Monsoon: India’s problem of plenty
India’s weather office has forecast a normal monsoon. Bountiful rains in the June-to-September period are critical for about 800 million Indians who depend directly or indirectly on farming
New Delhi: Gangabhishan Thaware, a 53-year-old farmer from the drought-prone Marathwada region of Maharashtra, took an unusual step in July last year.
Thaware and his fellow villagers had toiled on their fields and spent thousands of rupees on seeds and fertilizers, hopeful that rains will arrive as predicted by the India Meteorological Department (IMD), the government forecaster.
After waiting for more than a month for the rains to arrive and watching his investments dry up slowly on the fields for want of water, a frustrated Thaware went to the local police station.
There, he filed a complaint against the director of India Meteorological Department’s office at Pune, the person responsible for the monsoon forecast.
District police officials were at a loss.
“We spent so much based on the forecast, which turned out to be incorrect. We wanted Pune’s weather office to be locked and shut,” Thaware said in a phone interview from Anandgaon village in Beed district of Maharashtra.
Discontent among farmers is not confined to rural Maharashtra. A combination of weather-related shocks, depressed prices, indebtedness and inadequate attention to the plight of farmers have led to distress among farming communities across the nation, triggering protests at a time when Narendra Modi’s Bharatiya Janata Party (BJP) faces elections in as many as five states and national polls over the next 12 months.
While the monsoon was overall near normal last year, more than one-third of India received either below normal or excess rains, leading to acute distress and loss of crops such as soybean and pulses, and pest attacks on cotton driven by dry weather. But India’s aggregate food production touched a record high, setting in motion a deeper crisis: an unprecedented collapse in crop prices. Another year of record harvest could, in fact, further depress crop prices.
On 14 April this year, IMD forecast a normal monsoon for 2018 at 97% of the 50-year average. If the forecast holds true, India will witness the third successive year of normal rains, after consecutive years of drought in 2014 and 2015.
“Normal monsoons in past years delivered a good harvest, but not decent income to farmers… barring wheat, there is not a single crop where farmers have sold their produce above government-announced support prices,” said Yogendra Yadav, a politician and member of Jai Kisan Andolan, a farmers’ body.
A normal monsoon this year, if distributed evenly across states and over the June-to-September period, is expected to provide a shot-in-the-arm for the rural economy by raising crop production, improving rural wages and farm incomes. It is also likely to boost sales of farm inputs, consumer products, tractors, motorcycles and small cars.
“There is a strong correlation between, say, tractor sales and rainfall. However, maintaining the growth seen in the previous two years may be difficult, and growth may taper off,” said Dharmakirti Joshi, chief economist at ratings agency Crisil Ltd. “If the government acts on its promise of providing better crop prices to farmers—and that is likely in an election year—there will be a positive spillover for the FMCG (fast-moving consumer goods) sector.”
A normal monsoon is also likely to positively impact agriculture gross domestic product (GDP) growth rate, a proxy for growth in farm revenue. Past data shows a strong correlation between these growth rates and actual rainfall (see table). Also, via higher crop production, a normal monsoon will help keep food inflation in check.
“A normal monsoon is crucial to pushing economic growth, which slowed last year under the lingering impact of demonetisation and disruptions due to implementation of the goods and services tax (GST), both of which impacted private consumption demand as well as exports,” ratings agency Crisil said in a note on IMD’s forecast.
But Thaware is less upbeat. “Even if the rain gods are kind this year, who will guarantee a decent price for my soybean and pulses?” he asks.
That question is troubling policymakers and politicians alike as 2018 will see crucial state elections beginning with Karnataka in May, followed by Madhya Pradesh, Chhattisgarh and Rajasthan. In about a year’s time, Indians will also vote in a general election, with Prime Minister Narendra Modi seeking a second term in office.
Farmers are aware of their bargaining power in an election year. Between 1 and 10 June, farmer bodies in several states have decided to stop supplying fresh produce to cities and stop purchasing any merchandise from nearby towns. Their demands are remunerative prices and waiver of bank loans.
Last year, a similar round of protests began in June in Maharashtra, where farmers spilt milk on the road and stopped supplies of perishable produce to cities. In neighbouring Madhya Pradesh, five protesting farmers died in police firing. The anger on the streets forced Maharashtra to announce a Rs34,000-crore loan-waiver package while Madhya Pradesh rolled out its own price support scheme for pulses and oilseeds.
“There is a sense of urgency within farmer movements that governments are more likely to concede in a heavy election year,” said Yadav.
By what extent did a normal monsoon and record harvest impact farm gate prices?
Data on wholesale food prices, including grains, pulses, perishables and milk, show that prices rose by a mere 3.6% annually between 2014-15 and 2017-18, the first four years of the Modi-led National Democratic Alliance government. In 2017-18, the rise was a mere 2%. This compares with the more than 10% per year rise in prices between 2010-11 and 2013-14, the last four years of the previous United Progressive Alliance (UPA) government at the centre (refer to table above)—those were also double-digit retail inflation years for which the UPA paid a political price. “Essentially, farmers have been made to pay the price for keeping food inflation low. The dismal rise in food prices also suggests less demand and consumption in rural areas,” said Himanshu, a development economist and associate professor at Delhi’s Jawaharlal Nehru University.
According to Himanshu, while the headline inflation hovered between 4% and 5% in the past two years, higher than the rise in food prices, terms of trade moved against agriculture. “Due to lower consumption demand for agriculture produce, traders are also reluctant to purchase from farmers and stock, further depressing farm-gate prices,” Himanshu said.
Apart from low crop prices, successive years of normal rains and the uptick in farm activity did not lead to higher rural wages. Sticky wages in rural India suggest that non-farm activity like trade and construction did not pick up pace, indicating continuing rural distress (see table above).
A set of data which further corroborates the distress in rural areas is the fact that despite normal rains in 2017, demand for work under the federal government’s employment guarantee scheme was high, although wages paid under the scheme were lower than statutory minimum wages for agricultural labourers in most states.
This implies a paucity of jobs for rural workers. So much so that households were ready to work for less than minimum wages. In fact, expenditure under the rural safety net scheme was the highest in 2017-18—a staggering Rs63,887 crore—since it was launched 12 years ago (see table above).
Impending elections in states and the general election next year are now pushing the Modi government to act fast.
The Union budget presented in February promised to fix minimum support prices (MSP) at levels to ensure a return of 50% over cost of production.
Further, the budget promised to ensure that farmers actually benefit from MSP announcements as presently it is limited to growers of rice and wheat—crops, which are procured for the subsidized public distribution system.
Resource-poor marginal farmers who grew pulses and oilseeds, for instance, bore the brunt in the past two years by selling their harvest at prices below the floor price set by the government, on account of higher production and adverse trade policies promoting cheaper imports.
The government is now considering different models to ensure remunerative prices to farmers. Its think-tank, NITI Aayog, has proposed options such as direct procurement, reimbursing farmers the loss they incur when they sell at lower than support prices, and incentivizing traders to buy farm produce at MSP.
According to calculations by NITI Aayog, this can cost the government around Rs45,000 crore, depending on the model opted by states. The federal government is expected to roll out this new support price policy by October, in time for the kharif harvest.
“If the government delivers on its promise of better crop prices, that will raise inflationary pressures; but it will also be a redistributive income transfer from urban to rural India,” said Crisil’s Joshi.
A new price support policy, the government hopes, will help revive rural incomes and placate farmers ahead of important elections.
Thaware, meanwhile, is still hoping that the normal monsoon prediction will come true this time and bring some relief to farmers like him, who are living precariously at the mercy of the weather, markets and middlemen.
“I have nothing against the weather department, I’m also praying to god that they are correct this time,” chuckles Thaware, realizing the absurdness of his move to file a complaint against the Met department director.
Editor's Picks »
- Pidilite’s shares hold their ground despite weak rupee and rising crude
- Automobile sector shares trip on rising risks to earnings growth
- Steel companies are taking a shine to their home market
- Investments in HDFC AMC shares are subject to regulatory risks
- Spot electricity prices: Seasonal spikes becoming structural issue