India finds itself in a piquant situation. While its population, and with it the number of poor, is growing, its cultivable land is not only shrinking, more worryingly, the economic returns of the agricultural use are diminishing vis-a-vis non-agricultural use. The situation may not be alarming right now, but if it continues, India will soon face a threat to its food security.
This threat emanates from two developments. One, India may already have run out of non-cultivable land to meet its needs for industrialisation and urbanisation. This has provoked a section of the government, social activists, farmers and other stakeholders to argue that industry be shifted to wastelands or deserts to save agricultural land. Industry, like agriculture, needs inputs such as water and labour, which come at a huge cost in barren or wasteland. Are we willing to pay higher costs for our manufactured products? Probably not, because this creates a threat from cheaper imports and brings about a slow death of our manufacturing.
Two, the land pricing mechanism has developed in a way that it makes more economic sense for farmers to sell it than use it for farming. A study has shown that factors such as location and level of industrialisation have become more important determinants of the price of land than its productivity, indicating that farmers stand to gain more by selling their fertile land with locational advantages for industrial or urbanisation purposes. If this trend continues, chances are India would rapidly lose agricultural land, threatening its future food security.
The key to India’s food security, it appears, lies in re-framing the agriculture policy in a way that it incentivises farming to make it more lucrative and competitive. It may sound absurd but one way of doing that could be to actually subsidise it. Before this proposition is laughed out, here are the harsh ground realities.
The fact that India may have run out of allocable land for developmental purposes is acknowledged in the National Land Utilisation Policy of 2013 (NLUP). It says: “Between 1950-51 and 2007-08, land utilisation in India underwent significant changes. While the lands under net sown area, forests and non-agricultural uses have increased, the lands under ‘other areas’ uses have almost halved from 40.7% to 22.6%, meaning that for future land demands, the forest lands and agricultural lands may have to be used.”
NLUP recognises the threat to India’s food security and seeks “reasonable restrictions on acquisition and conversion (of) at least certain types of agricultural land.” The new land law (LARR Act, 2013) goes a step further and says that “irrigated, multi-cropped land” can be acquired only “as a demonstrable last resort”. But given the current mood to fast-track GDP, revive manufacturing and urbanise by creating 100 Smart Cities, that may be easier said than done.
More so, since farming is losing its shine and farm land is shrinking. The Economic Survey of 2013-14 says about 36 million workforce moved out of agriculture and allied activities between 2004-05 and 2011-12. Official data show that cultivable land reduced from 183 million hectares in 2000-01 to 181 million hectares in 2011-12.
Compounding the problem is the declining economic value attributable to fertility of land with regard to transactions that are not for farming. This may seem logical in an expanding economy, but a recent study carried out in collaboration with the ministry of rural development and German development agency GIZ proves it with data. It shows that geographical location like proximity to rail, highways, commercial developments, etc, and the level of industrialisation outweigh fertility in determining the value of land, and the influence of fertility has been progressively declining. This implies that the farmers stand to gain more by selling land with locational advantages than by growing foodgrains.
The current land valuation method, known as ‘circle rates’ in most states, is based on prior transactions in the area and is normally for sale of agricultural land, hinges mainly on fertility, access to irrigation and other factors which are fundamental to agriculture. This grossly undervalues the land price if such land is acquired for industry, housing or commercial purposes.
The new land law may have enhanced the compensation package by introducing a multiplier to the circle rate and adding a solatium, but it retains the circle rate method of pricing the land. So long as the circle rate remains, the incentive to swap farmland for non-farm use will continue. And so will the potential threat to India’s food security that the loss of farmland would entail. Increasing productivity may have compensated for the loss of farmland and migration of the agricultural workforce, but beyond a point, productivity alone wouldn’t be sufficient. The debate over modified seeds would continue for years and no short-term solutions to increase productivity are likely to emerge, given the low outlay of agricultural research in India. India would need to protect its farmlands and that would create a discomforting choice between the apparent profits available to farmers by way of selling their productive land or plying a trade that has lower economic returns and significant risks of failure.
Farm subsidies, be they in the form of crop insurance or MSP, are meant to ensure that agricultural activities flourish and remain economically viable so that there is adequate supply of foodgrains. In the current context, India would need to find a mechanism to compensate farmers for not exercising their right to sell productive land but continue to grow foodgrains; a mechanism that is fair and equitable and transfers the entitlements from the consumers to the producer. Call it subsidy or by any other name, this would only be an innovative addition in order to protect the farmland and the farmers and would be worth the effort given the bigger threat looming ahead.
Prasanna Mohanty & Kaushik Dutta
Prasanna Mohanty and Kaushik Dutta work for the Thought Arbitrage Research Institute, a not-for-profit research think tank