Instead of farm loan waivers, invest more in agricultural infrastructure
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The deaths of five farmers in Madhya Pradesh’s Mandsaur district has brought the crisis in agriculture centre stage. While the latest incident may have got media coverage, the fact is that the crisis has been in the making for some time. It intensified in the last one year but signs of farmer unease and severe distress were visible as early as late 2014. In the last year alone, large-scale farmer mobilization and agitations have been seen in Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and Karnataka.
How did things come to such a pass? Simply put, a colossal failure to read the tea leaves. The national accounts (new series) data clearly demonstrates that agriculture is facing a severe slowdown. The net value added (NVA) in agriculture declined at 0.23% per annum in the first two years of the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government. Even accounting for bumper production last year, gross value added (GVA) in agriculture has grown at 1.77% in the last three years.
More worryingly, the data shows investment in agriculture is declining at 0.8% per year at constant prices since 2010-11. For the first two years of this government, investment in agriculture declined at 3.8% per annum. It declined from Rs2.84 trillion in 2013-14 to Rs2.63 trillion in 2015-16 at 2011-12 prices—the sharpest fall in more than two decades.
The distress in rural economy began in 2013 with growth rate of rural wages declining in real terms. This was the first signal which went unnoticed. This was further compounded by the back-to-back droughts in 2014 and 2015, only the third such instance since independence. Last year was a good year as far as rainfall was concerned but it was uneven in its distribution with parts of south India receiving scant to deficient rain.
At the same time, the terms of trade have moved against agriculture in the last three years. The collapse of agricultural commodity prices after August 2014 only aggravated the distress in the rural economy, which was already experiencing shrinking incomes. While this was largely led by a drop in prices of most cash crops, including horticultural products, even for foodgrains the price inflation was minimal.
Not only was the growth of minimum support price (MSP) minimal, the central government refused to pay the usual bonus that the farmers were given. For crops such as pulses, the MSP announced was much lower than promised; even at the lower MSP, the procurement was severely short of the target.
No wonder then that retail inflation slowed to 2% overall and food inflation came in at a negative 1.05% last month. Negative food inflation along with declining wages in rural areas confirms severe demand deflation. It has contributed largely to the collapse of agricultural prices. The final nail in the coffin was the demonetization of high-value currency notes, which affected the purchasing capacity of market traders, forcing farmers to undertake distress sales.
In the same period, input costs have increased or remained stagnant. The big increase has come in fertiliser and seed prices, denting the profitability of farmers—forcing farmers to fall back on moneylenders and institutional sources to fund daily expenses in agriculture.
Simultaneously there has been a structural shift in cropping patterns with horticulture and cash crops dominating farm output. Today, the overall horticulture production is higher than foodgrain production. Most of these crops are outside the ambit of MSP operations and hence vulnerable to fluctuations in market prices—especially given the cartelisation in mandis or markets for agricultural produce.
At the same time, agricultural production is being increasingly monetized as farmers embrace mechanization. Consequently, credit and risk exposures are now an essential part of the new agrarian economy. Public policy is guilty of not recognizing this fundamental transformation in Indian agriculture wherein market risks have become an integral feature.
This is largely because good times masked the reality. Generous hikes in MSP and the increase in investment after 2004-05 meant that farmers did see some growth in incomes. This was reflected in wages increasing at more than 6% per annum in real terms between 2008 and 2013 and also large reduction in poverty. The unprecedented growth run of the Indian economy since the turn of the millennium acted as fresh insulation.
But with economic growth beginning to sour in the aftermath of the global crisis in 2009, the underlying risks of India’s agriculture began to manifest.
Not only did the growth engine slow down despite claims to the contrary by the government, it was also accompanied by a decline in employment. According to the labour bureau, 16 million jobs were lost in the first 15 months of the NDA government. Some of this is also corroborated by the national accounts with a severe slowdown in construction, retail trade, transport and communication, the sectors which absorbed a majority of the workers moving out of agriculture.
This has manifested in demands for government jobs and reservation among the most industrious and prosperous farmer communities of Jats, Patels and Marathas—symptomatic of the larger crisis in the countryside.
Clearly, the problem is manifold and has been brewing for some time.
However, the response of the government is handicapped by its short-term focus. While there may be justification for farm loan waivers, it is certainly not a long-term solution. Neither is increasing MSP which benefits only a small section of farmers. But even if these interventions are made, ad hoc exports and imports can undermine any intervention; as indeed happened in the case of pulses.
The long-term solution has to first recognize the new reality of Indian agriculture as well the changing role of agriculture in rural incomes and growth. While reviving agriculture is necessary for revival of non-farm sector and rural jobs, the instruments required are not adequate to cover the uncertainties in a globalized context.
What is needed is not only better integration of farmers with markets and price intervention strategies for non-food crops, but also large investments in agriculture. These are essential for creating better marketing infrastructure, storage capacities, transportation network, farming technology, research for new crop varieties, extension services and above all irrigation.
While the government may buy peace by offering farm loan waivers, as it has done in several states, the crisis is not going away. Instead of spending such large sums to deal with the recurring problem of farm loan waivers, the government would be better off devoting resources to stepping up investment in agricultural infrastructure and price support. Not only will it revive agriculture, it will also generate employment in the rural economy.
Himanshu is an associate professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.
This is the fourth part of Mint’s Fractured Farms - II series that will capture the ongoing agrarian crisis in India through a mix of on-ground reports, opinion pieces, and data analyses. It follows Fractured Farms, a similar series Mint ran in 2015.