This is evident across the entire range of cultivation and irrigation practices, the lack of new technology, non-existent back-end infrastructure and logistics, abysmal research, and very low levels of processing of agro-output. No wonder, then, that with 60 per cent of the population working in agriculture, it contributes a mere 17 per cent of the GDP.

This understanding must be behind the government’s setting up of the Sub Group on ‘Enhancing Agriculture Production and Food Security’ under the Prime Minister’s Council on Trade and Industry. However, amidst the rather juvenile and self destructive hullaballoo around the Commonwealth Games, the meeting of this Sub Group last week has gone unnoticed.

The Sub Group’s prime focus is to make policy recommendations for attracting greater private investment in agriculture. But surely, the real issue should not be to only attract private corporate investment but to examine the constraints that impede the inflow of private investment in agriculture.

Therefore, the Sub Group would do well to focus on these few critical constraints and formulate a timely plan of action to address them. This would be quite different from detailing sectors within agriculture where either private corporate investment is already present, or in which it can be potentially promoted.

This latter approach, which often characterises official reports and documents, tends to assume private investment simply waits for a signal from the government to move into a particular sector or activity. We know from long experience that in the case of private supply responses this assumption is invalid.

The private sector looks principally at the prospective rate of return on its investments in conditions where risks can be managed. Terms of trade have been favourable to agriculture relative to the manufacturing sector almost consistently since 1995. Unless wage costs were rising even more sharply, which did not happen, favourable movement in the terms of trade for agriculture products would demonstrate relatively higher potential rates of return on investment in agriculture. On this basis, Indian agriculture should have been attracting significant investment since the mid-nineties.

Unfortunately, during the same period (1994-95 to 2008-09) investment in agriculture as a share in total national investment barely increased from 7.5 per cent to 8.4 per cent and that of private investment actually declined from 11.9 per cent in 1999-2000 to 6.4 per cent in 2007-08.

So what have been the barriers to private investment?

Clearly, there were some severe structural factors that negated the relative price advantage and constrained investment in the agriculture sector. It is evident that in irrigation, private investment has invariably gone for expanding the area under pump irrigation, using groundwater resources. Unfortunately, this has not been accompanied by sufficient public investment in recharging the aquifers and maintaining the underground reservoir.

This could not be expected from the private sector. With a dramatic drop in water tables and a resultant hike in irrigation costs, and especially in the context of highly erratic electricity supplies which make farmers dependent on diesel, private investment in even this form of irrigation has not increased. Moreover, this has made a complete hash of the irrigation regime that has been adopted since the Green Revolution.

Instead, a properly working private-public partnership could have resulted in achieving sustainable and more inclusive irrigation practices, based on regulated utilisation of continually recharged and sustainable groundwater resources, eminently possible given the annual rainfall.

An even more important structural impediment to attracting private investment has been the pervasive presence of government in the sector. This extends to controlling foreign and domestic trade, regulating output and input prices, controlling the already distorted land market, its virtual monopoly over Research and Development and technology diffusion (sadly in very poor shape) and a veto on new varieties, especially of genetically modified crops.

This has had two very negative consequences for the entry of private investment. First, the extensive and opaque regulatory and control regime, currently in place, generates a great degree of future uncertainty for the investor. This pure uncertainty, very different from risk, is a death knell for investment in any sector. Agriculture is no exception.

Second, in sub-sectors like the mandis, warehousing or a number of services related to agriculture (like soil testing, pest control, veterinary services, etc.), the looming presence of large public sector undertakings deters private sector entry.

While due to their systemic inefficiencies, these public sector agencies cannot cope with farmers’ demands and are vulnerable to corruptive influences, which, combined with administrative clout, prevent the entry of more efficient private suppliers.

Unless the government is willing to bite the bullet and effectively reduce its presence in the agriculture sector, prospects of attracting greater private investment will remain rather dim. A mere statement of good intent not accompanied by action on this front will certainly not suffice.

Rajiv Kumar is the director and chief executive for the Indian Council for Research on International Economic Relations (ICRIER).

A version of this article was first published here at The Hindu Business Line