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Resource centre on India's rural distress
 
 

How a Karnataka experiment can revolutionise agriculture in India -Aruna Urs
-Business Standard

Indian farming is labour intensive as mechanization is expensive. This model might change it while keeping the cost very low.

The single biggest challenge in farming is debt. A large share of farmers’ insurmountable debt burden comes from purchase of farm equipment. Mechanized farming results in higher productivity but is notoriously capital intensive. A 40 HP tractor with 2 basic implements (a rotavator and a cultivator) and a trolley costs about Rs. 8 lakhs after subsidies. Given the highly fragmented small landholding in our country and rapidly shrinking labour force, most farmers lack the resources to upgrade from animal powered farming to fossil fuel powered cultivation. In fact, maintaining a pair of bullocks too has become an expensive proposition. Let alone the high price of fodder, the shoeing of bulls has become a monthly affair or even shorter thanks to metalled roads. Each session costs about five hundred rupees and unlike horses, there are not many metal or rubber options. The craft too is dying. 

Custom hire centers, which provide farm equipment on hourly rentals basis are the most obvious solution to bridge this need gap. Many countries have achieved great success with this model. During the late 80s and early 90s, the government foresaw the need for such centres and appointed local co-operatives to run such centers. Each taluk in Karnataka had two to three such centres and each centre had up to 9 tractors. The initiative did not do well and most of the tractors were auctioned off a few years later. The initiative failed because of mainly two reasons: a) labour was abundant and b) poor choice of service partner.

The math did not work in favour of machines during those days as costs of labour and animal power was substantially cheaper. When labour is at surplus, farmers are more interested in investing in irrigation and fertilizers rather than machines. Moreover, the equipment became exclusive property of co-operative administrators and poor maintenance led to frequent breakdowns. 

Now, Karnataka has embarked on the journey again. This time with a twist in the business model. The venture, if it succeeds, can have nationwide impact. In July 2014, the government appointed two private entities to run 178 custom hire centers around the state for six years. Shri Kshethra Dharmasthala Rural Development Project, popularly known as SKDRDP, a charitable trust promoted by the administrator of Dharmasthala temple in South Canara, runs 161 centres. The Indian Society of Agribusiness Professionals, New Delhi has been assigned to run the remaining 17 centres. 

Under the public private partnership (PPP), each center has been budgeted for Rs.50 lakhs in the first year and Rs.25 lakhs in the second year. The government has chipped in Rs.37.5 lakhs for the first year and will fund another Rs.12.5 lakhs in year two.  The private partner has put in equity of Rs.12.5 lakhs for the first year and will make equal contribution in the second year.  From the third year onwards, the private entity will have to operate the center with internal accruals for the reminder of contract period.

The SKDRDP centers opened for business in February this year. While it is too early to judge the performance, the intial numbers are quite encouraging. The regional office in Mysore runs 18 centers in Mysore, Chamarajanagar and Mandya districts. Vishwanath S.B., Regional Co-ordinator at Mysore said that equipment rentals are about 10% to 20% cheaper than the rate offered by private players. He said that about 7,724 farmers in three districts have utilized the centres’ services and he expects more farmers to sign-up during the winter cropping season. So far, the regional office has recorded a revenue of about 1.4 crores. Quite a remarkable achievement for a six months old enterprise! Along with 16 medium-powered tractors (45HP) and 11 mini tractors and other associated implements, the centers rent out hand-operated machineries such as weed cutters, harvesters, transplanters, battery-powered sprayers, and irrigation pumps. The equipment has been stocked based on cropping pattern in each location. 

But not all is rosy. Scaling to 161 centers without a pilot project has resulted in some costly mistakes. Among the 928 equipment bought by SKDRDP, some are clearly dud. Weighing about 120 kilos, a 5HP diesel pump is not portable. So are heavy-duty chaff cutters. The equipment list that was drawn up with inputs from farmers reads more like a fantasy wish list. 

Although the organization, in principle, does not extend credit on its rentals, the local centre managers had offered 80 percent credit terms in some cases and are now facing difficulties in recovering it. A better option perhaps would be link the rental amount to crop loans availed from banks.

With a tractor density of about 13 per 1000ha, we are still a long way to go to match developed world’s 32 tractors per 1000ha. Given the ground realities of small landholdings, we might never catch up with it. Herein lies the advantage of these hire centres. They not only de-risk the farmers from accumulating more debt, it also is a more efficient way of deploying public funds. While the market is vast enough to accommodate both small private vendors and public funded hire centers, care should be taken to regulate the centres as the massive scale always provides an opportunity to monopolize. 

Aruna Urs farms in his village in Mysuru, Karnataka. He was co-founder and CEO of a database management company in Mysuru. Prior to that, he worked as an adviser to the government of Timor-Leste (East Timor).
 
Aruna blogs about farming, rural & agri economy on his blog, Rural Dispatch, a part of Business Standard's platform, Punditry. He tweets as @arunaurs