Bharatiya Janata Party’s farm economics problem
The long march by tens of thousands of farmers in Maharashtra, which ended on Monday after the Devendra Fadnavis government accepted their major demands, was the latest in a series of ongoing protests by farmers. In Maharashtra itself, farmers had blocked highways last year, which affected supplies of vegetables and milk in the state. Other states, such as Madhya Pradesh (MP), Rajasthan and Tamil Nadu, have also seen protests by farmers. Frequent protests in different parts of the country show that there is discontent among farmers, which could potentially create problems for the ruling Bharatiya Janata Party (BJP). The BJP will face crucial assembly elections in states such as MP and Rajasthan before next year’s general election. Even though it managed to retain power in Gujarat, it suffered in rural areas.
To be sure, the BJP knows the political relevance of the problem as more than half of the population is directly or indirectly dependent on agriculture for livelihood. The government has taken several steps in the past, and the 2018-19 Union budget was focused on rural India. It has announced a number of measures for the agriculture sector. For instance, it intends to fix the minimum support price (MSP) at 1.5 times production cost. It is also looking to establish a mechanism to compensate farmers if prices fall below the MSP. Besides, it plans to launch “Operation Greens” to address price volatility in vegetables like tomato, onion and potato. These steps should help farmers in the medium term. However, it remains to be seen if they will work, politically, in the short run. It is not clear at this stage if agriculture will become a driving issue in the 2019 Lok Sabha election, but it is likely to be an important issue in the assembly elections in states such as MP and Rajasthan.
After two consecutive droughts in 2014 and 2015, normal monsoon in the following years led to higher production and prices of several commodities crashed. Demonetization in late 2016 also affected farm prices for months as trade at mandis happens mainly in cash. Further, unlike the United Progressive Alliance (UPA) government, which tried to shift the terms of trade in favour of the agriculture sector, the present government gave precedence to overall macroeconomic stability and increased MSPs at a moderate pace. Farmers are now protesting for better prices. Consequently, the Narendra Modi government is facing what this newspaper has called an impossible fiscal trinity. The government will not be able to simultaneously increase farm prices, keep food inflation in check, and control overall inflation through a tight fiscal policy.
The UPA government did increase farm prices, which resulted in higher food prices and higher generalized inflation because of the higher fiscal deficit. It would not be advisable for the present government to do the same. However, it will be under pressure to increase expenditure in the sector, which can affect government finances.
The government has taken several initiatives in the past, such as Soil Health Card Scheme, National Agriculture Market (e-NAM) and Pradhan Mantri Fasal Bima Yojana. However, some of the schemes have not had the desired effect. For instance, as Ashok Gulati, Prerna Terway and Siraj Hussain of ICRIER (Indian Council for Research on International Economic Relations) have shown in a recent paper, while the Pradhan Mantri Fasal Bima Yojana is a step in the right direction, there is still a long way to go. The government should address various implementation glitches. For example, the premium subsidy should be paid in time, so that claims can be settled without delays. The government should also use better technology to assess yields and damages so that claims can be settled in a fair and transparent manner.
While the insurance scheme will cover the production risk, the government should assess how quickly it can start protecting farmers against the price risk. The key for the Union government at this stage will be to closely work with state governments for channelizing expenditure and ensuring better implementation of schemes. As Crisil in a recent report showed, spending by state governments has a higher impact on agriculture growth compared to the Central government. The goods and services tax council has shown that the Centre and states can work together and move forward on difficult issues. There is, perhaps, a need to devise a mechanism where the Centre and states can come together to initiate reforms which will benefit farmers. For instance, it is important to create a common market for agricultural products (a series of articles published in these pages between 26 February and 2 March highlighted possible solutions for the agriculture sector).
Although there is a lot that needs to be done for farmers in the medium to long run, the best bet for the BJP in the short run would be that budget proposals along with existing schemes are implemented and communicated well to all stakeholders.
Will protests by farmers in different parts of the country affect the BJP’s electoral prospects? Tell us at email@example.com
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