entrepreneurship, and digital transformation. By leveraging these initiatives effectively, India can not only enhance productivity and competitiveness but also stimulate job creation across various sectors. These efforts will not only propel India towards the forefront of the global digital economy but also foster inclusive growth, ensuring that the benefits of technological advancements are shared widely across society.

Harnessing Opportunities in the Fourth Industrial Revolution for Transforming the Manufacturing Sector

Over the past five years, the contribution of India's manufacturing sector to the Gross Value Added (GVA) has remained static, hovering around 15%. Despite this, the sector has experienced a modest average real growth rate of 3.3% during this period. To fully leverage the opportunities presented by the IR-4, concerted efforts are necessary to capitalize on India's prowess in digital technologies and foster the development of smart manufacturing initiatives. India has demonstrated significant progress in the digital realm, particularly through large-scale projects facilitated by robust public digital infrastructure, notably in the realm of payment infrastructure.

The implementation of the Production Linked Incentive (PLI) Scheme has played a pivotal role in reshaping India's export portfolio, transitioning from conventional commodities to higher value-added products such as electronics, telecommunication goods, and processed food items. By seizing the opportunities presented by IR-4, there is potential for the manufacturing sector to emerge as a principal driver of economic growth in India.

This blog forecasts a substantial growth trajectory for India's manufacturing sector, projecting an increase from $452.3 billion in 2023-24 to $1.03 trillion by 2047-48, with a CAGR of 13.5% (Figure 3). This projection assumes the transformative impact of IR-4, with the share of the manufacturing sector in India's GVA expected to rise significantly from 14.1% in 2023-24 to 30% by 2047-48 (Figure 4).




Export Competitiveness

Export competitiveness is a vital component of India's economic growth trajectory and its integration into the global market. In the context of the IR-4, characterized by rapid technological advancements, India's ability to adapt to evolving global trends and leverage cutting-edge technologies is critical for enhancing its export competitiveness.

In 2022, India's merchandise exports reached a value of $453 billion, ranking 18th globally and accounting for a 1.8% share, as reported by the WTO in 2023. This marked a significant 15% annual growth. Additionally, India's exports of commercial services amounted to $309 billion, securing the 7th position worldwide and capturing a 4.4% share in 2022. This segment experienced a notable growth of 29%. 

During the FY23, India's merchandise exports surged past $451 billion, while the combined value of overall exports, encompassing both goods and services, reached an unprecedented $770 billion. It is noteworthy that this accomplishment occurred against a backdrop of already elevated figures, as India's total exports for FY22 had also set a record at $676 billion. India is projected to achieve $2 trillion exports by 2030 (Figure 5). To achieve this, total exports need to grow at an average annual  rate of 13.6%, and a CAGR of 13.8%. Merchandise and services exports need to grow at CAGRs of 11.1% and 16.9%, respectively, to achieve exports of $1 trillion, each.




Panagariya (2019) highlights compelling cross-country evidence demonstrating a robust correlation between trade openness and economic growth. India boasts inherent strengths in key sectors like IT services, pharmaceuticals, automotive, and textiles, which serve as the foundation of its export prowess. However, to sustain and expand this competitive advantage, India must prioritize efforts to boost productivity, ensure high-quality standards, and foster innovation across these sectors. This entails embracing advanced manufacturing technologies, making significant investments in research and development, and equipping the workforce with the necessary skills to operate in a rapidly evolving global landscape.

Furthermore, India can capitalize on emerging opportunities in sectors such as renewable energy, electric vehicles, and digital services to diversify its export portfolio and tap into new markets. By forging strategic partnerships with global players, adopting international best practices, and streamlining trade facilitation processes, India can solidify its position as a preferred destination for international trade and investment.

In essence, enhancing export competitiveness requires a multifaceted approach that encompasses technological innovation, investment in human capital, diversification of export sectors, and collaboration with global partners. By proactively addressing these areas, India can not only sustain its current export momentum but also position itself for long-term success in the global marketplace.

Challenges and the Way Forward

Despite the immense potential, India faces several challenges on its path to realizing its growth prospects and export competitiveness in the Fourth Industrial Revolution. These include infrastructural bottlenecks, regulatory complexities, skill mismatches, and global trade uncertainties. Addressing these challenges requires concerted efforts from policymakers, businesses, academia, and civil society.

Investments in infrastructure development, technology adoption, education, and skill development are imperative to address the structural impediments hindering India's growth trajectory. Furthermore, fostering an enabling ecosystem for innovation, entrepreneurship, and sustainable development is essential to unlock India's full potential in the Fourth Industrial Revolution.

India stands at a critical juncture in its economic evolution, poised to capitalize on the opportunities presented by the Fourth Industrial Revolution. By embracing technological disruptions, fostering innovation-led growth, and enhancing export competitiveness, India can chart a path towards sustained economic prosperity and global leadership in the 21st century.

Saturday, 22 July 2023

Transforming Indian Agriculture: FPOs as Change Agents

About 86 per cent of operational farm holdings in India are in the small and marginal categories, with farmers practicing subsistence farming, and living in a VUCA (Volatility, Uncertainty, Complexity and Ambiguity) world. Due to fragmentation and disorganisation, farmers face constraints in procuring inputs like seeds, fertilisers and pesticides at reasonable prices, lack bargaining power in the market for   realising better value for their produce, and have inadequate access to technology, extension services, market, credit and crop insurance. As a result, majority of small and marginal farm holders are unable to realise optimal value from their farming operations. In order to address these and other problems encountered by these categories of farmers, farmer producer organisations (FPOs)/ farmer producer companies (FPCs)/ collectives have come into existence in the country. the Y.K. Alagh Committee (2000) constituted by Government of India (GoI), recommended the promotion of producer companies that allow the cooperative spirit to co-exist with the operational flexibility of corporates. Over the years, NABARD, SFAC and state agencies have helped form FPOs/ FPCs.

FPOs need to develop as change agents for evolving subsistence farming to farm enterprises, and developing efficient agri-value chains, for transforming the agriculture sector.  In 2020, GoI launched a Central Sector Scheme (CCS) for the promotion of 10,000 FPOs within a period of five years, with a total budgetary provision of `6,865 crore. The government will provide financial support of up to `18 lakh per FPO in their first three years. It is expected that from the fourth year onwards, the FPOs will be able to manage without this assistance. Although the government has increased hand-holding and financial support for new FPOs, this may be inadequate, as their working capital needs have not been taken care of. Banks are also reluctant to finance FPOs, as they are unsure of their creditworthiness.

The issues and challenges faced by FPOs need to be addressed by the government and all stakeholders in the FPO space, to make them sustainable institutions, enabling a significant improvement in the income and livelihoods of small and marginal farm holders. FPOs will require access to cheap credit and much more for realising their full potential. Enabling member centrality, ownership, good governance, and business planning capabilities are equally important. There also needs to be a focus on infusion of technology; well-developed backward and forward linkages, with focus on export; and improving business orientation, clarity on compliance needs, and assimilation of market preferences.

FPOs/ FPCs provide end-to-end links between farmers and their markets and allow them to improve their productivity through efficient, cost-effective, and sustainable use of resources. Farmers acquire better capacity for and access to technical know-how on crop planning and management, inputs, credit, post-harvest management, value addition, etc. They will also be able to obtain higher returns for their produce through improved access to markets. This can be achieved through fruitful collaboration with government, financial institutions, CSR foundations, civil society organisations, academia, and research agencies. 

There needs to be a policy focus on promoting inclusive agri-value chains, for the benefit of small and marginal farm holders. An effective way to make it possible is through strong and efficient FPOs/FPCs. Linking of FPOs/ FPCs through contract farming arrangements with export-oriented food processing units of food parks created under Pradhan Mantri Krishi Sampada Yojana (PMKSY), for producing processed cereals, fruits, vegetables, fish and marine products, would boost exports of processed food and raise the income of small and marginal landholders and small fish farmers.

It is observed that the larger universe of banking and the rules may not suit the nuanced requirements of FPOs. Therefore, special attention needs to be paid to the aspect of funding arrangement of the collectives in the form of term loan for their investment needs, value chain financing for meeting the credit needs along the FPO value chain, and short-term credit limits for meeting the working capital needs of FPOs/FPCs. The establishment of a social stock exchange by the government may open up the possibility of experimenting with alternative funding opportunities for the FPOs/ FPCs.

The agri-tech start-ups in India have been trying to solve problems of low productivity, sub-optimal efficiency in the supply chain, and lack of access to markets, institutional credit, crop insurance, and quality inputs. The relationship between FPOs and start-ups is symbiotic as most of the challenges faced by FPOs can be solved through partnerships. FPOs truly need to be change agents for transforming Indian agriculture.




Saturday, 7 January 2023

Attaining $100 Billion Agriculture and Food Exports: Challenges and Strategies for India

 

India is among the top ten exporting countries of agriculture and food products in the world. The country’s agri-exports grew by a robust 20.4% in 2021-22, to touch a record $50.2 billion.  The importance of India in the international agri-market is continuously increasing and the country has developed export competitiveness in certain specialised products. There has been a rising demand for Indian Basmati rice, non-Basmati rice, spices, and sugar as evident by their rising share of the total agricultural export.

The country needs to significantly enhance agriculture and food exports, while ensuring that agricultural products are globally competitive. However, global headwinds due to the Russia-Ukraine conflict, disruption in global supply chain, unprecedented inflation, and monetary tightening by central banks of the developed countries, have adversely impacted global trade, and growth prospects across countries, including India.

Unstable agri-trade regime in India, reflected by knee-jerk reactions by the government to control prices in the domestic market, by banning exports of major agri-commodities, viz., rice, wheat, sugar, or onion, has been a major factor affecting agri-exports. Imposition of Minimum Export Price (MEP) is another tool often used by the government to tame inflation. Such moves bring relief to domestic consumers, but create uncertainty among importing countries, and deprive farmers of higher returns from their produce, which also discourages them to increase the area under cultivation of the crop in the subsequent season.

India’s Agriculture Export Policy (AEP), 2018, aims at promoting a stable trade regime, while setting an export target of $60 billion by 2022 and $100 billion within a few years, thereafter. Considering the strong agri-export growth during 2021-22, and the urgency of doubling farmers’ income, a target of $100 billion agri-exports from India could be set for 2026-27. However, this would be a daunting task, considering the present global economic situation.

In order to catch up with Brazil and China in agri-exports, India needs to bring about comprehensive structural reforms in the agriculture sector, with a focus on agriculture and food exports. The prerequisite for achieving the agriculture export target of $100 billion should be a well-calibrated, comprehensive, strategic, and result-oriented agri-export policy and action plan, along with overall reforms in the agriculture and allied sector. Agriculture export reforms, free trade agreements (FTAs)/ comprehensive economic partnership agreements (CEPAs) with major trading partners, agriculture marketing reforms, developing efficient agri-value chains, and building agriculture export infrastructure, are some of the major reform measures that could be expedited.

Primary products constitute about 75 per cent of APEDA products exported from India, in terms of value (USD). Therefore, the agriculture export strategy should prioritise the development of export-oriented value chains in respect of dairy products, processed marine products, processed fruits and vegetables, cereal preparations, and organic food. As India moves towards the exports of semi-processed, processed, and specialised food products, more value addition will happen in the country leading to more employment creation and the growth of the food processing sector.

The agriculture export strategy should include the integration of value-added agriculture produce with global value chains (GVC), by adopting the best agricultural practices involving productivity gains and cost competitiveness, while enhancing farmers’ income. Export-oriented production through the development of clusters, viz., “One District One Product (ODOP)”, and dedicated supply chains will help to enhance the global image of Indian products.  

In recent years, several Indian agricultural products have been facing rejection and export bans in the EU, a key export destination for India’s agricultural exports, due to sanitary and phytosanitary (SPS) and technical barriers to trade (TBT) measures. To counter rejection by a partner country in forums like the WTO’s SPS Committee or TBT Committee, there is a need for data collection and scientific evidence-based reports. Further, it is important to build the capacity of our small, marginal, and medium farmers and processors and educate them about the export market requirements. It is, therefore, eminently important to sensitise and educate farmer producer organisations (FPOs) and other stakeholders in the agri-export value chains, on ways to address SPS/TBT-related issues. If domestic standards are aligned to international standards, there is less likelihood of product rejections, and it is easier to earn a premium price for certified products such as organic food products.

A key concern for both India and the UK, with respect to the agro-foods sector would be the removal of non-tariff barriers (NTBs). For India, for example, removal of NTBs in the form of less stringent Sanitary and Phytosanitary Requirements with respect to limits of pesticide residues, while for the UK, removal of NTBs in the form of easier labelling and registration procedures, customs requirements, etc., would be beneficial. Therefore, the India-UK negotiations for CEPA need to take note of this issue.

Growing protectionism across major economies is a serious threat to raising exports. This would require intense diplomatic efforts with India’s trading partners to finalise trade deals. Efforts to upgrade Economic Cooperation and Trade Agreement (ECTA) to CEPA with Australia, and finalise CEPAs with the UK, the EU, the US and Canada, need to gather momentum.

The strategy for promotion of agri-exports should include investments in agri-export zones (AEZs), dairy export zones (DEZ), agro-processing clusters/zones, marketing infrastructure, cold chains, warehouses, roads, railways, and logistics along the export-oriented agri-value chains, connecting to ports and airports through public, private, and Public Private Partnership (PPP) modes.

Investments in R&D, climate smart agriculture, and technology in the form of IoT, AI, and blockchain, through a well-defined start-up ecosystem, supporting pre- and post-harvest activities for agri-exports, also need focused attention for stimulating agri-exports.

Reducing food loss and waste is a solution to reduce food and nutrition insecurity and Greenhouse Gas (GHG) emissions, without impinging on activities related to core economic development. Therefore, GoI should formulate a comprehensive national policy on ‘Achieving SDG 12.3 Targets by Minimising Food Loss’, to focus not only on minimising food loss but also on leveraging the potential to increase agro-based exports, resulting in augmented farm level income.

It has been observed that there is a strong impact of export financing on agricultural exports. Availability and affordability of export credit through lesser-explored mechanisms such as factoring, commodity exchange-facilitated financing, and value chain financing, would be critical for the achievement of the ambitious target for agricultural exports.

Concerted and coordinated efforts by GoI, state governments, APEDA, MPEDA, FIEO, TPCI, NDDB, GCMMF, food and agro-processing industry, RBI, NABARD, EXIM Bank, banks, agri-tech start-ups, FPOs/FPCs, and other stakeholders in the agri-export sector, would address a whole range of issues pertaining to the promotion of agriculture and food exports.

Finally, comprehensive reforms in the agriculture sector could propel India into the top bracket of agricultural exporters in the world, while attaining $100 billion in exports of agriculture and food products by 2026-27.

(The contents of this blog have been drawn from the book India’s Agriculture and Food Exports: Opportunities and Challenges, edited by Debesh Roy & Bijetri Roy and published by Bloomsbury India, 2022)

Tuesday, 19 July 2022

Transforming Indian Agriculture: Agenda for Reforms

1. Introduction

India’s target of achieving a $5 trillion economy needs to be supported by a transformed and reformed agriculture sector. It is, therefore, imperative that the agriculture sector should support the objective by focusing on transformational reforms, while targeting an annual agri-GVA growth of 5 percent.

 The criticality of agriculture for sustainable and inclusive growth of the Indian economy can be gauged from the fact that, the sector provides employment to about 42.4 per cent of the total workforce in India, but contributes only about 16.4 per cent (2020-21) to the country’s real Gross Value Added (GVA)[1]. About 86 per cent of operational holdings in the country are in the small and marginal categories, and the average size of an operational holding is only 1.08 hectare (ha). Due to fragmentation and disorganisation, majority of the small and marginal farm holders are unable to realise optimal value from their farming operations, resulting in agrarian distress.

 This paper deliberates on a reforms agenda for transforming the sector for doubling farmers’ income (DFI) and empowering small and marginal farm holders to move from subsistence farming to farm enterprises integrated to agri-value chains, while managing the VUCA (volatility, uncertainty, complexity, ambiguity) world to mitigate agrarian distress.

 The rest of the paper is organised as follows: Section 2 presents growth trends in Indian agriculture during the period 2010-11 to 2019-20. Critical issues and challenges in the agriculture sector in India are discussed in section 3. Section 4 presents the agenda for reforms to transform Indian agriculture. Section 5.

2. Indian Agriculture Sector: Growth Trends

The average annual growth of agri-GVA during the period 2012-13 to 2020-21[2] stood at 3.2 percent. The period witnessed sharp dips in the growth in 2012-13 (1.5 percent), 2014-15 (-0.2 percent) and 2015-16 (0.6 percent) (Figure – 1), due to less than normal monsoon rainfall in these years. On the other hand, good monsoon rains resulted in high growth rates in agri-GVA during the years 2013-14 (5.6 percent), 2017-17 (6.3 percent), 5.0 percent (2017-18), 4.0 percent (2019-20) and 3.6 percent (2020-21) (Figure-1). However, in spite of India making great strides in terms of food security and being the leading producer of rice, wheat,  pulses, sugarcane and cotton, agriculture in the country continues to be heavily dependent on monsoon rains.  


Source: Data accessed from: (1) Press Note on First Revised Estimates of National Income, Consumption, Savings and Capital Formation 2018-19, MoSPI, Government of India; and (2) Press Note on Provisional Estimates of Annual National Income, 2020-21, 31 May 2021, MoSPI, Government of India.

The country recorded its highest foodgrain production of 303.3 million tonnes (MT) in 2020-21. However, the CAGR of foodgrain production during the period 2011-12 to 2019-20 was only 2.0 percent, due to low CAGR of rice (1.7 percent), wheat (1.9 percent), and nutri/ coarse cereals (1.9 percent). Pulses recorded the highest CAGR of 4.3 percent, due to sharp increase in production in 2016-17, as the farmers were encouraged to grow pulses, on account of significant increase in minimum support prices (MSPs).

 Among commercial crops, groundnuts experienced the highest CAGR of 4.7 percent, during the period under review. The CAGRs of other crops were very low, e.g., Soybean (0.2), sugarcane (0.7 percent), tea (2.2 percent), coffee  (0.4 percent), cotton (-0.4 percent), and jute and m

3. Indian Agriculture:  Critical Issues and Challenges

India is self-sufficient in the production of foodgrains, horticulture crops and milk. However,  Indian agriculture has long been suffering from structural problems, which need to be addressed urgently. Farmers in India, truly live in a VUCA world of volatile prices, uncertain rainfall and income, complex institutional mechanisms, restrictive laws, and policy ambiguities. Some of the critical issues and challenges confronting Indian agriculture are presented in the following sub-sections.

 

3.1 Small Size of Holdings and Low Income

The predominance of small and marginal holdings in India has resulted in inefficiency in cultivation and low average income of farmers. The findings of NABARD All India Rural Financial Inclusion Survey 2016-17 (NAFIS) (NABARD, 2018), reveal that for agricultural  source of income, with the average monthly contribution of ₹3,508 (43.1 percent)  to the total income of ₹8,136, while cultivation contributed 7 percent (₹566). On the other hand, the share of average monthly income from cultivation in respect of agricultural households with landholdings of  greater than 2 ha was 51.6 percent (₹7,572). The findings of NAFIS indicate a positive correlation between the average monthly income and size class of land possessed. Further, states like Punjab (23,133), Haryana (18,496) and Kerala (16,927) have witnessed much higher average income of agricultural households, compared to Uttar Pradesh (6,668), Andhra Pradesh (6,920), and Jharkhand (6,991). Therefore, reducing regional disparities in agricultural income need to be prioritised.

Strategies for promoting sustainable agricultural growth and enhancing farmers’ income, should include a group approach through farmer producer organisations (FPOs), which can improve market access to land, and help spread the risk of farming among a larger number and increase production opportunities by experimenting with higher value, and more risk prone crops with larger payoffs (Agarwal, 2016). Further, a group would be better placed to enter into non-exploitative contract farming arrangements (ibid.).

3.2 Low Agricultural Productivity

India is the largest producer of pulses and groundnut in the world, and  the second largest producer of paddy, wheat and sugarcane. However, stagnation in yield of major crops has been observed during the past two decades. The average yield of rice increased from 1,901 kg/ha in 2000-01 to 2,705 kg/ha in 2019-20  (Table-1), at a CAGR of 1.8 percent . The second decade (2010-11 to 2019-20) witnessed a marginally higher CAGR of yield of rice at 1.7 percent against 1.6 percent in the previous decade (2000-01 to 2009-10).  Wheat experienced an increase in average yield from 2,708 kg/ha in 2000-01 to 3,421 kg/ha in 2019-20, at a CAGR of 1.4 percent. The CAGR of productivity of wheat increased from 0.7 percent during the decade 2000-01 to 2009-10 to 1.5 percent during the following decade (2010-11 to 2019-20).  Pulses experienced a CAGR of yield of 1.5 percent in both the decades under review.

 Among commercial crops, a sharp increase in yield of cotton was witnessed during 2013-14 (532 bales/ ha compared to 190 bales/ ha in 2000-01), due to the introduction of Bt cotton in 2009-10. The CAGR of yield of cotton during the past two decades (2010-11 to 2019-20) stood at 11.3 percent (Table – 2). However,  the CAGR declined sharply from 4.3 percent during the decade 2000-01 to 2009-10 to -2.1 percent during 2010-11 to 2019-20, reflecting a stagnation in yield of cotton, after benefitting from the introduction of Bt cotton.  Groundnut has witnessed an increase in CAGR of yield from 3.3 per cent during the first decade to 4 percent during the following decade (2010-11 to 2019-20), mainly due to the introduction of improved varieties of seed. Yield of major crops in India also compare poorly with that of other countries in the world.

Table – 1

                       Yield of Foodgrains in India                                    

(Kg/ha)

Crops

2000-01

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20 (4th AE)

Rice

1901

2239

2393

2461

2424

2390

2400

2494

2576

2638

2705

Wheat

2708

2988

3177

3117

3075

2872

3034

3200

3368

3533

3421

Nutri/ Coarse cereals

1027

1531

1590

1617

1677

1729

1579

1750

1934

1944

1976

Pulses

544

691

699

789

764

744

656

786

853

757

817

Total Foodgrains

1626

1930

2078

2129

2101

2070

2056

2129

2235

2286

2325

                      Source: Handbook of Statistics on the Indian Economy 2019-20, RBI

Table – 2

Yield of Commercial Crops in India

                                                                                    (Kg/ha)

Crops

2000-01

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20 (4th AE)

Groundnut

977

1411

1323

996

1750

1400

1465

1398

1893

1422

2065

Soybean

822

1327

1208

1354

983

950

738

1177

1058

1192

928.0

Total oilseeds

810

1193

1133

1169

1153

1037

968

1195

1284

1271

1236.0

Sugarcane

68577

70091

71668

68254

69839

69859

70720

69001

80198

80105

77893

Tea

1682

1726

1956

2027

2121

2113

2176

2165

2285

2109

2126

Coffee

959

838

852

846

799

847

876

761

765

767

718

Cotton

190

499

491

486

532

461

415

512

443

378

451

Jute & Mesta

1867

2192

2283

2281

2449

2550

2421

2585

2435

2508

2641

Source: Handbook of Statistics on the Indian Economy 2019-20, RBI   


3.3 Stagnant Capital Formation in Agriculture

Capital formation in agriculture is of critical importance for the sustainability of agricultural growth.  The percentage share of Gross Capital Formation (GCF) in agriculture and allied sector in the Gross Value Added (GVA) of the sector, declined steadily from 18.2 percent in 2011-12 to 14.7 percent in 2015-16, before rising slowly to 16.4 percent in 2018-19 (Figure-2), which is too meagre to address the issue of sustainability of Indian agriculture. Therefore, capital formation through rural infrastructure development assumes significance. Public sector investment in rural infrastructure would result in high growth of the agricultural sector, and could also crowd-in private sector investment.


Source: Based on data accessed from Economic Survey 2020-21, Ministry of Finance, GoI and National Income Statistics 2020, MoSPI, GoI

 

3.4 Climate Change and Agriculture

Climate change poses a major and growing threat to food security (FAO, 2016). It would be a daunting challenge to produce enough food for the increasing population in the face of decreasing resources and changing climate. The estimated loss in yields in respect of major crops like rice (-30 per cent), wheat (-23 per cent) and maize (-31 per cent) during 2050-69 in India, due to climate change is quite alarming. Further, the net emissions from agriculture in carbon dioxide equivalent in 2014 in the world was as much as 5,241,761 thousand tonnes. China (707,640 thousand tonnes), India (626,864 thousand tonnes) and Brazil (441,905 thousand tonnes) account for the major quantum of net emissions from agriculture (FAO, 2016).

 

3.5 Market Constraints

A critical problem faced by India’s agriculture sector is the fragmented and distortions-ridden state of agricultural markets. One of the major reasons for low income of farmers is lack of competitive market structure, which is bereft of transparent price discovery system. Small and marginal farm holders lack the bargaining power to sell their produce at remunerative prices due to the exploitation by traders (arhatiyas) in the Agriculture Produce Marketing Committee (APMC) markets. Lack of aggregation of produce makes it uneconomical for farmers to transport their produce to the APMC markets for their sale. 

 GoI announces Minimum Support Price (MSP) in respect of 23 commodities. However, only few states like Punjab, Haryana and M.P.,  have strong procurement systems and FCI procures major quantities of wheat from these states (84.8 percent during Rabi Marketing Year 2020-21).

 

           4. Transforming Indian Agriculture:  Agenda for Reforms

An agenda for reforms to transform Indian agriculture is presented in the following sub-sections.

4.1 Doubling Farmers’ Income

GoI has envisioned the achievement of doubling farmers’ income (DFI) by the year 2024-25. The following seven-point strategy for DFI is mostly under implementation: (i) irrigation with focus on water-use efficiency, viz. “per drop more crop” (PDMC) through Pradhan Mantri Krishi Sinchayee Yojana (PMKSY); (ii) quality seed and soil health, (iii) investments in warehouses and cold chains; (iv) value addition through food processing; (v) electronic National Agriculture Market (e-NAM); (vi) increase in the coverage and effective implementation of Pradhan Mantri Fasal Bima Yojana (PMFBY); and (vii) promotion of ancillary activities like dairy, poultry, bee-keeping and fisheries. The strategy for DFI, involving increase in private investment by 6.62 per cent per annum from the base year 2015-16 at the national level, should also include among others: (a) promoting higher agricultural growth in less developed regions, including rainfed areas, with a focus on marginal and small holders; (b) strengthening livestock related activities and crop diversification to high value produce like horticulture, in line with market signals; (c) shifting priority focus to post-production management and the agricultural marketing system; (d) sizeable increase in institutional credit to farmers; (e) allocation of more resources by state governments towards minor irrigation; and (f) incentivising private corporate sector to participate in investments in agriculture (GoI, 2017). In order to achieve DFI, GoI can use income policy to protect the poor, free up prices for farmers, and allow private trade to stock and operate freely and have unhindered exports (Gulati and Hussain, 2017). What is also needed is the continuance of PM-KISAN, with possibly a higher allocation, along with top-up by states, on the lines of YSR-Rythu Bharosa-PM-KISAN of Andhra Pradesh.

 

 4.2 Irrigation and Water-use Efficiency

India is a water-stressed country, and the declining per capita availability of water in the country poses a major challenge to the growth of agriculture. Out of the country’s 4 percent share of global freshwater availability, the agriculture sector consumes about 78 percent share of water (Sharma, et al., 2018). However, while only 48.7 per cent of the net sown area in the country is irrigated, the depletion of groundwater, which accounts for about 60 per cent of the country’s irrigated area, has adverse impact on irrigation cost and crop productivity. Therefore,  implementation of  PMKSY and PDMC should create higher irrigation potential and ensure water-use efficiency.

 

The overall irrigation efficiency in India is observed to be low compared to global standards due to the use of conventional flood irrigation technique, practised in large parts of the country. In order to improve water-use efficiency of crop cultivation, the use of precision irrigation technologies needs to gain momentum. Water stress can be reduced and availability of water can be increased through cost-based water pricing. There is also a need to make a paradigm shift from use of input intensive technology to significantly enhancing input productivity, e.g., the use of water-saving technology like micro-irrigation, System of Rice Intensification (SRI), direct seeded rice, zero tillage, etc.


  4.3 Tech-driven agriculture

According to NITI Aayog (2018), Artificial Intelligence (AI) will have significant global impact on agricultural productivity at all levels of the value chain. AI and embedded systems in agriculture sector via smart irrigation system can result in the efficient use of water resources. Drip irrigation system can be fully automated using IoT, resulting in significantly higher crop yield due to much better water-use efficiency than traditional drip irrigation system. NITI Aayog and IBM have partnered to develop a crop yield prediction model using AI to provide real time advisory to farmers. Also, Microsoft in collaboration with ICRISAT, has developed an AI Sowing App. The app sends sowing advisories to participating farmers on the optimal date to sow. 

According to NASSCOM and Zinnov (2020), agri-tech start-ups are using technology drivers such as AI, machine learning (ML), robotics and satellite communication to serve farmers’ needs. The interface of agriculture with technology steered entrepreneurship is increasing competitiveness, leveraging digitisation and relying on innovation to solve varied challenges in the sector (Kant, 2021). There are 735 agri-tech start-ups in India which are enabling Indian agriculture to become future ready, and there is a need to scale up the agri-tech start-up ecosystem for the benefit of majority of farmers.

4.4 Agriculture Marketing Reforms

GoI’s vision of DFI signified a paradigm shift in agriculture policy from ensuring food security to income security of farmers, by maximising their gains through post-production activities. The enactment of Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (FPTC Act, 2020), Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 (FAPAFS Act, 2020) and Essential Commodities (Amendment) Act, 2020 (ECA, 2020), signified the ushering in of the long-awaited comprehensive  agri-marketing reforms. However, the Acts have since been repealed, in response to the year-long agitation by a section of farmers against the Acts. It is, therefore, imperative for the central and state governments, along with agriculture scientists, economists, farmers, agri-tech companies, corporate sector, and all stakeholders to start a consultative process to facilitate state governments to enact agriculture marketing reform Acts, and for GoI to enact a law facilitating easy inter-state movement of agri-commodities/ produce. Further, in order to develop an efficient nation-wide  agri-marketing system, e-NAMs need to be scaled up and made more efficient, and all private markets and accredited warehouses should be linked to e-NAMs.

4.5 Rural Infrastructure and Efficient Agri-Value Chains

Investment in rural infrastructure is a pre-condition to enable the acceleration of agricultural growth, creation of new economic opportunities, and generation of employment. It is, therefore, worth appreciating that the Union Budget 2021-22 has enhanced the allocation under Rural Infrastructure Development Fund (RIDF), administered by NABARD, by a whopping 33.3 percent to `40,000 crore over the allocation in the previous year’s Budget.

Further, setting up of mega food parks, integrated cold chains, food processing units, agro-processing clusters, and implementation of Operations Greens Scheme, under GoI’s comprehensive package of PM Kisan SAMPADA Yojana (PMKSY) , will not only provide a big boost to the growth of food processing sector in the country but also ensure higher income to farmers, while creating huge employment opportunities especially in the rural areas, reducing wastage of agricultural produce, and enhancing the export of processed foods. The Production Linked Incentive (PLI) Scheme for the food processing sector is a step in the right direction.

 India is the largest producer of milk in the world, having increased from 146.3 million tonnes in 2014-15 to 198.4 million tonnes in 2019-20 (GoI, 2021). The country is also the second largest fish producing country in the world, and fisheries is the fastest-growing (12 percent real GVA growth in 2018-19) sub-sector of agriculture and allied sector.  A focus on development of efficient dairy and fisheries value chains could significantly increase employment and improve the income of smallholder farmers.


4.6  Agriculture Export Reforms

India ranks among the top ten exporters of agricultural products in the world.  According to WTO’s World Trade Statistical Review 2021, the country’s share in global agricultural exports increased from 1.1 percent in the year 2000 to 2.2 percent in 2020, valued at $39 billion, In order to catch-up with Brazil ($89 billion) and China ($82 billion), India needs to bring about structural reforms in the agriculture sector, including a stable trade policy regime (Roy, 2021).

India’s agricultural exports experienced huge fluctuations during the period 2011-12 to 2020-21 (Figure – 3). The ten-year CAGR was -0.6 percent. During the first five-year period 2011-12 to 2015-16, the CAGR was -3.0 percent. The second five-year period (2016-17 to 2020-21) witnessed a positive CAGR to 2.4 percent.

CAGR:  2011-12 to 2020-21 = -0.6%; 2011-12 to 2015-16 = -3.0%; 2016-17 to 2020-21 = 2.4%

Source: Author’s calculations based on data accessed from Economic Survey, Government of India (various issues) and World Trade Statistical Review 2021, WTO

The Agriculture Export Policy (AEP), 2018 of GoI, aims at achieving an export target of $60 billion by 2022 and $100 billion within a few years, thereafter. This is indeed a humongous task, and achieving the target would involve a paradigm shift from a “business-as-usual” approach to a well-calibrated, comprehensive, strategic  and result-oriented agri-export policy and action plan.

 The agri-export strategy should include integration of value-added agri-produce with global value chains (GVC), by adopting the best agricultural practices involving productivity gains and cost competitiveness. Also, in order to boost exports of dairy products and make the dairy sector globally competitive, GoI needs to consider the development of Dairy Export Zones (DEZs) in collaboration with state governments (Roy, 2021). The AEP has recommended the establishment of Agriculture Export Zones (AEZs), to facilitate value addition of agri-commodities for increasing exports in a WTO compatible manner. In order to ensure higher income to farmers, FPOs need to be linked to AEZs to supply SPS-compliant agri-products. 


4.7  Climate Mitigation and Adaptation for Sustainable Agriculture Development

Climate Smart Agriculture (CSA) works to reconcile the objectives of sustainably increasing agricultural productivity and incomes, building resilience and adapting agriculture to climate change, and reducing and removing greenhouse gas emissions from agriculture (FAO, 2019). Drip irrigation is a CSA technology, which saves water and energy, while reducing GHG emissions. Expansion in the use of solar-powered AI-based drip irrigation systems across all states in India and for major crops, viz. rice, wheat, horticultural crops and sugarcane can be an integral part of a Water-Energy-Food (WEF) nexus approach to support water-use efficiency, use of renewable energy and mitigation of GHG emissions, food security and sustainable agriculture.

 Methane (CH4) emissions contribute to a third of the current anthropogenic GHG warming. Paddy cultivation contributes about 15-20 percent of the total anthropogenic CH4 emissions. Methods like System of Rice Intensification (SRI), drip irrigation, soil amendments, organic matter management, different tillage, rotation, and cultivar selection, can facilitate mitigation of methane emission (Roy, 2020).

 

4.8 Research and Development and Extension Services

The needs of farmers in terms of information and technology support have become more complex, due to the rapid pace of developments in the agriculture sector. India needs a vibrant, responsive, market oriented and globally competitive agricultural research ecosystem (NITI Aayog, 2017). Budgetary resources for R&D on seeds (HYV and GM), and agri-technology,  need to be enhanced significantly.  The private sector, too, needs to enhance investment in R&D. Further, there is a need to revitalise agriculture extension services by making them more relevant and useful in order to improve agricultural productivity. Also, efforts need to be made to enhance post-harvest processing and value-added activities at the farm. FPOs/ FPCs could be developed into alternative agencies for providing extension services to farmers.

4.9  Agriculture Credit

Adequate and timely availability of bank credit, at affordable rates of interest is essential to improve agricultural productivity and sustainability. The  focus needs be on ensuring increased credit flows to high-growth and high-value activities, viz. animal husbandry, dairy, and fisheries, along with horticulture, farm mechanisation, warehouses and cold chains, to farmers, FPOs and agripreneurs. It is imperative to increase the share of agriculture term loans in total agriculture credit disbursed, from the current 40 percent to 60 percent, to accelerate  capital formation in agriculture.


4.10        Risk Management

The PMFBY, which aims to provide insurance coverage and financial support to the farmers in the event of failure of any of the notified crops as a result of natural calamities, pests and diseases, needs to be redesigned for timely and adequate support to farmers.  Futures markets provide a market mechanism to balance the imbalance of the supply-demand pattern of agricultural commodities. Also, the combination of futures and options can give market participants the benefit of price discovery of futures and simpler risk management of options. FPOs need to be encouraged to participate in futures and options trading of NCDEX.

 

     5. Conclusion 

An enabling environment for agricultural sustainability needs to be created through massive investment in irrigation, with a focus on water-use efficiency, enhancement in total factor productivity of crops, tech-driven agriculture,  climate-smart agriculture, creation of rural infrastructure, development of efficient agri-value chains, agri-marketing reforms, promotion of agri-exports, enhancing spending on R&D, credit innovations, and agri-risk management. Also, tenancy reforms need to be carried out by states. Effective implementation of these transformative reforms, could lead to sustainability of Indian agriculture, and facilitate the achievement of doubling farmers’ income by 2024-25, while mitigating agrarian distress. Reforms would create an ecosystem which promises to enable farmers to come out of the VUCA world.

 (This blog is drawn from paper published in Indian Economic Journal Special Issue of the 103rd Annual Conference of the Indian Economic Association)

References:

Agarwal, Bina. 2016. “Rethinking Agricultural Production Collectives: The Case for a Group Approach to Energise Agriculture and Empower Small Farmers” in C.Ramasamy and K.R.Ashok (Eds.) Vicissitudes of Agriculture in the Fast Growing Indian Economy: Challenges, Strategies and the Way Forward, Indian Society for Agricultural Economics, Academic Foundation, New Delhi.

FAO. 2016. State of Food and Agriculture 2016.

FAO. 2019. Climate-smart Agriculture and the Sustainable Development Goals

Government of India. 2017. Report of the Committee on Doubling Farmers’ Income, Volume II, Ministry of Agriculture and farmers’ Welfare, New Delhi.

Government of India. 2021. Economic Survey 2020-21, Vol.2, Ministry of Finance.

Gulati, Ashok and Siraj Hussain. 2017. “Chasing a Dream: Doubling Farmers’ Income by2022", Financial Express, August 28, 2017, Mumbai.

Kant, Amitabh. 2021. “Sowing Future Growth: Advantage Agritech for Farm  Sector Transformation.” Financial Express, January 15, 2021.

NABARD, 2018. NABARD All India Rural Financial Inclusion Survey 2016-17 (NAFIS)

NASSCOM and Zinnov. 2020. Indian Tech Start-up Ecosystem 2020.

NITI Aayog. 2017. India: Three Year Action Agenda 2017-18 to 2019-20, NITI Aayog, New Delhi.

 NITI Aayog. 2018. Discussion Paper: National Strategy for Artificial Intelligence. NITI Aayog, New Delhi.

 Roy, Debesh. 2020. “Green development: Strategising mitigation of agricultural methane emissions”, Financial Express,  August 24, 2020.

 Roy, Debesh. 2021. “Doubling Farmers’ Income: Increasing Agricultural Exports is Key.” Financial Express, January 12, 2021.

Sharma, Bharat R., Ashok Gulati, Gayathri Mohan, Stuti Manchanda, Indro Ray, and Upali Amarasinghe, 2018. Water Productivity Mapping of Major Indian Crops. NABARD & ICRIER



[1] Based on data accessed from Press Note on Provisional Estimates of Annual National Income, 2020-21, National Statistical Office Ministry of Statistics & Programme Implementation,  Government of India, 31 May 2021.

[2] 2020-21 data is as per Second Advance Estimate of GDP, 26 February 2021, MoSPI, GoI.