Context

It is no secret that Punjab, once the frontrunner of Indian agriculture, is struggling to retain its dynamism.

Need to diversify

• While Punjab ranked at the top of major Indian states in terms of per capita income during 1967-68 to 2002-03, it has slipped below the 13th position.
• Punjab’s agricultural growth rate, at 5.7 per cent, was more than double the country’s average of 2.3 per cent during 1971-72 to 1985-86.
• This has reversed between 2005 and 2019 with Punjab at 1.9 per cent and India at 3.7 per cent.
• Agriculture least diversified state: With almost 85 per cent of the gross cropped area under wheat and rice, agriculture is least diversified in the state. 
• Mandi transactions cost about 8.5 per cent of the MSP, the highest in the country, making Punjab wheat and rice less competitive.

What explains low diversification in agriculture?

• Policies: Guaranteed MSP for wheat and paddy, backed by assured procurement, free power and highly subsidised fertilisers, has disincentivised diversification.
• Political economy: The political economy around wheat and rice is so intense that any effort to address its distortionary impact is met with fierce opposition by vested interest groups.

How to recalibrate Punjab agriculture towards higher, sustainable growth?

• Augment livestock and milk processing: While fruits and vegetables account for 7.4 per cent of the value of the output of agriculture and allied sectors, livestock accounts for 31.5 per cent and fisheries less than 1 per cent.
• The state has the highest per capita availability of milk but it can process less than 20 per cent of it.
•  Promoting mega parks for value addition in fruits and vegetables, milk, and other livestock products through medium and small enterprises will strengthen its competitiveness.
• Strengthen market for seed potato: It is also a significant player in seed potato and with the right package of practices, traceability systems, and infrastructure, the market for Punjab seed potato can be strengthened.
• Scaling up alternative marketing channel: Alternative marketing channels for fruits and vegetables such as direct marketing, contract farming, and exports have been in place but these models need to be scaled up with the right ecosystem.
• Shift to demand-driven agriculture: Punjab needs to switch from supply-driven agriculture to demand-driven agriculture.
• The demand for fisheries, poultry, dairy, and fruits and vegetables is increasing way faster than the demand for wheat and rice.
• Rationalise mandi charges:  Rationalising mandi charges to not more than 3 per cent will attract private sector investments in building efficient value chains.
• Rationalise subsidies: Time-bound incentives in the form of freight subsidies for exporters of high-value agri-produce, tax exemptions for the processing of perishable commodities for value chain players would be more rational than the overloaded subsidies of urea and free power.
• Use technology and start-up revolution: Punjab should leverage the start-up revolution that is unfolding in India, and use technology to ensure optimal utilisation of resources, expand markets, and augment farmers’ income.
• Geo-tagging of farms can address concerns related to long-term leasing of land that is critical for large-scale investments and enable vibrant agricultural land markets.
• Innovations in supply chain management, be it automated grain silos or state-of-art herd management will not only optimise the use of resources but also bring in traceability of farms and animals, early monitoring and prevention of disease outbreaks, and contain value chain losses.

How to manage financial resources?

• Rationalise urea subsidy: It should rationalise its fertiliser subsidy regime by moving towards cash transfers on a per hectare basis and free up fertiliser prices.
• Include urea in nutrient-based subsidy scheme: If that’s not possible, then urea should be included in the nutrient-based subsidy scheme.
• Bring soluble fertiliser under subsidy: Bring soluble fertilisers under subsidy, which will enhance fertiliser use efficiency through fertigation.
• This will also help reap environmental gains.
• Rationalise food subsidy: Food subsidy can also be rationalised through direct cash transfers replacing PDS, as Punjab is a grain surplus state.

Conclusion

Both environmental and financial sustainability concerns related to business-as-usual farming in Punjab call for a rebooting strategy.

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