Photo: Mint
Photo: Mint

Opinion | Farm livelihood is an impossible riddle to solve

The origin of farm distress is the severe shackles of the state around all farming and related activity

It was Winston Churchill who first coined the phrase “riddle wrapped in a mystery inside an enigma". The solution to India’s farm distress also seems to be similarly deeply hidden. However, if you pause for a moment, it may not be all that elusive if you are willing to accept that the kernel of the problem is the state.

The origin of farm distress is the severe shackles of the state around all farming and farm-related activity. It started with the constitutional amendment in June 1951, which sought to curtail property rights of the farmer, in the name of protecting “land reform" acts passed by various states. The consequent introduction of schedule 9 of the Constitution, wherein laws passed by the Parliament could be kept which would be immune from any judicial challenges, provided a downward slippery slope to completely shackling the farmer.

From there it was all downhill in terms of economic unfreedom. Price controls on foodgrain output (to support industrialization through cheap wage goods), were offset by cheap inputs like fertilizer, credit, water and electricity, which had to be subsidized through ever expanding taxation.

The farmer lost all freedom on whom to sell, what quantity, at what prices, on movement of grain, to buy or sell land, especially for non-agriculture, and of course the dreaded land ceiling. No wonder C. Rajagopalachari said as early as 1959 that a movement for freedom is as important and as serious as the movement for independence from British rule. He said, “The State is becoming a giant entity, menacingly poised against the citizen, .. mistrusting the people, imposing restrictions, introducing series of controls and regulations,.. stepping into agriculture." He was the founder of the Swatantra Party, which stood for freedom, individual initiative and enterprise, all of which were being strangled as far as the farmer was concerned.

Many years later, Sharad Joshi, who inherited Rajagopalachari’s mantle, and led a major nationwide farmers’ movement in the 1980s and 1990s, also famously said the government cannot be expected to solve the problem of agriculture because “the government is the problem".

What he meant is that in the name of protecting the farmer, the state has unleashed such draconian controls that they end up suffocating the farmer.

Farm distress is not just an occasional crisis, but a chronic condition. It leads to anomalies that would be comical if they weren’t tragic. For instance, this year India has a record production of sugar and the government insists that 5 million tonnes should be exported. As this will surely depress international prices, causing a loss, it generously offers an export incentive. However, no sugar mill is biting the bait. The government is now sufficiently annoyed and is threatening penal action. Why are the mills not exporting when a subsidy is available? Because the actual payment of the subsidy is released with such a lot of delay that the interest cost of delay (the working capital) is enough to kill all profit. Better to just sell sugar in the domestic surplus market. Take the policy of minimum support prices (MSP). The government promises 50% margin over cost of production, never mind the inefficiency. This MSP regime is a return to cost-plus pricing and ignores optimal cropping choices, suited to soil condition, water availability and competitiveness. However, that is not all. The steep and very generous MSP is not working and food prices and inflation are very low.

Indeed food inflation is in negative territory. So what happened to MSP promise? Turns out that it was a promise only for price, not quantity. As procurement is very limited or non-existent for most of the 22 crops for which MSP has been announced, the gains to the farmer are non-existent. How then will farm incomes double in the next three or four years.

Take the economics of farm land. With ever expanding cities encroaching on agricultural land, there is a great premium on getting the land use converted, that is the proverbial “NA" (permission for non-agriculture use).

The process is highly bureaucratic and prone to corruption. The market value of an acre of such land is so high that annual interest income alone on that capital base can fetch fivefold the income that farming that same land can.

Why wouldn’t the farmer simply sell his land and live off the capital and its interest? Such land transactions are almost banned and under draconian controls. Farm land is highly fragmented with successive generations and scope for land consolidation remains limited. These are but few of the elements of that giant riddle wrapped in an enigma, called farm livelihoods. The only way to get to the core is to cut the shackles of controls of the state. Otherwise it is a constant layering of more controls as antidotes to earlier controls, smothering the livelihoods of farmers and leading to economic death.

Ajit Ranade is an economist and a senior fellow at the Takshashila Institution.

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