Productivity and Sources of Growth for Rice in India

Author(s): Praduman Kumar and Mark W. Rosegrant

Source: Economic and Political Weekly , Dec. 31, 1994, Vol. 29, No. 53 (Dec. 31, 1994), pp.
A183-A188
Published by: Economic and Political Weekly

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 Productivity and Sources of Growth
for Rice in India
Praduman Kumar
Mark W Rosegrant

This article assesses totalfactor productivity growth in different regions of India and examines the sources of
growth. The authors examine the changes in input use, productivity, cost of production and identify the potential regi
further productivity gains and suggest ways of increasing rice productivity. Marginal rates of return to public inves
rice research are also considered.

THE introduction and rapid spread of high inputs may also induce an upward shift in Changes in output other than that gener-
yielding varieties in the late 60s and early production function to the extent that a ated by changes in inputs can be induced
70s resulted in steady output growth for technological change is embodied in them. by research, extension, human capital, in-
food crops in India. Public investment in However, it has long been recognised that frastructure, price policy and climatic
infrastructure, research and extension along partial productivity measures, such as output factors. As an input into public investment
with crop production strategies have helped per unit of individual inputs, are of limited decisions, it is useful to understand the
to expand cereal production and stocks.' use as indicators of real productivity change relative importance of productivity
However, the concern is that the earliest as defined by a shift in the production enhancing factors in determining
gains from the green revolution have already function. The total factor productivity (TFP) productivity growth. In order to assess the
been attained and returns to public research concept, which implies an index of output determinants of TFP, the TFP index was
are declining, so that future growth in per unit of total factor inputs, measures estimated as a function of the variables:
production can only be input based in many these shifts in output properly, holding all RES, rice research stock per hectare of rice
regions of the country. This raises the inputs constant. Thus, TFP measures Ihe area; EXT, total extension stock per farm;
questions: what has been the contribution amount of increase in total output which is M KTS, the number of regulated markets per
of productivity growth to total output growth? not accounted forby increases in total inputs. thousand hectare of cropped area; PNRATIO,
What have been the sources of productivity Various methods have been used for ratio of P20 to N nutrients used;
growth? Are the returns to agricultural computing the'T'FPindex [Christensen 1975]. CANALIRR, share of canal irrigated area
research still high? These issues have been The Divisia-Tornqvist index is used in this in total irrigated area: LITERACY, the
analysed by measuring the total factor study for computing the total output, total proportion of rural population who are
input, TFP and input price indices for rice,
productivity (TFP) for the Indian crops sector literate; AGTOT, agricultural terms of trade
as a whole [Rosegrant and Evenson 1992]. using farm-level data from 1971-88 for 15 which is measured as the ratio of comnposite
However, the results of the sectoral approach states of India. Grain and straw of rice are price indices of agricultural to non-
cannot be used precisely for individual crops inclulded in the output index. Farm harvest agricultural commodities;2 JJARAIN, June-
for policy decisions, as rates of technical prices are used to aggregate the outputs. August rainfall; and YEAR, which is a
change differ across crops. Thus, total factor Inputs included in the input index are land, linear trend variable. The time series data
productivity growth, which is one of the seed, manure, fertiliser, pesticide/herbicides, from the different regions were pooled and
most important factors affecting crop labour, animal labour, machine labour, dummy variables are included for regions,
production, ought.to be examined for and irrigation. Inputs are aggregated using keeping the eastern region as the reference
individual crops also. farm rental prices. Total output, total input, region (see below for regional definitions).
Rice and wheat are the major food crops TFP and input price indices are calculated Estimation was undertaken using a fixed
in India. Although TFP growth for wheat as: effects approach for the pooled cross section
has been extensively analysed [Sidhu and Total output index (TOI) time series regional level data set, with
Byerlee 1992; Kumar and Mruthyunjaya T011/ T0I1l = n~ (Q t/Q1) (R11+Rj1 )'/ correction for serial correlation and
1992], there is relatively little research*on Total input index (TII) heteroskedasticity [Kmenta 1981].
total factor productivity measurement and Using the elasticity of TFP with respect
TII1/rII,, = n1 (X1t/Xi,1) (Sl+s'l ,A
the sources of productivity growth for the to research stock, one can easily estimate
Total factor productivity index (TFP)
rice crop, which accounts for nearly 41 per the value marginal product (EVMP) of
cent of the total area under cereals and a 'FP t = (TOl/TIIt)l 100 research stock (R) as:
share of 46 per cent in total cereals productionInput price index (IPI) EVMP(R) = b x (V/R)
in India and 22 per cent in total world rice IPI /Ppi, = nH (Pil/Pa1) (Sit+Sit-,' where R is the research stock, V is value
production. This paper assesses total factor where Rp is the share of output j in total of rice production associated with TFP3 and
productivity growth for rice in different revenue, Qp is output j, S, is the share 6f br is the TFP elasticity of research stock
regions of India and examines the sources input i in total input cost, Xi, is input i andestimated in the TFP determinants equation
of productivity growth. Marginal rates of Pit is price of input i, all in period t. Bydescribed above. The benefit stream is
specifying TOI,, TI1,, and IPI,, equal togenerated under the assumption that the
return to public investments in rice research
are also examined. 100 in the initial year, the above equations benefit of investment made in research in
provide the total output, total input, total period t-i will start generafing a benefit,
factor productivity and inputs price indices after a lag of five years, at an increasing
Methodology and Data for the specified period 't'. The indices have rate in next nine years, remain constant next
been computed with base 1981-82 = 100. nine years and thereafter it will start declin-
The real cost of production of rice is com-
Increased use of inputs, to a certain extent, ing. Using timing weights estimated by
allows the agricultural sector to move alongputed by deflating the cost of production Evenson and Pray (1991), the investment
the production surface. The use of modem by input price index. of one rupee in year t-i will generate a

Economic and Political Weekly December 31, 1994 A-183

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benefit equal to O.I*EVMP in year t-i+6, growing states, have contributed more to the 1982-83 to 1989-90. Although the western
0.2'EVMP in year t-i+7,... so on, and it will growth of rice yield and production. During region faced irrigation constraints, a solid
be 0.9*EVMP in year t-i+14. After this the 1967-81, rice production in the northern trend in production was observed.
benefit will be equal to EVMP up to the t- region increased at an extraordinarily high The gains in rice output in the 1 980s have
i+23. Then the benefit for year t-i+24 rate of 7.1 per cent annually, with nearly come essentially from the steady increase
onwards will be equal to 0.9*EVMP and in two-thirds of this increase contributed by in yield per hectare. Rao (1994) has argued
t-i+25, it will be 0.8*EVMP, and so on. This yield gains. In the following decade, the rate that output growth has come essentially
benefit stream can then be discounted at the of production increase has declined to 5.2 from the better utilisation of the existing
rate, say 'r', at which the present value of per cent per year, with yield gains slowing infrastructure, stepping up the use of modern
the benefit is equal to one. Thus 'r' is to a still high 4 per cent annually. In the inputs, and extending the green revolution
considered as the marginal internal rate of southern region, the growth in production to new areas. Steadiness in growth of output
return to public research investment. of 2.5 per cent during 1973-81 and 3.5 per was observed in the I 980s despite the decline
cent during 1982-90 was virtually all in capital formation. Part of the explanation
THE DATA from yield, was found because of increased lie that there are significant lags between
proportion of rice area under modern investments in the infrastructure (irrigation,
Farm-level data on yield. use of inputs varieties and irrigation. It is encouiraging research, extension. etc) and realisation of
and their prices for the period 1970-71 to that the eastern region has realised high the potential created, and since a large
1988-89 collected under the 'Comprehensive growth rates in area and yield during number of projects exist in the pipeline,
scheme for the study of cost of cultivation
of principal crops', directorate of economics TABLE 1: ANNUAL COMPOUND GROWTH RATES OF AREA, PRODUCTION AND YIELD OF RICE
and statistics (DES), government of India (Per Cent)
(GOI) were used in the analysis. The missing
Region 1967-90 1967-72 1973-81 1982-90
year data on inputs and their prices are
predicted using interpolations based on Eastern
trends in the available data. The time series Area 0.1 -(.0 -0.4 1.2
Prod 1.5 0.1 0.3 6.8
data on area, yield, production, irrigated and
Yield 1.4 0.1 0.7 5.6
HYV area for the rice crop, and sourcewise
Western
area irrigated were taken from the various
Area 0.7 0.7 1.2 0.2
published reports of DES(GOI). Crop Prod 2.2 -1.2 2.8 2.0
production across the country is diverse and Yield 1.4 -2.0 1.5 1.8
agricultural production and use of inputs Northern
depends on the physical environment, which Area 2.4 1.3 4.4 1.1
includes factors such as soil quality and Prod 7.1 5.9 9.0 5.2
climate. The state-wise time series data Yield 4.5 4.6 4.6 4.0

were aggregated into four regions, namely, Southern

Area -0.2 -0.6 0.2 -0.3
the eastern region covering the states of
Prod 2.9 2.8 2.5 3.5
Assam, Bihar, Orissa and West Bengal; the
Yield 3.1 3.4 2.4 3.8
northern region, whith includes Haryana,
India
Punjab and Uttar Pradesh; the western region Area 0.6 0.3 0.8 0.7
covering Gujarat, Maharashtra, Madhya Prod 2.7 1.4 2.8 4.7
Pradesh and Rajasthan; and the southern Yield 2.1 1.2 2.0 4.0
region covering Andhra Pradesh, Tamil
Source oJ Basic Data: National data, DES, GOI.
Nadu, Karnataka and Kerala. The share of
the hills region (Himachal Pradesh and
TABLE 2: TRENDS IN AREA UNDER IRRIGATION AND MODERN VARIETIES OF RICE
Jammu and Kashmir) in rice production is
very marginal and was not included in the Region Irrigated Area Modern Vanreties Area
analysis. The data on research and extension (Per Cent) (Per Cent)
stock investment compiled by Evenson was 1968-70 1978-80 1986-88 1968-70 1978-80 1986-88

used in this study [for details see McKinsey, Eastern 29 30 31 3 26 46

Evenson and Judd 1991].4 Western 18 21 25 7 36 54
Northern 25 42 56 12 56 77
II Southern 82 84 84 24 73 83
India 38 42 44 11 43 60
Results and Discussion
Source of Basic Data: National data, DES, GOI.
GROWTH IN AREA, YIELD AND PRODUCriON
TABLE 3: TRENDS IN FERTIUSER USE IN RICE BY REGIONS
The increase in area and production of the
Region Fertiliser Use Fertiliser Use
crop is highly associated with their relative
(Kg nut/ha) (Per Cent of Recommended)
profitability [Kumar and Mruthyunjaya
1971-73 1980-82 1986-88 1971-73 1980-82 1986-88
1989; Kumar and Rosegrant 1993]. Rice
area increased slowly, mainly through Eastern 10 17 25 11 17 19
substitution from coarse cereals. During Western 8 21 29 9 21 28
1967-90, rice area increased at the annual Northern 50 57 167 25 30 87
rate of 0.6 per cent per annum and output Southern 63 122 77 49 88 65
India 24 45 69 24 39 51
showed an increase of 2.7 per cent, mainly
because of yield growth (Table 1). Northern Source of Basic Data: Hou
states, which were not traditionally rice recommended dose of fe

A-I 84 Economic and Political Weekly December 31, 1994

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some potential from past investments would
have been realised during the 1 980s [Rao
1994]. The contributions to growth of these
factors are examined below in the total
factor productivity analysis.
GROWTH IN INPUTS
Over the period of analysis, rice area
under modern varieties and irrigation has
already reached very high levels in the
southern region with 83 per cent under
modern varieties, and 84 per cent area under
irrigation (Table 2). The growth in modern
varieties in the northern region has been
similar, but the irrigated area under rice is to be lower in future, especially in northern
only 56 per cent. The adoption of modern
varieties and area under irrigation in eastern lagged behind the northern and southern
and western regions have not spread as
widely.
Table 4 shows the rate of growth in input
growth in input use and rice yield in the
use for rice on a regional basis. The average
fertiliser use has reached 87 per cent of the
recommended dose. in northern region, as little, but grew quickly in northern and
against 65 per cent in southern states, 28
per cent in western region and only 19 per
cent in eastern states (Table 3). The growth
in fertiliser use was 10.7 per cent per year
in northern region, 2.9 percent in the southern
region, 1.7 per cent in the eastern region
and 3.6 per cent in the western region
(Table 4). When relatively high levels of
use have already been attained, growth in
the use of fertiliser as well as its marginal
contribution to yield increases is expected
and southern regions. The eastern region has
regions with respect to application of HYV
technology and fertiliser, and a further
eastern areas can be expected. In the 1 980s.
the use of pesticides and herbicides was very
southern India in the later years.
The use of organic manure in northern
and southern states is not only higher than
the eastern and western regions but has also
shown steady growth. The use of labour-
saving technologies, especially tractors, has
expanded rapidly and has also substituted
for animal labour. The most prominent
change has occurred in animal labour, whose
growth rate has declined by as much as 1 1.6
per cent per annum in the northern region
and 2.5 per cent in the southern region.
TABLE 6: ANNUAL GROWTH RATES (PER CENT)
OF REAL COST OF RICE PRODUCTION,
197 /72-1988/89

Region 1971-80 1981-88 1971-88

TABLE 4: ANNUAL GROWTH RATES (PER CENT) OF INPUTS USE IN RICE PRODuCuION, 1971/72-1988/89
Eastern 0.17ns -6.28 -1.10
Western -7.87 0.41 ns -0.3 I ns
Inputs Eastern Western Northern Southern India
Northern -6.70 -2.72 -2.14
Traditional inputs 1.4* 1.7* 5.9** 0.8 1.7* Southern -2.07 -9.44 -3.90
Seed (kg/ha) 0.7 _0.7* 0.4 1.5** 0.6** India -0.70 -1.37 -1.03
(79) (86) (53) (85) (79)
Note: ns not statistically significant.
Manure (q/ha) -5.9 9.8** 9.6* 3.5* 1
Source of basic data:'Hou.sehold Survcy Dataofi
(19) (16) (50) (74) (37)
Cost of Cultivatiotn of Principal Crops.
Human labour (h/ha) 0.5 - I.0* .5.5** -0.2 _I.I*
DES, GOI.
(892) (578) (770) (857) (708)
Animal labour (h/ha) 1.2** 0.3 -1 1.6** -2.5** -5.3
TABLE 7: TRENDS IN AVERAGE PRODUcrIVITY
(260) (151) (25) (112) (104) OF RICE 197 1/72-1988/89
Human labour less animal labour (hha) 0.1 - 1.4* -0.7 0.2 -0.5
(632) (427) (745) (745) (604) Region Land Labour Fertiliser
Modern inputs 5.6 4.4 7.2 5.2 4.7
Fertiliser (kg nut/ha) 1.7 3.6* 10.7** 2.9* 7.8 Eastern 1.90** 0.55 -12.47**
Western -0.09 0.18 -3.76*
(25) (29) (168) (77) (98)
Pesticide' (Rs/ha) -2.0 -8.7 32.4** 8.8** 10.6** Northern 1'.29 2.24* -2.70*
Southern 3.16** 3.37** -3.48
(6) (1) (104) (49) (53)
Irrigation (Rs/ha) 9.5* 3.7 7.3** -0.3 4.6** India 1.73** 1.99** -7.02**

(8) (27) (471) (34) (187) Note: Yield per unit of input is used as the
Machine labour (Rs/ha) 0.6 0.8 10.3** -0.3 5.3
measure of average productivity.
(44) (60) (376) (52) (177)
Source of basic data: Household Survey Daita of
Yield (q/ha)h 1.4* -0.1 5.4** 3.** 3.0**
Cost o?f Cultivation ofJ Principal Crops,
(19) (13) (48) (37) (31) DES, GOI.
Notes: * and ** denotes significance at the 5 per cent and I per c
a Constant at 1981-82 price; b Yield in paddy fonn.
TABLE 8: ANNUAL RATES OF GROWTH IN TOTAL
Figures in parentheses is average use of input during 1986-88.
INPUT, OUTPUT AND TFP FOR RICE,
Source o*fbasic d(ata: Household Suivey Data of C ost o* Cultivattion ot Principal Crops, DES, GOI. 1971/72-1988/89

TABLE 5: TRENDS IN COST STRUCTURE FOR RICE, 1971/72-1988/89 Region Total Total TFP
Input Output
1971-75 1976-80 1981-85 1986-88
Eastern 1.81** 2.17** 0.36*
Per cent of total costs due to: Western 1.74* 0.76 -0.98
Traditional Inputs 85.2 81.9 80.4 70.7 Northern 6.03** 6.79** 0.76**
Land 34.1 29.0 30.9 28.6 Southern I.1 2** 2.97** 1.85**
Seed 6.1 5.1 5.4 4.4 India (excluding
Human labour 27.2 29.9 28.2 26.0 western region)
Animal labour 14.1 14.7 12.7 8.6 1971-80 2.99** 4.30** 1.31**
Manure 3.7 3.2 3.2 3.1 1981-88 2.13** 3.10** 0.97**
Modern Inputs 9.2 11.5 12.7 21.2 1971-88 2.49** 3.52** 1.03**
Fertiliser 5.7 6.7 6.5 8.2
Pesticides 0.3 0.4 0.6 1.2 Notes: Trendsestimated based on th
Irrigation 1.1 1.9 2.3 6.1 ing averages.
Machine labour 2.1 2. 5 3.3 5.7 * and ** denotes significance-at the 5 per
Others' 5.6 6.6 7.1 8.0 cent and I per cent level, respectively.
Source of basic datai: Household Survey Datai of
Note: a Includes interest C(Jost on workin
of C'ultivation of Principal Gro ps.
Source oJbLvic data: HouseholdDES, GOl. Sur

Economic and Political Weekly December 31, 1994 A-185

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Human labour use has declined marginally
in all the regions.
The share of animal labour in the total
cost of rice production fell sharply. while
the share of machine labour has increased
(Table 5). The share of fertiliser has in-
creased from 5.7 per cent to 8.2 per cent.
The share of modern inputs in total costs
increased from 9.2 per cent to 21.2 per
cent, whereas the share of traditional
inputs declined from 85.2 per cent to 70.7
per cent.
The evidence on the use of inputs revealed
that the existing level of application of
modern inputs is relatively low in eastern
TABLE 9: ESTIMATED PARAMETERS OF TFP
DECOMPOSITON FOR RICE, 1971/72-1988/89
Variable Parameter Standard T-Ratio
Estimate Error
Intercept 2.59 10 0.6600 3.92
MARKETS 0.0770** 0.0355 2.17
SCANALIRR 0.0172*** 0.0069 2.47
LITERACY 0.0035 0.0118 0.32
RESEARCH 0.2920** 0.1413 2.07
PNRATIO 0.1581 * 0.0868 1.82
AGTOT -0.3617*** 0.1465 -2.47
JJARAIN 0.1 180*** 0.0434 2.72
YEAR -0.0143 0.0178 -0.80
Dummny
Northem region -0.1226 0.1576 -0.78
Southern iegion -0.3224 0.2078 -1.55
R2 between observed and predicted = 0.59
Degrees of freedom: 35
Notes: Asterisks indicate significance levels:
*** = I percent, ** =S percent, and * = 10
cies appear to have lowered the unit cost
per cent. Depende6nt variable is the log of
the TFP index. All variables specified in
logarithms, except LITERACY,
SCANALIRR as these variables are de-
fined in percentage tenns and YEAR. Ex-
tension variable is excluded because of
multicollinearity problems. YEAR.
TABLE 10: SOURCES OF TOTAL FACTOR
PRODUCTnvlIY GROWTH IN RICE. 197 1/72-1988/89
Sources Annual Elasticity Per Cent
Growth of TFP Share of
Rate TFP
(Per Cent) Growth
Explained
Research 5.86 0.292 57.2
Markets 5.60 0.077 14.4
P205: N ratio 1.87 0.158 9.9
Agricultural
terms of trade -1.56 -0.362 18.9
Canal share in
total irrigation -0.56 0.017 -0.3
TABLE I 1: ESTIMATED VALUE MARGINAL FPRODUCT OF RESEARCH
STOCK IN RICE
Region 1971-75 1976,80 1981-85 1986-88 1971-88
Eastern 9.2 8.3 15.4
Northern 2.1 2.7 3.1
Southern 26.3- 21.6 26.4 32.2 28.8
India 12.5 11.5 16.0
A-18( Economic and
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region. The further spread of inputs in this place due to an increase in land-saving
region or to other new areas where the modern inputs particularly fertiliser and
existing level of application is relatively irrigation.
low would contribute to the rise in the Fertiliser use has reached levels where
productivity per unit of input as well as average returns are falling. This is partic-
ensuring more equitable distribution of ularly disturbing for the eastern region where,
benefits. despite low use of fertiliser compared to the
northern and southern regions, the decline
REAL COST OF PRODUCTION in fertiliser productivity was much sharper.
It is because of poor irrigation management
The nominal cost' per unit of rice output
in the eastern region [Kumar 19771 which
is showing an upward trend in spite of rapid
resulted the nutrient removal from the soil
growth in yield due to technical change. at a rate that has not been matched by
However, the question must be assessed balanced growth in the supply of nutrients
whether the increase in nominal unit cost through chemical and organic fertilisers.
of production came mostly from an in-
crease in prices of farm inputs at a rate TOTAL FACTOR PRODUCTIVITY GROWTH
higher than the rise in productivity or due
to higher use of inputs in real terms for The average annual growth rates of output,
obtaining the same yield. This question inputs and TFP indices are given in Table 8.
was examined by assessing cost of pro- The results reveal that in northern region,
duction at constant prices. The unit cost the input index during 1970/71-1988/89,
of production was deflated by an input has risen at the rate of 6 per cent, whereas
price index series to obtain the cost of it was 1.1 per cent in the southern, 1.8 per
production at constant prices. Annual cent in the eastern and 1.7 per cent in the
growth rate in real cost of production is western region. With increases in inputs and
computed and the results are given in technological change, the output has
Table 6. The unit cost of production of increased by 6.8 per cent annually in the
rice has decreased steadily in real terms, northern region followed by the southern
at the rate of -1.1 per cent in the eastern, region (3 per cent), the eastern region (2.2
-0.3 per cent in the western, -2.1 per cent per cent) and western region (0.8 per cent).
in the northern and -3.9 per cent in south- Variation in TFP is due nearly entirely to
ern regions. Modern varieties adoption, variation in output, as total input use
investment in irrigation, infrastructure and increased smoothly over time. Overall, the
research, favourable input pricing poli- TFP index has risen by around 1.85 per cent
annually in the southern region, 0.76 per
of rice production. From Table 6, it ap- cent in the northern and 0.36 per cent in the
eastern region. In the western region, due
pears that in the later period of fast growth
of modern variety adoption in eastern to wide fluctuations in weather wide variation
region, there was a sharp decline in unit in the TFP index was observed and the
cost of rice production. Thus the adoption estimated annual growth was negative
of modern variety and public policies have (-0.98), but insignificant. High variation
lowered unit cost of production and rice makes it essentially impossible to measure
prices in real terms and benefited both productivity trends in the western region.
consumer and producers. Productivity growth is tesponsible for 62
percentof total output growth in the southern
TRENDS IN PARTIAL PRODUcrIVITY region, 16 per cent in the eastern and 11
per cent in the northern regions. For India,
The trend in yield per unit of land, labour the TFP growth, excluding the western
and fertiliser is estimated for all the regions region because of the measurement
and the results are given in Table 7. While problems noted above, was 1.03 per cent.
land and labour partial productivities Nearly one-third of output growth in
increased in all regions, fertiliser Indian rice is contributed by TFP.
productivity has declined in all theCompared regions.to the early period of green
The increased labour productivity was a revolution (1971-80), the TFP growth
result of increased ipechanisation. Similarly, during post-green revolution period
an increase in land productivity has taken (1981-88) has declined. This process will
TABLE 12: EsTMATED MARGINAL IN
IN RICE RESEARCHt
(Rs) (Per Cent)
Region 1971-75 1976-80 1981-85 1986-88 1971-88
20.0 13.3 Eastern 51 0 49.9 61.2 66.0 57.8
2.9 2.8 Northern 29.0 32.4 34.2 33.1 32.9
Southern 71.7 67.7 71.9 76.5 73.8
17.8 14.7 India 56.6 55.0 61.4 63.7 59.7
Political Weekly December 31, 1994
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be explored in more detail below. Other according to the results, has had a positive which may not be cosfeffective. Thus, the
authors have attributed this slowdown to impact on TFP. Rural literacy as the need in this region is to focus on efficient
a reduction of growth following exploita- measure of human capital in farming has use of inputs. It may be noted that even
tion of early productivity gains from the expected positive sign but is with the sharp drop in rice prices as a
adoption of modern varieties, declining insignificant. Literacy levels are not result of technological change and price
trend of investment in agriculture during precise indicators of the schooling- policy changes, rice research still yields
1980s" and more importantly increasingly acquired skills of farm managers. A better high returns.
serious soil salinity problems [Joshi and variable has to be identified to capture this
Agrihotri 1982; Joshi and Jha 1991]. effect. Rains during June to August, also III
have a significant positive impact on
Conclusions
productivity. The results of decomposition
TOTAL FACTOR PRODUCTIVITY DEcOMPOSITION
of TFP confirm that research, market The area under rice has increased only
The estimated parameters of TFP equa- infrastructure, canal irrigation, balanced slightly during the 1980s. The gains in rice
tion for rice are presented in Table 9. use of fertiliser, and the agricultural terms production have come essentially from the
Because of the confounding of TFP trends of trade are the most important instruments improved utilisation of the available infra-
due to high weather variation, the inclu- of growth in TFP. structure and from the resulting increase in
sion of the western region in the analysis Using the elasticities of TFP with respect yield per unit of land. Increase in yield at
does not give sensible results. Thus, the to each significant variable, and growth increasing rate need not imply that the
western region was not included in the rates of each variables, the contribution potential productivity from the inputs has
decomposition analysis. However, the of each of the significant variables to TFP been fully realised. Spread of inputs in the
other three regions included in' the anal- growth was then computed and presented new areas where the existing level of
ysis cover 80 per cent of the national rice in Table 10. Public research has accounted application is relatively low will contribute
area and account for 85 per cent of the for about half of the TFP growth followed to the rise in the productivity per unit of
national rice production. The develop- by the agricultural terms of trade (19 per input as well as ensuring more equitable
cent),
ment of rural infrastructuke in India (suchmarket infrastructure development distribution of benefits. The eastern region
as roads, communicatioAs, institutional
(14 percent), and balance use of phosphatic of India followed the northern and the
support, and provision of storage and and nitrogenous fertilisers (10 per cent). southem regions with a lag with respect to
warehousing) are closely associated with The declining trend of canal irrigation in growth in input use and rice yield in these
the establishment of regulated markets, so total irrigation has affected TFP growth areas.
the latter variable is used as a proxy for slightly (-0.3 per cent). This has occurred Public policies such as investment in
the level of infrastructure development. because of declining trend in public irrigation, infrastructure development and
The results show that the number of reg- investment in irrigation in the 80s and has investment in research, and pricing policies
ulated markets had a significant and affected the addition to irrigated area from have lowered unit cost of production and
positive effect on TFP. The extension stock canals. rice prices .in real terms and benefited both
variable was highly correlated with the The marginal returns to public invest- consumers and producers. Productivity of
research stock stream, so the inclusion of ment in research in different rice growing resources can be enhanced further by
the extension vafiable in the model could regions are given in Tables 11 and 12. For improving the management of infrastruc-
not give the sound econometrics estimates. the full period, 1971-88, one rupee incre- ture as well as by extending it to the less
However, in the absence of extension, the ment in research stock, generated on av- developed areas and by introducing new
impact of research cannot be fully realised, erage, additional income of Rs 14.7, in- technologies. Most disquieting feature in
so it is likely that the impact of extension dicating very high rates of return to these Indian agriculture is the recent trend of
on the growth of TFP is picked up by the public investments. Among the regions, a declin6 in real investment in irrigation
research variable in the TFP equation. The the returns ranged from Rs 2.8-28.8. The which could traceable to the paucity of
stock of research has a significant and maximum (Rs 28.8) is for the southern investible resources caused largely by the
positive impact on TFP. region, followed by the eastern (Rs 13.3), rise in subsidies.9 Removal of input sub-
The effect of canal of irrigation on TFP and the northern region (Rs 2.8). After sidies where they have outlived their utility
is strongly positive, indicating that the 1980, returns to investment continued to would not only generate investment in
canal source has an impact on productiv- rise in the southern and the eastern re- agriculture and but also promote efficient
ity over and above the contribution of gions, whereas, it stagnated in the north- allocation of resources as well as give
irrigation investment as a direct input into ern region. As shown in Table 12, the insight to the evolution of cost-reducing
production. The ratio of phosphatic nutri- internal rates of return to public agricul- innovattons.
ents to nitrogenous nutrients utilised is tural research are very high, 58 per cent The estimated TFP for rice is 1.03 per
incorporated in the decomposition equa- in eastern region, 74 per cent in the south- cent, which accounts for about one-third
tion as a proxy for the balance use of plant ern and 33 per cent in the northern regions. of output growth during 1971-88. TFP and
nutrients in the'soil. This variable also has Taking all regions together, internal rates growth in crop inputs have contributed
a positive impact on TFP. of return is estimated about 60 per cent. roughly 3.5 per cent per year to rice
Agricultural terms of trade vis-a-vis the The returns to research have increased production growth and have enabled India
industrial sector as the measure of price over time. The results suggest that further to increase rice production per capita in
policy is a potentially important instrumentinvestments on research will generate rice the presence of high population growth
to influence the efficiency and investmentssupply at a faster rate in the southern and rates and limited land resources. Market
in agriculture. In India, the price policy eastern regions. Hence, to meet the grow- infrastructure, research, canal irrigation,
of unfavourable agricultural terms of tradeing demand of rice, the broad policy signals and balanced use of fertili4ers are the most
is persistent along with favourable are clear. There is need to exploit the important sources of growth in TFP. The
technological frontiers. Although, it acted potential of the eastern and the southern marginal returns to public investment in
as a disincentive to invest in agriculture, regions. The northern region shows very rice research in different regions are very-
it shifted the incentives to utilise the high growth in production and yield mainly high. The internal rate of returns to public
available resources efficiently, which on the account of intensive use of inputs rice research have been in excess of 55

Economic and Political Weekly December 31, 1994 A-187

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All use subject to https://about.jstor.org/terms
per cent, and have been slightly increasing
over time. Future productivity gains in
rice production will have to be achieved
from the eastern and t,he southern regions
of India. There is a need to target public
investments in research, irrigation, and
infrastructure towards these potential
areas.
Notes
[The paper is based on the results of the
international collaborative research on
Projections and Policy Implications of
Mediumr and Long Term Rice Supply and
Demand, conducted by the Indian Agricultural
Research Institute, New Delhi, India and the
International Food Policy Research Institute.
Washington, DC.
K Palanisami provided comments and
deserves special thanks.]
I Foodgrain production, which was 72.35
million tons in 1965-66, rose to 182 million
tons in 1993-94. Buffer stocks, which were
just 2.2 million tons in 1965-66 rose to 26
million tons in July 1993.
2 Agricultural terms of trade (AGTOT) is
computed on the basis of gross domestic
product (GDP) of agricultural and non-
agricultural sectors given in National
Accounts Statistics as:
AGTOT = AGPRICE/NON-AGPRICE,
where AGPRICE = (Agricultural GDP at
current price/at constant price), and NON-
AGPRICE = (Non-agricultural GDP at
current price/Non-agricultural GDP at
constant price).
3 Value of rice production associated with
TFP is computed as: V=QxFHPxSTFP
where, Q is the rice production, FHP is the
farm harvest price, and STFP is the share of
rice production accounted for by TFP
growth.
4 The stock variable construction implies a
particular time relationship between
expenditure on research and extension and
its impact. The extension variable has a
short time (two years) lag specification,
and research variables have a longer time
(five years) lag specification from spending
to full impact.
5 Cost includes all cash and kind expenses
actually incurred, rent paid, interest on
owned and borrowed capital and imputed
value of family labour.
6 The input price indices are composite
indices of prices of individual items of
inputs. First, the price indices of inputs of
seed. labour, bullock labour, fertiliser, farm
yard manure, capital, pesticides, irrigation,
machine labour and depreciation on
implements are constructed. The price
indices of irrigation, machine labour. and
depreciation on implements and machinery
are constructed by using the procedure
followed by Kahlon and Tyagi (1983) and
also by Kumar and Mruthyunjaya (1989).
Using indices of prices of individual or
group of inputs, the composite input price
A-188 Economic and
118.96.158.204 on Wed, 14 Oct 2020 13:19:04 UTC
index is constructed using Divisia-
Tornqvist method.
7 Absence of field channels for distribution
of water in the command area cause the
gravity flow of irrigation water from field
to field results in washing away of fertiliser
and other nutrients applied to the plots at
the upper end to the lower ones. In addition
to this, the over irrigation with lack of
water control causes waterlogging in valley
lands which is not conducive to obtaining
potential rice yield.
8 The increasing subsidies restricted
investment in agriculture and slowed the
rate of investment in irrigation. The real
investment in irrigation by the public sector
declined during the 1980s at the rate of
1.73 per cent per annum [Rao 1993].
9 Subsidies on agricultural inputs rose from
about one-third of the combined plan
expenditure by the central and state
governments on agriculture, irrigation and
special area programmes in the early 1 980s
to 90 per cent towards the close of the
1980s [Rao 1994].
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