How falling farm incomes impact India’s economy

Photo: Mint
Photo: Mint

Summary

After a period of robust crop prices, farm incomes are likely to take a hit in 2023 following a glut in perishable prices and damage wreaked by unseasonal rains

After a period of robust crop prices, farm incomes are likely to take a hit in 2023 following a glut in perishable prices and damage wreaked by unseasonal rains. Coupled with stagnant rural wages, this could delay the recovery in consumption. Mint explains:

What’s happening with farm incomes?

In 2022, following the Ukraine war, the prices of most agricultural commodities shot up. Now, except for cereals, farm gate prices have softened. Most varieties of pulses and oilseeds are now selling at lower than the minimum support price (MSP). In January and February, prices of perishables like tomatoes, onions and potatoes crashed owing to a supply glut during harvest. Farmers were forced to sell at less than cost. In March, ready-to-harvest winter crops like wheat, chick peas and mustard were damaged by hailstorms and unseasonal rains in several states. That means lower incomes for growers.

How have farm-gate prices moved?

Wholesale vegetable prices were 22% lower in February, year-on-year. For onions the drop was a massive 40%. Likewise, oilseed prices were 7% lower while pulses grew at a tepid 2.6% compared to the year before. Cereal price inflation is still high—growing at 14% year-on-year in February. But higher prices for rice and wheat are a result of crop loss—farmers losing out due to a heat wave and uneven rains last year. Now, with unseasonal rains impacting the winter harvest, farmers are staring at a loss. This could be compounded if the monsoon, beginning June, turns out to be unfavourable.

What are the projections for the period ahead?

According to the India Outlook Report 2023 published by Crisil Research in March, farm incomes are projected to remain stagnant in 2023-24. The zero growth in farm incomes in FY2024, the lowest since 2016-17, compares with a 6% growth in farm incomes in 2022-23. Flat wages and high inflation in FY 2024 will likely crimp rural household spending.

How do rural incomes impact the economy?

Two-thirds of India lives in rural areas. Agriculture contributes about 43% to incomes of farm households, and wages 34%. For non-farm families, wages make up 54% of incomes. Due to a prolonged period of either falling or stagnant wages, households have been forced to slash non-food consumption. Volume growth of FMCG was in the negative for the sixth straight quarter (October-December, 2022-23). Sales of discretionary items from two-wheelers to footwear have also been impacted.

What steps can the government take?

To support the growth in rural wages, the Centre can allocate more funds for the rural jobs scheme. Instead, it’s been slashed. For farmers suffering losses due to weather, state governments need to expedite crop loss surveys and ensure timely compensation and claim settlements. For major winter crops like wheat, the centre can announce a bonus over and above MSP. Finally, the centre can directly compensate farmers whenever they sell pulses and oilseeds at lower than the MSP.

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