How to make agriculture economically viable

Speaking from the ramparts of Red Fort on August 15, 1955, Jawaharlal Nehru had said: “It is very humiliating for any country to import food. So everything else can wait but not agriculture.” As India readies to celebrate 75 years of Independence in 2022, agriculture remains the Achilles heel of an economy poised to be the third largest in the years to come. Considering that nearly 49% of the workforce is engaged in agriculture, and knowing well that real farm incomes have almost stagnated or declined for the past two decades, addressing the acute agrarian distress that prevails remains the biggest challenge. 

The Niti Aayog’s own estimates show the growth in real farm incomes at around near-zero in the past two years, and prior to that between 2011-12 and 2015-16, real farm incomes had risen by less than half a percent every year. Economic Survey 2016 had earlier worked out the average income of a farming family in 17 states of India to be a meagre Rs 20,000 a year, which means farming families in roughly half the country were surviving on less than Rs 1,700 per month. An ICRIER-OECD study has shown conclusively that farmers suffered a cumulative loss of Rs 45-lakh crore in the 17-year period between 2000-01 and 2016-17. This was on account of farmers being denied a rightful price for their produce. As if this is not enough, recent studies show farm incomes plummeting to the lowest level in 15 years, and huge job losses for the rural farm and non-farm workers as well. 

Farmers have toiled hard to produce bumper harvests. And yet, with each passing year, the plight of a farming family has only worsened. Agriculture in reality has been a victim of macroeconomic policies which aim at keeping food inflation low, provide cheaper raw material for the industry, and meet the obligations of international trade. While the terms of trade were against agriculture, public sector investment between 2011-12 and 2016-17 declined to 0.4% of the Gross Domestic Product (GDP). Private sector investment too dipped to 1.8% in the same period. With public and private sector investment on the decline, coming down to a low of 2.2% of the GDP in 2016-17, the neglect of agriculture was all too apparent. 

Agriculture has been crying for reforms. But because the policy emphasis has remained on moving people out of agriculture to the urban centres, which are in need of cheap labour, farmers have in reality been penalised to grow food. Prices have been deliberately kept low to keep consumers and industry satisfied. This has to change. Policy makers must treat agriculture as an economic activity, which alone has the capacity to reboot the economy. An indication to this is provided in the Bharatiya Janata Party manifesto which promises to invest Rs 25 lakh crore in agriculture in the next five years, and provide a higher minimum support price (MSP) to farmers. Coupled with the launch of Prime Minister Kisan Samman Nidhi Yojna (PM-Kisan) in Feb 2019, which provides all landowning farmers with a direct income support of Rs 6,000 a year, the intent to revive agriculture is in sight. Further, addressing the Niti Aayog the Prime Minister announced the setting up of a high-level task force for undertaking structural reforms in agriculture.

Telangana launched its innovative Rythu Bandhu scheme, providing Rs 8,000 per acre per year, in 2018. Odisha launched its Krushak Assistance for Livelihood and Income Augmentation (KALIA) variant in Dec 2018. Since then several states — West Bengal, Jharkhand, Andhra Pradesh, Karnataka and Haryana — have started paying farmers directly, some incorporating the allocation available under PM-Kisan. In other words, governments are realising the need to provide direct income support to farmers. The essential foundational reforms should include setting up a National Commission for Farmers Income and Welfare, with the mandate to assure a monthly income of Rs 18000 per family by way of a top up approach. This will create a huge demand, thereby reinvigorating the industry and triggering a high economic growth. At the same time, initiating an Ease of Doing Farming programme will go a long way in removing the hurdles and bottlenecks farmers encounter during cultivation, harvesting and marketing operations.

Expanding the network of Agricultural Produce Market Committee regulated markets, from the existing 7,600 to a probable target of 42,000 mandis, should be accorded top priority. In addition, strengthening Farmer Producer Organisations (FPOs) and encouraging startups in agriculture to draw out entrepreneurship should make agriculture an attractive proposition. In China, seven million educated youth, including holders of postgraduate degrees, were sent to rural areas in 2018, and reports say 60% have stayed back. To bridge the rural-urban divide, China plans to send millions of educated volunteers to the villages every year and is encouraging young migrants in cities to return. To spur rural development, India, too, needs to draw a lesson to make agriculture economically viable, environmentally sustainable and attractive. It is surely possible provided we change our mindset and let 2022 be the milestone to restore the pride in agriculture, make farm distress history, and turn farming into a vibrant economic enterprise. #

To spur rural development, India must make agriculture economically viable. The Hindustan Times. June 22, 2019. https://www.hindustantimes.com/analysis/to-spur-rural-development-india-must-make-agriculture-economically-viable/story-XXK8pGACkUftlI1A259lON.html

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Direct Income Support for farmers is a welcome move.

Finance Minister Piyush Goyal in his Budget speech announced a direct income support of Rs 6,000 per year for small farmers owning less than 2 hectares of land, which is certainly meagre by any standards, but is a tectonic shift in economic thinking around the role of agriculture for development. It entails a paradigm shift from the existing ‘price policy’ to move towards ‘income policy’ unlocking the immense growth potential existing in agriculture.  

The announcement of a direct income package of Rs 6,000 for 12-crore small farmers, which actually boils down to Rs 500 per month to be paid in three instalments, is certainly too meagre by any standards. Although the Finance Minister has made a budgetary provision of Rs 20,000-crore for the remaining period of the fiscal to enable the first instalment of Rs 2,000 to be credited in the bank accounts of beneficiary farmers before the forthcoming general elections, the petty amount has evoked sharp reaction from the distressed farming community. And rightly so.

I don’t know how a direct income support of Rs 500 per month per small farming household will be able to pull out 12-crore small and marginal famers from the terrible agrarian crisis that prevails. Nor do I understand how this meagre support will help in reducing the spate of farm suicides. There is hardly a day when farm suicides are not being reported from one part of the country or another. Take the case of Punjab, where even after the loan waiver of Rs 2-lakh per farmer was initiated in January 2018, as per Bhartiya Kisan Union calculations there have been 430 farm suicides reported in the year gone by. Therefore the question that needs to be asked is how did the policy makers conceive of the idea to provide a paltry direct support which will not even make an iota of a difference.

Considering that the average income worked out by Nabard All India Rural Financial Inclusion Survey 2016-17 stands at a paltry Rs 8,931 per month, it is quite certain that the direct income support of Rs 500 per month will not be enough in achieving the objective of doubling the farm income. Nor is this amount fit enough for any significant farm investments the farmer would like to make. Economic Survey 2016 had earlier computed the average income of a farmer in 17 States, which means roughly half the country, at a pitiful Rs 20,000 a year. In other words, the average income of farming family in half the country stood at less than Rs 1,700 per month. I shudder to think how several million farmers survive in that miserly income.

Since the government has already made an annual budgetary provision of Rs 75,000-crore for PM-Kisan (beginning with the full-fledged budget expected after elections) there is no reason why the direct payment amount couldn’t have been double. At Rs 12,000 per small farmer, the budget allocation would have certainly doubled, which means a hike in budgetary allocation to Rs 1.5-lakh crore. To the question where will the money come from, the best and easy instrument available for the Finance Minister was to immediately scrap the annual fiscal stimulus package of Rs 1.86-lakh crore being doled out to the industry, in operation since the global economic meltdown in 2008-09. While there is no economic justification for the package, it continues to be paid for ten years now. In simple words, Rs 18.60 lakh crore has been paid to the industry since 2008-09 and no question has ever been raised about the fiscal imbalance accruing. I see no reason why this money couldn’t have been transferred to farmers account.    

Like in Telangana’s Rythu Bandhu scheme, the Centre too has kept the direct income support limited to land owning farmers. The only difference being that while the Rythu Bandhu scheme is open ended, which means even if a farmers has ten acres of land he will get a proportionate support, the Centre is restricting it to farmers owning less than 2 hectares. It however excludes tenant farmers, who form nearly 40 to 50 per cent of the farming population, from getting the same benefits. At the same time, direct cash payments landing in the bank accounts of absentee landlords remains a big problem.

Nevertheless, as someone who has been a strong advocate for direct income support, it is gratifying to see direct payments now becoming an economic necessity. Agriculture has been and still remains a victim of the tyranny of markets. For more than four decades now, agriculture incomes had remained static with many studies providing an empirical evidence of declining real farm incomes. I have always maintained that agriculture has been deliberately kept impoverished to keep the economic reforms alive. Keeping the food inflation low and by ensuring a cheaper raw material for the industry, the entire economic burden has been quietly passed on to farmers.

An economic model, where agriculture is treated with disdain and has been very cleverly projected as an uneconomic activity, has to be reversed. To say that the Rs 500 a month cash dole to small farmers may be increased in the future as the government's resources grow is a reflection of the same faulty economic thinking. As a result most economic resources have been slowly and steadily shifted to the industry. Since 2004-05, the industry has got Rs 55-lakh crores of tax concessions. Niti Aayog estimates these concessions to be 5 per cent of GDP. Knowing that income saved is income earned, this in reality is no less than direct income support. In addition, the industry has been provided with massive incentives, which in reality are subsidies. On the other hand, an OECD-ICRIER study has worked out a total loss of Rs 45-lakh crores in the period 2000 and 2017 on account of low farm prices.

If only the farmers were paid their legitimate dues, the face of agriculture would have been much bright. In addition, I fail to understand why governments have refused to take steps for ease of dong farming. Agriculture alone has the potential to reboot the economy, and can sustain millions of livelihoods thereby reducing the pressure on job creation.

Providing direct cash payments to small and vulnerable groups is the first step in augmenting farm incomes. I am sure with the passage of time direct cash amount will see an incremental increase. This has to be simultaneously followed with the setting up of a Farmers Income Commission, with a mandate to ensure a minimum monthly income of Rs 18,000 per farming family per month. This will open the doors to agriculture receiving more public sector investments, more holistic reforms, and in bargain being turned into an economic activity. # 

Farmers need much more than cash dole. The Tribune. Feb 6, 2019

https://www.tribuneindia.com/news/comment/farmers-need-much-more-than-cash-dole/724400.html

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Let 2019 be an Year of Agricultural Reforms

For four years in a row, Pradeep Sharma, a potato grower from Agra district in UttarPradesh has been suffering losses. Cultivating potatoes in 10 acres this year, he brought 19,000 kg to the mandi only to get a profit of Rs 490 after selling his entire produce. In anger, he sent his paltry earnings to the Prime Minister saying perhaps he will come to understand my problems. A few days earlier, a Madhya Pradesh farmer, Bherulal Malviya, had died of shock after selling his 27,000 kg of onions for just Rs 10,000 in Mandsaur market.

Such distressing media reports depicting the misery of the farming community have donned the media headlines for quite some time now. With losses mounting over the years, farmers have been literally surviving on loans, taking credit from both formal and informal sources. As of Sept 2016, Rs 12.60-lakh crores was the outstanding agricultural loan. Compare this with the average income of Rs 20,000 per year in 17 states, roughly half the country, the desolation is clear. 

Picture the terrible agrarian distress that prevails in the ongoing debate over whether farm loan waiver is the right answers to address farmer’s woes, and secondly, how will the state governments bear the fiscal burden? The speed at which the newly elected Chief Minister’s of Madhya Pradesh, Rajasthan and Chhattisgarh have announced farm loan waivers soon after assuming office, questions are being asked over the ‘economic viability’ of an otherwise ‘politically sound’ measure, the bigger question being tossed around is where will the money come from?  

It doesn’t end here. After Telangana launched the trend-setting Rythu Bandhu programme providing a fixed amount of Rs 8,000 per acre (now raised to Rs 10,000) per year as direct income support to farmers, it has triggered a chain reaction among States to announce similar or improved versions of financial aid. First, the erstwhile Congress government in Karnataka came up with similar package to provide Rs 5,000 per hectare to dryland farmers, and after the recent electoral debacle in the Hindi heartland, and fearing the Congress and BJP’s promise to waive farm loans if voted to power, and obviously in an effort to woo farmers ahead of the forthcoming Assembly elections, Odisha declared an economic package. Instead of a loan waiver, Odisha announced Rs 10,180-crore package for three years under the Krushak Assistance for Livelihood and Income Augmentation (KALIA) programme for land owning farmers, tenant farmers as well as landless labourers and sharecroppers. This will benefit 57-lakh households.

Jharkhand was quick to follow it up with Rs 2,250-crore schemes to help 22.76 lakh small and marginal farmers with a financial support of Rs 5,000 per acre per year, with an upper limit of 5 acres. And while Haryana is contemplating a pension scheme for farmers, West Bengal was quick to come up with Krishak Bandhu Scheme under which each farmer will get cash support of Rs 10,000 per acre per year. In addition, it will provide a life insurance cover of Rs 2 lakh per farmer, irrespective of the cause, for farmers between the age of 18 and 60. The premium will also be paid by the state government.

Let’s first look at the loan waivers. After Chhattisgarh announced the farm loan waiver, Rs 1,248-crore has already been transferred to bank accounts of 3.5 lakh farmers in the first phase, waiving a maximum of Rs 2-lakh each. In Punjab, despite the slow progress, a total of 4.14 lakh small and marginal farmers who had defaulted on cooperative and commercial banks have got a loan waiver of approximately Rs 3,500-crore. For the country as a whole, a total of Rs 2.3-lakh crore of farm loans announced by Karnataka, Madhya Pradesh, Maharashtra, Andhra Pradesh, Rajasthan, Telangana, Punjab, Rajasthan, Chhattisgarh and Tamil Nadu will benefit and estimated 3.4-crore farm families.

Compare this with corporate loan write-offs. This will tell us where the money is getting siphoned-off. According to the Reserve Bank of India, in the four year period between April 2014 and April 2018, Rs 3.16-lakh crore has been written-off while only Rs 32,693-crore of the outstanding amount has been recovered. Accordingly, as on Sept 30, 2018, besides the public sector undertakings, there were only 528 borrowers who had non-performing assets (NPAs) of Rs 6.28-lakh crore while only 95 of them had defaults exceeding Rs 1,000-crore. While no questions are being asked about the ‘economic viability’ of the massive write-offs of a handful of corporate waivers, a lot of heat is being unnecessarily generated over farm loans depicting a clear-cut bias in economic thinking.

Meanwhile, gross NPAs have further increased by a whopping 11.2 per cent reaching Rs 10.39-lakh crore in 2017-18, and only Rs 40,400-crores have been recovered through the much touted Insolvency and Bankruptcy Code (IBC) and Sarfaesi Act. The surge in NPAs is happening despite providing an economic stimulus of Rs 18.60-lakh crore to the industry in the past 10 years. It was in 2008-09 that the government started a stimulus package of Rs 1.86-lakh crore to the industry at the time of global economic meltdown in 2008-09, a package that still continues. In simple terms, the industry is getting a direct income support every year.  

Although considered to be ‘less distorting’ than farm loan waivers, reports indicate that the Centre is looking at the possibility of providing a direct income support of Rs 4,000 to farmers. Estimates point that the proposed direct support will cost the exchequer Rs 2-lakh crore. While this amount may appear big, the fact of the matter is that Rs 4,000 a year comes to less than Rs 340 a month, almost equal to the price of two cups of coffee/tea at any trendy coffee shop. If Rs 340 per month is considered to be an appropriate financial sop for the beleaguered farming community, it only shows the extent of deprivation and income inequality that prevails.  

While farm loan waivers are an economic necessity, and the state governments will have to find adequate resources, direct income support should not be seen as a permanent solution to the agrarian crisis. Agriculture needs a set of robust reforms in addition to the immediate sops being considered. Let 2019 be the year of agricultural reforms, and if the government can provide 7,000 steps, both small and big, for ease of doing business I see no reason why a similar amount of initiatives cannot be considered for ease of doing agriculture. After all, it involves 52 per cent of the country’s population. There lies the perfect economic prescription for Sabka saath, Sabka Vikas.

Let it be year of farm reforms. The Tribune. Jan 4, 2019
https://www.tribuneindia.com/news/comment/let-it-be-year-of-farm-reforms/708313.html

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