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What the editorial is about?
India’s Agriculture Orientation Index (AOI) and the need to step-up Agri spending.
The overall budgetary allocation towards the agricultural sector has marginally increased by 4.4% in the Union Budget 2022-23. But India’s Agriculture Orientation Index (AOI) is one of the lowest in Asia and among several other middle-income and upper-income countries.
- While the overall budgetary allocation towards the agricultural sector has marginally increased by 4.4% in the Union Budget 2022-23, the rate of increase is lower than the current inflation rate of 5.5%-6%.
- The Food and Agriculture Organization (FAO) of the United Nations (UN) report for 2001 to 2019 shows that, globally, India is among the top 10 countries in terms of government spending in agriculture, constituting a share of around 7.3% of its total government expenditure.
- However, India lags behind several low-income countries such as Malawi (18%), Mali (12.4%), Bhutan (12%), Nepal (8%), as well as upper-middle-income countries such as Guyana (10.3%) and China (9.6%).
Agriculture Orientation Index (AOI)
- The Agriculture Orientation Index (AOI) is an index that was developed as part of Goal 2 (Zero Hunger) of the 2030 Agenda for Sustainable Development in 2015.
- The Sustainable Development Goal (SDG) 2 emphasizes an increase in investment in rural infrastructure, agricultural research and extension services, development of technology to enhance agricultural productivity and eradication of poverty in middle- and lower-income countries.
- The AOI is calculated by dividing the agriculture share of government expenditure by the agriculture value-added share of GDP. In other words, it measures the ratio between government spending towards the agricultural sector and the sector’s contribution to GDP.
India’s AOI Index
- India’s index is one of the lowest, reflecting that the spending towards the agricultural sector is not commensurate with the sector’s contribution towards GDP.
- Although the AOI has shown an improvement since the mid-2000s, as part of the general revival that took place in several middle-income countries, India’s AOI is one of the lowest in Asia and among several other middle-income and upper-income countries.
A Comparison with Asia
- Asia as a whole performs much better, with relatively higher performance by Eastern Asian countries. China has been doing remarkably well with an index steadily improving and crossing one.
- Similarly, in countries such as the Republic of Korea, the value of AOI has been greater than one and greater than two since 2005-06 respectively.
- Even lower-income African countries such as Zambia, have commendable spending in the agricultural sector despite being a landlocked country.
- India holds only the 38th rank in the world, despite being an agrarian economy wherein a huge population is dependent on the agricultural sector for its livelihood, and despite being among the largest producers of several crops produced and consumed in the world.
- The enormous spending on the agricultural sector by East Asian countries is also reflected in their higher crop yield. For example, the total cereal yield in India is only around 3,282 kilograms per hectare compared to 4,225 kg per hectare in Asia.
- Within the Asian region, Eastern Asia has the highest cereal yield of 6,237 kg per hectare.
- In China, even with an average landholding size of 0.6 hectares, which is much lower than India’s average landholding size, the performance of the sector in terms of crop yield is much higher than in India. For example, the cereal yield is 6,296 kg per hectare, pulses yield is 1,815 kg per hectare and vegetable crops yield is 25,546 kg per hectare in China; the corresponding figures for India are 3,282 kg, 704 kg, and 15,451 kg, respectively.
- Both India and China are among the world’s largest producers of wheat, rice, cotton and maize.
- A closer look at the budgetary allocation towards the agricultural sector shows that there has been a drastic slashing of funds toward important schemes such as crop insurance and minimum support price (MSP).
- Even with an overall increase in budgetary outlays, the allocation towards Market Intervention Scheme and Price Support Scheme (MIS-PSS) was only ₹1,500 crore.
- This is 62% less than the previous allocation of ₹3,959.61 crores in revised estimates (RE) of FY 2021-22.
- Similarly, the Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA) experienced a significant reduction to only one crore as against the allocation of ₹400 crores in 2021-22.
- It was allocated just ₹1 crore for the year as against an expenditure of ₹400 crores in 2021-22.
- Both schemes are pertinent to ensure MSP-based procurement operations in the country, especially for pulses and oilseeds.
- Furthermore, the distribution of pulses to States for welfare schemes has also been reduced to ₹9 crores as compared to the ₹50 crores of FY 2021-22 (revised estimates) and the allocated amount of ₹300 crores in the year 2021-22.
- Additionally, there is an overall reduction in ₹718.8 crores in total central schemes/projects, which may have serious implications for the performance of the sector.
Capital Investment in the Agricultural Sector
- Capital investment in the agricultural sector is more crucial than price support programmes. But there has not been any considerable and commensurate increase in the allocation towards capital investment, especially for the promotion of rural infrastructure and marketing facilities.
- Allocation for rural development was 5.59% in the previous Budget and it has been reduced to 5.23%.
- The allocation of funds towards schemes such as Pradhan Mantri Kisan Samman Nidhi (PM KISAN), Pradhan Mantri Kisan Maandhan Yojana, though desirable, will not result in long-run asset generation.
- The intensification in government spending towards the agricultural sector is the key to attaining the sustainable development goals of higher agricultural growth and farm income.
- The focus on the development of irrigation facilities, urban infrastructure and development of national highways must be complemented with an emphasis on the development of rural infrastructure and rural transportation facilities, along with an increase in the number of markets, as suggested by the National Commission on Farmers.
- These measures will play a crucial role in enhancing farmers’ access to markets and integrating small and marginal farmers into the agricultural supply chain to a greater extent.
- India’s poor AOI is a stark reminder of the need to attain a key sustainable development goal of higher Agri-growth.