Indian Agriculture - Of productivity & use of chemical fertilizers

Home to more than 110 bn people, if India can provide its population two square meals per day, the global hunger will go down by half. By linear method of calculation, in the year 2020, it is estimated that India’s population will be 138 billion and the food grain requirement will be 268 million MT.

Longest day length hours diversified climatic condition, diversified soil, diversified crop, highest irrigated land, ecological condition supporting all types of crop. Over the last 40 years, food production has grown multi folds thanks to increased fertilizer usage, hybrid seeds and better irrigation facilities.

The Problem: However, productivity levels for various crops still below world average. Growing population, shrinking agricultural land, limited scope for irrigation, limited growth in mechanization primarily due to fragmented land holding, low level of agriculture extension services, stagnant food production despite increase in fertilizer consumption and neglect of organic fertilizer use are affecting farmers’ profitability. Farmers want to quit agriculture if other option is available.

Fertilizer usage and productivity: With shrinking agricultural land and the limited scope for irrigation given the long gestation periods for constructing viable dams, the onus is now more on improving the “soil health” through effective use of “fertilizers” for better productivity of food grains.

Food grain consumption crosses 250 million MT in 2010 and the challenge is to produce more from the shrinking arable land. Increased demand of food grains will drive nutrient consumption from 25 million MT to 29 million MT. In this scenario, increasing yield will be the key for future sustenance. For the last 10 yrs, Crop yield growth rate has been only 1.20% where as Nutrient consumption has grown by 3.6%. Fertilizer use efficiency is the major concern in the Indian Agriculture.

Indian Chemical Fertilizer Industry is the largest in the world and ranks second both in production and consumption. The industry produces over 50m MT of fertilizers from 28 operational urea plants, 12 DAP plants, 19 complex fertilizer plants and about 80 single Super Phosphate plants.

However, bulk availability of nutrient fertilisers is concentrated in certain regions. ‘N’ (Nitrogen) nutrient in Middle East, USA & FSU; ‘P’ (Phosphorous) nutrient in North/West Africa, USA & Jordan; ‘K’ (Potassium) nutrient in Canada, FSU & Middle East.

India contributes 16% of the Global consumption and imports of fertilizers for 2009-10 pegged at 18 MMTs. For the last 10 yrs, Fertilizer Subsidy Bill’s growth rate is 21.53%. Though Fertilizer Subsidy Bill has gone up, efficient usage of Fertilizer remains a major area of concern.

The Solution: While a right nutrient balance for optimum farm productivity and usage of other micro nutrients like Boron (B), Zinc (Zn), Iron (Fe), Manganese (Mn), Molybdenum (Mo), Nickel (Ni), Chloride (Cl) and Copper (Cu) can help the Indian farmer to improve productivity, the new Nutrient Based Subsidy (NBS) Scheme where the market price of the fertilizers will be determined based on demand supply balance will help the government to contain Fertilizer Subsidy Bill.

Thus, adoption of an appropriate pricing policy for ensuring balance use of fertilizers, a pricing policy to encourage use of all plant nutrients in balanced manner followed by subsidies for Research & Development in the Soil and Technology related matters are pre-requisites for ensuring continued health and growth of the fertilizer industry in India, ensuring high level of self sufficiency in food production and at the same time sustainable development of Indian agriculture. 

Why India could withstand global recession?

This article is a synopsis of a recent lecture delivered by the former RBI Governor, Mr. Y V Reddy at the Administrative College of India, Hyderabad. The lecture was comprehensive and elaborate and as a former Economics student I will try and present the key points to the best of my ability.

To understand why the Indian economy was not severely affected by the global recession, one must understand the macro-framework in India within which the financial sector operates. In recent years, there has been a conscious effort to avoid serious macro-economic imbalances such as between savings and investments; domestic and foreign demand; consumption and investment demand and role of State vis-à-vis market.

Second, the economy is vulnerable to four important sources of shocks. These are on account of (a) dependence on imported energy and oil (b) volatility in gap between supply and demand for food grains which can impact prices domestically and sometimes globally (c) fiscal problem with one of the largest public debt to Gross Domestic Product (GDP) ratios with limited headroom for public policy in the event of shocks and (d) quality of capital inflows, mainly on account of dominance of volatile portfolio flows.

Despite the potential of these shocks, political stability adds to the comfort in macro-management, but due to the geo-political reasons, the global economic architecture does not give policy comfort to India for meeting unanticipated shocks.

In a nut-shell, the macro-economic framework based on constant re-balancing is serving the country well, and has not contributed to the macro economic imbalances that might have triggered the serious consequences. India is thus a contributor to global economic stability and growth in output while successfully preserving with national interests with historically high growth and low inflation in recent years. India therefore has greater legitimacy in contributing to the resolution of ongoing debates on reforms in the context of global financial crisis.

Monetary Policy & RBI’s Changing Role: There is a general agreement that monetary policies in some countries did facilitate, if not caused, the global crisis. The redefining of the objectives of monetary policy, to include financial stability is on the global agenda of reform, while there is discomfort on excessive reliance on price-stability.

In India, the mandate for the RBI is very broad. It was interpreted to mean dual objectives of growth and price stability, the relative emphasis depending on the context. The RBI reinterpreted this a few years ago, by adding financial stability to the objectives and by ensuring of inflation of not more than 5% and 3% over the medium term per annum so as to be consistent with global trends.

More explicitly, since 2004, price and financial stability were given greater weight because the poor are impacted severely and instantly by instability while reform induced benefits of growth percolate to them with a time lag.

The importance of sustainable current account deficit in macro-management and an appropriate exchange rate have come to the fore in the recent debate on the causes of global crisis in addition to the role of capital controls. The issue of capital account management is on the agenda of the reform in view of the observed contagion during crisis, to the developing countries which are described as innocent victims.

The management of external sector, in India is characterized by (a) a sustainable current account deficit over the medium term (b) an exchange rate that is not excessively volatile (c) management of capital account that eschews short term debt unrelated to trade (d) a gradual process of liberalization of capital account and (e) extensive recourse to prudential measures over financial intermediaries which have the effect of active management of capital account.

In 2004, RBI devised an innovative mechanism, namely market stabilization bonds. This gave the government a significant role in the total amount of sterilization and thus indirectly on intervention in forex markets, by government agreeing to bear the costs of such sterilization bonds. This instrument, along with active capital account management and other multiple instruments in regard to liquidity in money and forex markets helped the RBI in managing excess sudden capital inflows during boom as well as outflows on capital account when the crisis broke out.

RBI was instrumental in delivering on several complex aspects of Indian economy, namely, maintaining stability, ensuring output close to potential output, enabling structural transformation to enhance potential output, align the growth and complexity of financial sector with reforms in related sectors both real and fiscal; and seeking gains from gradual integration with global economy while minimizing risks.

Thus, RBI tried to exercise autonomy in operations, harmony with other macro-policies in policy-issues and close coordination with government for structural changes needed for development. The development and regulation of financial sector was considered to be one part of the broader policy-mix and not something with narrow objective confined to financial sector and well defined limited set of instruments for public policy.

Financial sector reform has taken a new meaning all over the world. Until the crisis, reform of financial sector meant deregulation. That was yesterday’s reality, but today’s truth is that reform of financial sector globally means re-regulation and improving quality as well as effectiveness of regulation.

Way forward, India may feel relieved that it avoided the worst affects of the crisis in financial sector. In moving forward with appropriate reforms in financial sector, India must be aware that (a) a financial sector and its reform is not an end in itself (b) the risks are amplified if the reforms in fiscal and real sectors are not in consonance with the pace of the reform in financial sector regulation and (c) highest priority should be accorded to efficient intermediation of domestic savings and domestic investment with a wide participation of the people of India.