Agricultural Inputs and Productivity | Geography Optional for UPSC (Notes) PDF Download

Introduction

• India has consistently improved its total production of food grains over the years, with figures increasing from 72 million tons in 1965-66 to an estimated 250 million tons in 2011-12.
• However, the average productivity of Indian agriculture remains lower compared to many other countries.
• The Green Revolution, which introduced higher use of fertilizers and pesticides, initially boosted production but led to declining soil fertility and stagnation in productivity in later years.
• The average annual increase in food grain production has significantly decreased from 4.6 million tons between 1966-79 to 2.8 million tons from 1979-2010.
• This highlights the importance of not just increasing total production but also focusing on productivity and efficiency in the use of inputs.
• Given the scarcity of land and water resources, improving agricultural production in India necessitates a focus on increasing productivity through optimal input usage.
• There is a crucial relationship between total production and productivity/efficiency, with a need to balance both for sustainable agricultural growth.

Definition and Meaning of Productivity: Productivity refers to the efficiency with which inputs are used to produce outputs in agriculture. It is a measure of how effectively resources such as land, labor, and capital are utilized to generate agricultural products.

Components of Productivity: The main components of productivity include:

• Land Productivity: The output produced per unit of land, usually measured in terms of yield per hectare.
• Labor Productivity: The output produced per unit of labor, which reflects the efficiency and effectiveness of labor in the production process.
• Capital Productivity: The output generated per unit of capital used, indicating how well capital investments are translating into agricultural output.

Measurement of Productivity: Productivity can be measured using various indicators, such as:

• Yield per Hectare: This is a common measure of land productivity, indicating how much output is produced per hectare of land.
• Output per Labor Hour: This measure helps in assessing labor productivity by calculating the output generated for each hour of labor invested.

Gross Value Added (GVA) per Hectare: This indicator measures the economic value added per hectare of land, reflecting the overall productivity and profitability of agricultural activities.

Trends in Agricultural Productivity: Over the years, agricultural productivity in India has witnessed both improvements and challenges. Factors influencing these trends include:

• Technological Advancements: The introduction of improved varieties, better farming practices, and advanced machinery has contributed to higher productivity.
• Soil Health: The decline in soil fertility due to overuse of chemical inputs has negatively impacted productivity, highlighting the need for sustainable soil management practices.
• Water Availability: The availability and efficient use of water resources are crucial for maintaining and enhancing productivity, especially in water-scarce regions.

Causes of Low Productivity: Several factors contribute to low productivity in Indian agriculture, including:

• Fragmented Landholdings: Small and fragmented landholdings make it difficult to achieve economies of scale and efficient resource use.
• Inadequate Infrastructure: Poor infrastructure, including inadequate storage, transportation, and market facilities, hampers productivity and increases post-harvest losses.
• Limited Access to Technology: Farmers’ limited access to modern technology and practices restricts their ability to improve productivity.

Measures to Increase Productivity: To enhance agricultural productivity, the following measures are essential:

• Promotion of Sustainable Practices: Encouraging sustainable farming practices such as organic farming, crop rotation, and agroforestry can improve soil health and productivity.
• Investment in Research and Development: Increasing investment in agricultural research and development can lead to the creation of better varieties and improved farming techniques.
• Strengthening Infrastructure: Improving rural infrastructure, including roads, storage facilities, and market access, can significantly boost productivity by reducing post-harvest losses and facilitating better market linkages.
• Enhancing Water Management: Efficient water management practices, including rainwater harvesting and drip irrigation, can improve water use efficiency and enhance productivity, especially in arid regions.

Conceptual Overview

Production

Production refers to a quantified assessment of a situation, such as the total value of agricultural production. This can be measured in physical units (e.g., millions of tons) or in monetary terms (e.g., millions of rupees or dollars).

Output is the value of production expressed in monetary terms. It represents the total value of goods and services produced.

Value Added is the difference between the value of output and the value of inputs used in production. It is calculated by subtracting the value of inputs from the value of output, both expressed in the same units (usually monetary terms).

Partial Factor Productivity and Total Factor Productivity

• Labour and capital are the primary factors of production, but other factors like industrial climate, organizational culture, education and training, research and development, extension services, infrastructure, and political stability also play a crucial role in determining productivity.
• Labour productivity (LP) is considered a partial factor of productivity because it only accounts for the output per unit of labour without considering these other factors.
• LP is typically measured as the ratio of value added to employment, indicating the average contribution of workers to production in a given sector.
• An increase in LP over time suggests that workers in that sector are becoming more productive on average.

(ii) Capital Productivity (CP)

• Capital productivity (CP) is also a partial factor of productivity, focusing on the output per unit of capital used in production.
• CP is measured as the ratio of value added to capital, where the denominator represents the total capital used in the production process.
• This measure indicates how efficiently capital is being utilized to generate value added in production.

(b) Total Factor Productivity

• Total Factor Productivity (TFP) incorporates all factors of production, including residual factors that are not explicitly accounted for in LP and CP.
• TFP provides a more comprehensive measure of productivity by considering the contributions of all relevant factors.
• There are two primary methods for measuring TFP: growth accounting approach and econometric approach.
• The growth accounting approach involves estimating the contribution of each factor to overall growth, while the econometric approach uses statistical techniques to estimate production functions and factor contributions.
• These methods are complex and beyond the immediate focus of productivity trends in Indian agriculture.

Allocative Efficiency and Technical Efficiency

Productivity is measured as the ratio of output to input, where the numerator represents the total value of production and the denominator signifies the total value of inputs used in the production process. The focus is on identifying factors that lead to inefficient resource utilization, with the aim of minimizing these factors to achieve a more efficient use of resources, resulting in optimal output. From this perspective, productivity is an indicator of efficiency.

Allocative Efficiency

• Allocative Efficiency occurs when higher productivity is achieved through better resource allocation.

Technical Efficiency

• Technical Efficiency is attained when productivity increases due to improvements in production methods, such as adopting new technology or better organizational practices.
• Empirical studies in productivity analysis aim to identify factors contributing to efficient production in terms of these two types of efficiency.
• Another direct measure of efficiency is the ratio of value added to total or gross output, indicating the value added per unit of gross output generated.
• This measure is published in reports by the Annual Survey of Industries by the Central Statistical Organisation (CSO) in India.

Depreciation and Deflators

• Appropriate deflators are essential for converting nominal values of variables like output, value added, and wages to enable temporal comparisons over time.
• Deflators standardize these variables by converting them from current values to a constant base, allowing for comparisons based on a common reference.
• Deflation is necessary because the value of money changes over time due to factors like inflation; for instance, Rs. 100 in 1970 holds different purchasing power than Rs. 100 in 2011.
• In empirical work, the Wholesale Price Index (WPI) is used for deflating the value of output or value added, while the Consumer Price Index (CPI) is used for deflating wages paid to workers.
• Deflating value-based variables in productivity studies is crucial for obtaining a realistic understanding of the underlying conditions in real situations.

Production Function

• A production function is a mathematical representation that specifies the output of a firm based on various combinations of inputs, given a common level of technology.
• It outlines the expected levels of output for different input combinations, considering that firms may vary in how they deploy inputs while aiming for higher output and profits.
• Mathematically, a production function can be expressed as Q = f(X1, X2, X3, ..., Xn), where Q represents the quantity of output and X1, X2, X3, ..., Xn denote the quantities of factor inputs such as capital, labour, land, and raw materials.
• Cobb-Douglas Production Function
• A widely used form of production function is the Cobb-Douglas production function, expressed as Q = aX1^bX2^c..., where taking the logarithm on both sides transforms the equation into a linear form, facilitating the estimation of coefficients.
• This approach allows for the application of the least squares principle to estimate parameters, providing insights into total factor productivity and partial factor productivities for labour and capital.
• The coefficients related to labour and capital inputs carry significant economic implications, indicating returns to scale.
• Returns to Scale
• If the coefficients for labour and capital (b and c) add up to one, it signifies constant returns to scale, meaning that doubling inputs will double output.
• If the sum is greater than one, it indicates increasing returns to scale, where doubling inputs results in more than double the output.
• Conversely, if the sum is less than one, it signifies decreasing returns to scale, where doubling inputs yields less than double the output.
• Partial Elasticity of Output
• The coefficient b represents the partial elasticity of output with respect to labour input, measuring the percentage change in output while holding capital input constant.
• Similarly, the coefficient c represents the partial elasticity of output with respect to capital input, holding labour input constant.

Isoquants

• An isoquant represents different combinations of inputs (such as labour and capital) that yield the same level of output for a given technology.
• It illustrates the various ways to achieve a specific level of production by varying the input mix.
• For example, consider a hypothetical scenario with two inputs, labour (L) and capital (K), and different output levels achieved through various combinations of these inputs.
• By plotting these combinations on a graph, isoquants are formed, indicating higher levels of production with different input combinations.
•  Higher isoquants correspond to increased production levels, providing a range of factor combinations to produce a specific quantity of a commodity.

Productivity in Indian Agriculture

Two primary annual publications provide data necessary for calculating productivity indicators in Indian agriculture:

• National Accounts Statistics (NAS). This publication offers data on GDP at factor cost by industry of origin and gross capital formation by industry.
• Economic Survey (ES). The ES compiles data from various sources and includes information on the Wholesale Price Index (WPI), Consumer Price Index (CPI), area under principal crops, and yield per hectare of food grains, among other things.

The ES also publishes data at both constant and current prices.

• Area under Principal Crops. The ES provides data on the area under principal crops, aggregated to ‘all commodities’ and indexed to a base year (set at 100).
• Yield per Hectare of Food Grains. This data is also published by the ES and is crucial for understanding productivity trends.

Global Rankings. Data on India’s global ranking in major agricultural crops by area, production, yield, and yield per hectare is published by the Indian Agricultural Statistics (an annual publication by the Union Ministry of Agriculture) and the Centre for Monitoring Indian Economy (CMIE).

Productivity Indicators in Indian Agriculture

Using the data from these sources, a profile of productivity trends in Indian agriculture can be drawn, focusing on indicators such as:

• Land Productivity. This measures the output per unit of land and is a crucial indicator of agricultural efficiency.
• Labour Productivity. This measures the output per unit of labour and is essential for understanding the efficiency of labour in agriculture.

Land Productivity

• Land productivity, measured in kilograms per hectare, has shown a consistent increase from 1961 to 2009-10, as indicated in Table 13.2. The dip observed in 2010 is due to the provisional nature of the data for that year, which is expected to be revised as more accurate estimates become available. 
• However, this increase in absolute figures needs to be validated by the decadal growth rate, which smooths out changes over time and provides an average annual indicator of growth.

Labour and Capital Productivity

Labour Productivity (LP)

• Labour productivity, which measures the amount of agricultural output per worker, reached its highest point in the years following the Green Revolution, particularly around 1991, when it was 0.95 tonnes per agricultural worker. However, in the post-reform period, labour productivity saw a significant decline, dropping to 0.83 tonnes around 2001. Despite this decline, there was an improvement in the years following 2000, with labour productivity nearly reaching its 1991 level. 
•  It is important to note that the trends in labour productivity are also influenced by capital infusion, including factors such as improved seeds, fertilizers, irrigation, mechanized machinery, and infrastructure improvements resulting from public investment. 

Capital Productivity (CP):

• Capital productivity, which is calculated by dividing the GDP at factor cost for agriculture and allied activities by gross capital formation in agriculture, has shown a steady decline from 8.5 in 2004-05 to lower figures in subsequent years, reaching 5.7 in 2009-10. 
• The trends in both labour productivity and capital productivity indicate a need for increased capital infusion into agriculture, allied activities, and infrastructure to enhance agricultural productivity. 

Productivity from an International Perspective

• The global average for the proportion of total land under cultivation compared to the total geographical area is about 32 percent. In contrast, India has a higher proportion of total land under agriculture at 46.1 percent.
• India performs better in this regard than countries like the United States (40 percent) and Brazil (10 percent).
• However, when comparing land productivity using High Yielding Variety (HYV) seeds, India’s performance is significantly lower than that of other countries.
• Despite being among the top-ranking countries in terms of production for major agricultural crops, India ranks poorly in productivity levels.
• This situation indicates that while India currently has low productivity levels across all crops, there is potential for improvement. Increasing productivity could lead to better production levels to meet the growing needs of the country.
• The international perspective highlights the need for greater focus on enhancing productivity levels in Indian agriculture.

The Problem of Low Productivity

• As mentioned earlier, the productivity of Indian agriculture is lower when compared to global levels.
• India may have the largest area under cultivation for rice and wheat, but the yield levels are significantly lower than those in countries like China and Australia.
• This gap in productivity is also observed in coarse cereals and other crops.
• Even the most productive states in India do not meet world standards for the yields of major crops.

Causes of Low Productivity

 The reasons for low productivity in agriculture can be broadly categorized into four main factors: demographic, institutional, technological, and policy-related issues. Let's explore each of these factors in detail. 

1. Demographic Factors:

•  India’s population increased from 1.03 billion in 2001 to 1.21 billion in 2011, leading to a higher demand for food. However, the availability of land is limited, and soil fertility has declined. This challenging demographic situation has kept land productivity low, despite an overall increase in land productivity from 1961 to 2010. 
•  Labour productivity has also stagnated, especially in the last two decades. Although the industrial sector is expected to absorb surplus labour from agriculture, inadequate employment growth in industries has kept the pressure on agriculture high for livelihoods. 
•  The fragmentation of land holdings has resulted in an average size of less than two hectares, making farms economically unviable for modern production methods. Small farmers also face poor economic conditions, limiting their ability to adopt better agricultural practices. As a result, productivity per unit of land remains low. 

2. Institutional Factors:

•  At independence, India had a semi-feudal agrarian structure with land ownership concentrated in the hands of a few landlords. Despite efforts at land reforms, the actual cultivator faces hindrances in producing more due to issues like absentee landownership and increasing tenancy in better-irrigated areas. 
•  Lack of security of tenure, inadequate infrastructural support (such as agricultural credit, rural transport, and marketing/storage facilities), and dependence on high-cost informal credit have hindered productivity. Institutional credit to farmers is insufficient, and the reliance on informal credit continues. 
•  Farmers face risks associated with new technology and volatile prices, making it difficult to increase productivity. Instances of 'bumper crops spelling disaster' due to inadequate storage facilities highlight these challenges. Institutional development for promoting entrepreneurship in agriculture is still in its infancy in India, unlike in developed countries. 
•  Public investment in agricultural research and development has not kept pace with challenges, and exposure to private trade in improved seeds has increased costs and risks for small farmers. 

3. Technological Factors:

•  The majority of Indian farmers lack exposure to new technologies due to their poor conditions and limited outreach by scientists and extension workers. Extension facilities have declined, leading to continued reliance on traditional, low-yielding methods. 
•  Despite efforts to spread irrigation facilities, less than 50 percent of the agricultural sector is covered by irrigation. The dependence on uncertain monsoon rains due to inadequate irrigation facilities contributes to low productivity. 
•  Inadequate post-harvest technology, resulting in an estimated 30 percent loss of agricultural produce, hampers the realization of potential output. There has been no major technological breakthrough in recent decades, leading to 'technology fatigue' and stagnating agricultural productivity. 

4. Policy Bias/Weakness:

• Indian agriculture has faced subtle policy bias in favor of industry, with excessive reliance on industrial promotion. High protection for industry has diverted private investment from agriculture.
• Infrastructural development has similarly favored industry over agriculture. Although agriculture received policy support, a study by the International Food Policy Research Institute in 2007 found that agricultural support in India has been inconsistent and counter-cyclical to world prices. Support increased when world prices were low and decreased when they were high.

Measures to Increase Agricultural Productivity 

1. Institutional Reforms:

• Agrarian Relations: Establishing better agrarian relations through land reforms is essential. This involves ensuring fair land distribution and security of tenure for farmers. 
• Agricultural Financing: Arrangements for adequate agricultural financing are crucial. This includes access to credit and financial services for farmers to invest in modern practices and inputs. 
• Distribution of Inputs: There should be a wider and equitable distribution of agricultural inputs such as seeds, fertilizers, and pesticides, ensuring they are suitable for the local conditions. 
• Implementation of Reforms: While many institutional arrangements are in place, effective implementation is lacking. Focus should be on improving the implementation of existing policies and programs. 
• Delivery Systems: Improving the efficiency of delivery systems for agricultural services and inputs is vital. This includes enhancing rural development measures and empowering local democratic institutions like panchayati raj. 
• Devolution of Functions: Suitable devolution of functions and resources for economic and social development to local bodies is necessary to ensure effective service delivery. 

2. Technological Improvements:

• Biological Innovations: Focus on biological innovations that enhance land productivity, such as developing better seeds and environmentally sustainable fertilizers. This includes land-saving methods that increase yield without harming the environment. 
• Agro-Service Centres: Establish agro-service centres that provide consultancy and hire out equipment like sprayers, tractors, and threshers. These centres should be widely spread to assist farmers in adopting modern practices. 
• Cooperatives: Encourage the formation of cooperatives similar to those in Taiwan, which can help farmers pool resources and access modern inputs and technologies. This is crucial for small farmers who lack the means to adopt modern practices individually. 
• Research Focus: Direct research efforts towards methods applicable to smaller farms and dry regions. Focus on plant breeding, farm management, and agroforestry. Encourage private research to complement public efforts. 
• IT Developments: Utilize developments in information technology for integrated intensive farming systems, expanding e-chaupals, and improving access to remote sensing data for farming practices. Projects like e-chaupals should be expanded nationwide. 

3. Incentives for Raising Productivity:

• Small Farm Productivity: Focus on improving productivity in small farms, which constitute 80% of land holdings. This includes ensuring access to modern inputs like fertilizers, pesticides, and improved seeds at reasonable prices. 
• Crop Insurance Schemes: Implement effective crop insurance schemes to stabilize returns from agriculture, especially in rain-fed conditions. This provides a safety net for farmers against crop failures. 
• Resource Pooling: Encourage pooling of resources to improve the scale of production. This can be facilitated through public land banks to overcome the constraints of small-scale operations. 
• Contract Farming: Promote industry-agriculture linkages through contract farming, which provides farmers access to better inputs and technology while ensuring a steady supply of quality raw materials for the corporate sector. 
• Fertilizer Industry Reforms: Rationalize and restructure the fertilizer industry to improve efficiency and reduce costs. Farmers should not bear the burden of higher protection and inefficiencies resulting from past protective policies. 
• Public Procurement Reforms: Reorient public procurement and price support policies to minimize corruption and inefficiency. This ensures better alignment of demand and supply. 
• Electricity and Irrigation Subsidy Reforms: Reform electricity and irrigation subsidies to address the underlying causes of low-cost recovery and poor financial performance. This ensures sustainable use of resources. 
• Farmer Participation: Involve farmers in decision-making bodies related to input supply and output marketing. This enhances resource efficiency and profitability. Farmers should be encouraged to invest in their land and work in a coordinated manner to double output without additional government subsidies. 
• Employment Generation: Increased farm productivity should lead to more workers in an expanded agricultural sector, generating additional employment in the non-farm sector. Modernizing the agricultural sector with the right approach is crucial for this. 

Conclusion

Over nearly six decades, India's total agricultural production has steadily increased; however, agricultural productivity remains stagnant or declining in relative terms. When compared to developed countries, India's agricultural productivity levels are significantly low. This situation is exacerbated by the continuously growing population, which intensifies the demand for food and variety. To effectively address the pressing issue of food security, it is essential to enhance agricultural productivity levels. Achieving this goal requires measures across institutional, technological, pricing, and non-pricing dimensions, incorporating relevant conceptual, theoretical, and empirical insights.