"I have always said that agriculture is being sacrificed to keep market reforms alive." My interview

Distinguished food and trade policy analyst, award winning journalist, writer and researcher DEVINDER SHARMA was trained as an agricultural scientists and quit journalism to write on food and trade policies. He tells SARBJIT DHALIWAL how unfairly independent India continues to treat its farming community

You have been advocating the need for a direct income support for farmers. Now that the Finance Minister has announced an income support of Rs 6,000 per year to small farmers owning less than 5 acres, do you think cash transfer is the way to address farm crisis? 

For more than four decades now farm incomes have remained more or less static. Several studies have shown that the real farm incomes have been on the decline. More recently, a  Niti Aayog study has shown that in the five-year period, between 2011-12 and 2015-16, real farm income had grown by less than half a percent every year, 0.44 per cent to be exact.

Following demonetisation, with farm gate prices slumping across board, we have seen reports of farmers throwing tomato, potato, onion and garlic on the streets. Irate farmers had re-ploughed standing crops of vegetables and reports of farmers endlessly waiting at the market to dispose off their farm produce, had appeared frequently. Farmers’ anger was clearly visible, and following the electoral debacle in the Hindi heartland, the government borrowed the idea to bring in direct income support to farmers.

Like the concept of universal basic income, I believe direct income support is a significant shift in economic thinking. For several years now, I have been asking for direct income support. Even in US and Europe, farmers have been given direct income support for long. The time has come in India to move from ‘price policy’ to ‘income policy’ which means over the next few years the government will have to further provide farmers with an assured or a guaranteed monthly income. After all, how long can we leave farmers to face the tyranny of the markets?

But many people say Rs 6,000 support is too less and too late ...

Yes, you are very right. Rs 6,000 a year actually translates into Rs 500 a month or less than Rs 17 a day. I don’t understand how the government thinks that with such a meagre amount small and marginal farmers will be able to get out of the terrible agrarian crisis that prevails. I don’t know how the government thinks Rs 500 per month will enable farmers to get out of the suicide trap. It seems the immediate objective is to ensure that the first instalment of Rs 2,000 lands in the bank accounts of small farmers before the ensuing general elections, for which a budgetary provision of Rs 20,000-crore has been made.

That there is a drought of practical ideas and thinking at the policy planning level was never in doubt otherwise there is no reason the farm crisis should have multiplied to such a severity. But to provide Rs 500 per month to a small farmer and then think it will do the miracle is a clear-cut reflection on the disconnect that prevails between policy planning and the ground realities. No wonder agriculture is in dire crisis.

The least that could have been done was to double the income support amount, from Rs 6,000 to Rs 12,000 per small farming family.

But where will the money come from?

That’s a question I hear whenever farmers loans have to be waived or they have to be given any financial support. No one has ever asked where the money will come from when huge corporate bad loans are written off. Between April 2014 and April 2018, Rs 3.17 lakh crore of corporate loans have been struck down, and no questions over fiscal imbalance caused or where from will the money come have ever been raised.

Take the case of 7^th Pay Commission. Arun Jaitley has earlier informed that it will entail an additional annual burden of Rs 1.02 lakh crore which will benefit 45 lakh central government employees and another 50 lakh pensioners. But when the 7th Pay Commission is implemented by the state governments, PSUs, colleges/universities, a Credit Suisse Bank study says the annual burden will be in the range of Rs 4.5–lakh crore to Rs 4.8-lakh crore. Did you hear anyone asking from will the money come from or whether it will add on to fiscal deficit?

Now coming to income support, if only the government had doubled the income support to Rs 12,000 per year per small farmer I am aware that the budgetary allocation would have also doubled. Piyush Goyal has said that Rs 6,000 support will require an additional finance of Rs 75,000-crore in a year. If the amount had been doubled, the budgetary requirement would increase to Rs 1.5 lakh crore.

Before you raise an alarm over where will the money come from, let me tell you that the immediate need was to discontinue an economic stimulus package of Rs 1.86 lakh crore that is being paid to India Inc since 2008-09 when the global economic meltdown took place. No one knows why this stimulus package still continues to be paid. No one ever asked the fiscal implications of this package, which means the country has spent Rs 18.60 lakh crore in ten years. Is that a small amount? And look, the tap still continues to flow. Why couldn’t this economic stimulus package be stopped and diverted to agriculture? If done, I am sure the Finance Minister could have announced a direct income support of Rs 15,000 per month to farmers.

I agree, but two wrongs don’t make it right

I too agree with you. But first tell me why do you think that even one wrong makes it right? Why is that the former Chief Economic Advisor Arvind Subramanian used to say that writing-off corporate loans leads to economic growth and waiving farm bad loans leads to credit indiscipline and former RBI Chief Urjit Patel had even called farm loan waivers as a moral hazard? Isn’t that simply a way to defend the wilful corporate defaulters?

Merrill Lynch had gone to the extent of telling us that farm loan waiver, which has already touched 1.9 lakh crore, amounts to 2 per cent of GDP. But it never told us how much would an NPA of Rs 10.3-lakh crore would be in terms of GDP. That’s how the blatantly biased economic system works. When you give money to the poor, it is called subsidy, a word that has been demonised. But when you give massive doles or tax cuts to corporate, it is called incentive for growth. No wonder, I have always said that it is socialism for corporate and capitalism for farmers.

Why is that while both the corporate and the farmers draw loans from the same banks, corporate get ‘haircuts’ with bulk of the loans written off by banks, which in turn leads to economic growth, whereas the poor farmer’s assets are seized and auctioned even for small outstanding amounts Rs 1 lakh or less. I have seen farmers going to jail for defaulting on just one repayment. In Punjab, thousands of farmers have received legal notices from banks for not being able to pay back in time and hundreds of them are in jail. Why doesn’t the same happen with Corporate big wigs? Why should the banking norms be different for different people?

You have also talked of income disparity. Can you tell us why do you say that agriculture has been deliberately kept impoverished?

I have always maintained that agriculture is being sacrificed to keep market reforms alive. Why I say so is because in the economic liberalisation paradigm, agriculture plays only two roles – First, it has to provide cheaper raw material for the industry, and secondly, it must provide cheaper food to people and keep food inflation low. Therefore farmers alone have carried this burden all these years. Farmers do not realise when they cultivate crops, they actually cultivate losses. The match is invariably fixed against them.

Let me illustrate. In 1970, the MSP for wheat was Rs 76 per quintal. Forty five years later, in 2015, the wheat price was Rs 1,450 per quintal, an increase of 19 times. To understand how farmers have been deprived of their rightful price, I made a comparison with other sections of the society. The basic pay (plus Dearness Allowance) of government employees in the same 45-year period had gone up by 120 to 150 times; of university/college professors by 150 to 170 times, of school teachers by 280 to320 times. If only the basic pay of employees and teachers for instance had risen in the same proportion as the farmers, I am sure a majority would have quit their jobs and with many suicides reported.

In addition, employees get a total of 108 allowances. When was the last time you heard of a house rent allowance being included in the MSP for farmers; an educational allowance for the children; health allowance for the farmer’s family members and a travel allowance for them? Why should MSP only take care of out of pocket expenses that a farmer incurs plus family labour along with a small profit margin? Why not calculate farmers cost like the way Cost Accountants do for the agribusiness industry?

Farmers have been demanding a higher MSP, as suggested by the Swaminathan Commission, and also want a loan waiver. How justified you think are their demands?  

Farm loan waiver is the immediate relief farmers need. After all, if for four decades farmers have been denied their legitimate income, and have survived on taking credit and repay that credit draw more credit from another source, why shouldn’t the nation stand with them and see that they are relieved of their economic burden once for all. Let’s give an opportunity to farmers to get rid of the entire economic baggage they carry. Waiving farm loans is not an act of generosity or is an attempt at being politically correctness, what we need to understand is how and why farmers have been deliberately kept impoverished all these years.

A recent OECD-ICRIER study says that in the past two decades farmers have incurred a loss of Rs 45-lakh crore on account of low prices. Earlier, I remember an UNCTAD study had estimated that farm gate prices across the globe had remained frozen between 1985 and 2005 when adjusted for inflation. Can we even imagine how with all these losses has the farming community been surviving year after year? Despite living in hunger themselves, they still produced food for the country. 

Swaminathan Commission’s recommendation is for giving farmers the weighted cost of production plus fifty per cent profit. But the government has manipulated the formula treating the basic expenses in production as A2 plus family labour (A2+FL) and then given 50 per cent over it. This formula gives a much lower price than what Swaminathan recommended. Although the new improved price has been announced for all 22 crops for which MSP is announced but everywhere farmers were able to sell at a much lower price, often 25 to 40 per cent less than the announced price. As a result economic losses continued to pile up.

As per the high-powered Shanta Kumar committee even though only 6 per cent farmers get the benefit of MSP and the remaining 94 per cent farmers are dependent on the vagaries of markets, MSP must be enhanced to the level Swaminathan recommended. But I see a lot of pressure is being exerted by the industry (and their brand of economists) to dismantle the regulated markets. This will be rather unfortunate. The reason is simple. Once the APMC markets are disbanded, farmers will be ruthlessly exploited and price discovery will become an instrument for exploitation. Take the case of Bihar. It abolished APMC markets in 2006. In the absence of APMC, farmers are able to sell wheat and paddy at prices which are much lower than that in Punjab and Haryana where farmers do receive MSP because there exists an elaborate network of APMC mandis. This year, huge stocks of paddy illegally transported all the way from Bihar have been apprehended in Punjab and Haryana.

The answer therefore lies in strengthening the APMC network rather than disbanding it. There exists roughly 7,600 APMC mandis so far and what India needs is a network of 42,000 mandis for every 5 km radius.

What in your opinion should the government to do to pull agriculture out of the distress that prevails? Is there a sustainable solution that can bring back the smile on the face of farmers?

Yes, of course. Agriculture needs a holistic set of reforms, including credit policy, market reforms, trade policy etc, which must begin with the premise that agriculture too is an economic activity. In fact, at a time of jobless growth now leading job loss growth, agriculture being the largest employer alone has the potential to reboot the economy. The three steps that the government should initiate immediately in addition to what I have said earlier, so as to ensure economic security must include:  

1) Along with direct income support, the next step to augment farm incomes should be to set up a Farmers Income Commission. My suggestion is to rename the existing Commission for Agricultural Costs and Prices (CACP) as a Commission for Farmers Income and Welfare with the mandate to ensure that farmers are able to realise an assured monthly income of at least Rs 18,000 for a household owning not less than an acre. At the state level, each state should set up a Farmers Income Commission.

2) Initiate a series of steps for ease of doing farming. This involves governance, and also removing obstacles that farmers face routinely. If industry can have 7,000 steps carved for ease of doing business I see no reason why agriculture cannot get the same attention. This will need a separate monitoring wing with enough teeth, under the Ministry of Agriculture and Farmers Welfare. At the state level, Farmer Commission should be given more powers to regulate farming operations. 

3) It is time to increase public sector investment in agriculture, which has been dwindling over the years. Between 2011-12 and 2016-17, public investment has remained between 0.3 and 0.4 percent of the GDP. Considering that nearly 50 per cent population is engaged in agriculture, the total investment, both public and private, must increase every year. But this can happen only when agriculture is treated as an economic activity.#

India support socialism for industry, capitalism for farmers. National Herald, Feb 24, 2019

https://www.nationalheraldindia.com/opinion/devinder-sharma-india-supports-socialism-for-industry-capitalism-for-farmers

  

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Agriculture can alleviate employment woes.

Pic courtesy: IVHQ

Look at these headlines. As many as 7,000 people, most of them college graduates, applied for 13 job vacancies for waiters in Maharashtra’s secretariat. Of the 4,607 applicants for 14 job vacancies of sweepers and sanitary workers in Tamil Nadu Assembly Secretariat, most have professional qualification of MBA, M Tech, B Tech, post graduate and graduates, reads another. And last year, in March 2018, an estimated 25 million people, more than the population of Australia, applied for about 90,000 positions in India Railways, screamed TV news channels.

In 2015, over 2.3 million candidates, including 2.2 million engineers and 255 Ph.D. holders had applied for 368 posts of peon in the Uttar Pradesh State Secretariat. A year later, a massive 93,000 candidates, including 20,000 graduates and 50,000 post graduates, had applied for the posts of 62 peons with a technical wing of the Uttar Pradesh police. Almost at the same time, another 19,000 people, including MBAs and post graduates had applied for 114 jobs of ‘safai karamchari (sweepers) with Amroha Municipal Corporation in Uttar Pradesh. There may not have been riots over increasing unemployment but not only in Uttar Pradesh is the job situation so appalling, it is equally bad across the country.  

This is borne by the fact that India’s unemployment rate rose to a 45-year high during 2017-18, as a newspaper reported quoting the National Sample Survey Organisation (NSSO) study conducted between July 2017 and June 2018. At a time when India’s economy has been on a growth trajectory in the past four years – growing at an average exceeding 7 per cent per annum – the failure to provide jobs to millions of people joining the employment queues is a clear cut pointer that relying on a higher GDP is not the answer to creating more jobs. Whether we like it or not, it is now becoming apparent that a higher GDP does not translate into more jobs.

Although the Finance Minister Arun Jaitley dismisses the study, saying “if the economy is growing at 12 per cent nominal growth in the past five years, it would be an economic absurdity to say that such a large growth, the highest in the world, doesn’t lead to the creation of jobs,” but the question that needs to be asked is where are the jobs? While all out efforts are being made to show that job creation is on track, a report from Centre for Monitoring of Indian Economy (CMIE) deflates the claims when it shows that in the past one year, almost 11million people lost their jobs. “An estimated 9.1 million jobs were lost in rural India while the loss in urban India was 1.8 million jobs. Rural India accounts for two-thirds of India's population, but it accounted for 84 per cent of the job losses," the report said.

Growth without jobs is meaningless. The indication that a higher GDP does not automatically lead to more jobs was clearly visible in the UPA era when despite a high growth exceeding 8.3 per cent on an average, only 15 million jobs were created in the ten years, between 2004 and 2014. This was against the annual intake of about 12 million fresh entrants in the job market every year, which meant that against the need to provide 120 million people with employment, the UPA could provide only 15 million jobs. Ten years is not a small period, and it is here that policy makers failed to realise the inability of economic growth to create more jobs.

Still worse, a Planning Commission report had worked out that between 2004-05 and 2011-12 , about 140 million jobs were lost in agriculture. Many economists term the migration from agriculture to be a welcome sign. Going by the World Bank prescription, which was doled out way back in 1996, India was directed to go for a population shift, translocating 400 million from the rural to the urban areas in the next 20 years, by the year 2015. While most government economists have blindly followed the World Bank prescription, I have always termed these 400 million people being forced to migrate from the villages as ‘agricultural refugees’. In the absence of any alternative employment opportunity, these millions are swarming into the cities looking for menial jobs.

Without any definite strategy to employ them, no one knows what these millions will do in the urban centres. If the objective is to move people out of agriculture simply to meet the growing needs of cheaper labour for infrastructure, industry and real estate, in other words to provide for dehari mazdoor, there is something terribly wrong with the way dominant economic thinking is perceived. The general understanding being that those moving out of agriculture will be automatically absorbed by the manufacturing sector. It was primarily for this consideration that the National Skill Development Policy aimed at reducing the population in agriculture from 52 per cent to 38 per cent by the year 2022. But the reality is that during the period agriculture saw an unprecedented rate of migration, manufacturing too slumped, causing a loss of 53 million jobs. More recently, another 10.6 million jobs were lost in the manufacturing sector during the four year period 2011-12 to 2015-16.

Since agriculture is the biggest employer, employing 52 per cent of the population as per 2011 Census, the answer to the monumental employment crisis that India faces actually rests in the crop fields. If only agriculture can be turned economically viable and ecologically sustainable, it can easily take away much of the pressure the country faces in creating additional employment. All it requires is a paradigm shift in economic thinking, which begins by first treating agriculture as an economic activity, which has multi-faceted roles cut out. Making farm livelihoods economically sustainable should be the first step, with the objective to ensure gainful employment to marginalised communities. Once agriculture becomes economically viable, providing more income in the hands of 600 million people, it will reignite the rural based industry, and in the process trigger a reverse migration.

Only agriculture has the ability to reboot the economy. The increased demand a refurbished agriculture will create will be phenomenal, leading to a spurt in industrial production. This may not be ascribed in the economic textbooks, which still emphasise on reducing the population in farming but it is time to look beyond. If Constitution of India can be amended umpteen numbers of time, I see no reason why dominant economic thinking (and economic curriculum) cannot undergo a transformation for better, keeping in tune with changing times. It’s time to accept that agriculture is truly the mainstay of Indian economy. #

Agriculture can alleviate employment woes. The Tribune. Feb 15, 2019

https://www.tribuneindia.com/news/comment/agriculture-can-alleviate-employment-woes/729010.html?fbclid=IwAR2pZVodlqC2VcBS-VTRCjrbwahGNZUFTv-gNzhu_x_RQXW0yuKv042oW4chunger

READ MORE - Agriculture can alleviate employment woes.

Income Support Announcement represents a tectonic shift, but inadequate -- My Interview

Chandigarh: Last week, while presenting the Narendra Modi government’s last budget, acting finance minister Piyush Goyal announced a direct income support scheme for small and marginal farmers across the country. Under the Pradhan Mantri Kisan Samman Nidhi scheme, farmers owning less than two hectares will be provided Rs 6,000 per annum by the Centre.

Punjab-based agriculture policy expert Devinder Sharma was among the first, in 2013, to propose the idea of direct income support for farmers. On the sidelines of the 4th International Dialogue on Himalayan Ecology in Chandigarh, The Wire spoke to Sharma about the need for income support, the adequacy of the Centre’s scheme and other reforms that the agriculture sector needs.

The interview has been edited for clarity.

Why did you feel, as early as you did, that India’s farmers needed an income support scheme?

When I looked at the agriculture sector as a whole, there was a very clear message. Farmers were suffering as a result of two things – 1. Lack of public sector investment and 2. Denial of rightful income. I also understood that farmers were victims of market volatilities. There was no way that the markets would be able to rescue farmers.

Looking at global agriculture, it was obvious that agriculture was in decline across countries because farmers were being denied their rightful income.

And you felt that this was happening primarily because of the way markets were designed?

It was primarily because of the economic design. Agriculture is being sacrificed to keep economic reforms alive. Farmers don’t realise that when they cultivate crops, they actually cultivate losses. The same principle works globally, not just in India. The state of Indian agriculture is a result of the economic model that we have borrowed from the West.

Also read: The Trials of an Accidental Farmer in Tamil Nadu

If you look at American or European agriculture, the share of population engaged in agriculture is much lower than that in India. But still it was surviving because of substantial state subsidies including direct income support to farmers.

So you don’t agree with the argument that is sometimes made that we have too many people in agriculture and that is the basic problem.

No, I don’t agree with that. Agriculture cannot survive without subsidies because otherwise volatility of markets will mean that farmers are denied their rightful income.

The prevailing economic design wants two things from agriculture – 1. Provide cheap raw material for the industry and 2. Keep food prices low to keep a check on inflation.

Institutions and think-tanks keep telling us that we have to move people from rural to urban areas. But they don’t say what they will do in urban areas. The idea is that they will provide cheaper labour as daily wage labourers. That is the economic design. Is that a sensible design?

Devinder Sharma. Credit: Youtube

How do you view the recent announcement by the Central government that it will be providing Rs 6,000 per annum as a direct income support to small and marginal farmers?

The announcement itself is a tectonic shift. The time has come when we need to shift from price policy to income policy. Price policy has failed and income policy is the only way to bail out farmers. So, in that sense it is good and it is a big shift.

Is it adequate?

The thing is, it has not been done in a way that it can make an impact now. Rs 6,000 means Rs 500 per month. How do you expect to solve agriculture distress by Rs 500 per month?

What would have been a figure that would have been adequate?

I would say Rs 6,000 per month. I know that there are limitations and that won’t be possible. But still they could have doubled what they have given. They could have provided Rs 12,000 per year to begin with.

And there is no lack of money. I will tell you why. Over the last few years India has provided several lakh crores to the industry. We have provided them fiscal stimulus packages, we have waived their loans through bank recapitalisation.

Also read: Farmers’ Crisis: Are Loan Waivers, MSP Hikes, Assured Income the Solutions?

Did anybody ask the question ‘where will the money come from?’ No questions on ‘fiscal slippage’ either.

Why are these questions only asked when we have to give money to farmers? Nobody wants to close the tap which gives money to corporates.

Why is it important to move from a price policy to an income policy?

If you see in the last three years, prices of crops have continued to be well below MSP. For certain crops they have remained 40-50% below MSP throughout the season. It is clear that the price policy is not working. The economic design ensures that farmers don’t get the rightful price for their produce.

So is an income policy by itself going to be enough to address agrarian distress?

No, you need other reforms. We need to set up enough functional markets. We need to have mandis within a five-km radius so that farmers can easily reach them. Our credit policy needs urgent reforms. We need to move from chemical to non-chemical agriculture. Our storage capacity needs to increase for that we need to invest in warehouses.

There need to be multiple reforms to solve the problem. If industry can be provided 7,000 steps for ease of doing business, why can’t we provide at least 1,000 steps for ease of doing agriculture?

Income Support Announcement represents a tectonic shift, but inadequate. The Wire. Feb 6, 2019

https://thewire.in/agriculture/interview-income-support-announcement-represents-a-tectonic-shift-but-inadequate

READ MORE - Income Support Announcement represents a tectonic shift, but inadequate -- My Interview

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

READ MORE - Direct Income Support for farmers is a welcome move.

Direct Benefit Transfer is not Direct Income Support

No sooner did Finance Minister Arun Jaitley say that “agriculture needs a lot of support for the Indian economy to grow at a steady pace” hinting at the possibility of a package of proposals to be announced for the distressed agriculture sector, a wave of industry sponsored voices across the country, including the credit rating agencies as well as the investment portfolio economists, have begun to question the need for such ‘populist decisions’.

“The aggregate fiscal deficit will come in higher at 3.2 per cent in financial year 2020, which is higher than the financial year 2019 mid-year outlook forecast of 2.8 per cent,” India Rating warns. “A fresh round of economic crisis is in the making”, screams another headline. For almost a month now, ever since the State governments in the Hindi heartland of Madhya Pradesh, Chhattisgarh and Rajasthan announced farm loan waivers, bankers and economists have been crying foul. Some are even questioning the fiscal prudence of providing direct income support along the lines of the Rythu Bandhu scheme in Telengana that provides financial assistance to small and marginal farmers.

Before we try to analyse the question of fiscal imbalances, let’s first look at what measures are likely to be announced in the forthcoming interim budget. Quoting sources several newspapers had earlier reported that the farm package would include interest-free loans without collateral and a direct income support package of Rs 10,000 per acre per year. Among the numerous suggestions was a proposal from the State Bank of India for a financial support of Rs 12,000 per family per year in two instalments, to be split for each of the cropping season. Niti Aayog had its own estimates.

Meanwhile, constrained by the outgo on tax revenue foregone, latest reports saying that the government has hardly any fiscal space left for the proposed additional spending on agriculture. The easy option being contemplated by Niti Aayog therefore is to combine all farm subsidies, including subsidies on fertilizer, crop insurance, irrigation and interest subvention, and transfer it in cash to farmers. Since the Finance Minister had already budgeted Rs 70,100-crore for farm subsidies for the fiscal year 2018-19, ending on March 31, the cash transfer of subsidies will not entail any additional budgetary expenditure.

While news agencies say that the rupee and bonds rebounded after the report pegged the cost lower than the over Rs. 2-lakh crore estimated initially, it is certainly not a farm package that is expected to enthuse farmers. Already reeling under terrible distress, with real farm incomes declining for four decades now, agriculture is in urgent need of immediate relief as well as a series of strong measures for course correction leading to an increase in farm incomes. But if direct benefit transfer (DBT) is all that the government has up its sleeves, there seems to be no respite in offing for the beleaguered farming community.

Direct benefit transfer is basically a change in mechanism to deliver subsidies. Launched on Jan 1, 2013, the focus of direct cash transfer is to bring in transparency and reduce pilferage in subsidy distribution. Therefore DBT can by no means be considered as a direct income support measure. DBT only replaces the input subsidies that the farmers are getting for crop cultivation. The cash that the farmers get eventually will be used for paying for inputs like fertiliser, pesticides, irrigation etc. In other words, the cash payment is merely a replacement of the subsidy component.   

There is a clear cut difference between DBT and direct income support that the policy planners must understand. Niti Aayog however is giving an illusion of income support when in reality it actually ends up computing the total subsidy outgo and presents it deceptively as an income support of roughly Rs 15,000 per hectare. It is worrying to see many mainline economists too propagating the same line, which in real sense means that there is a visible reluctance to really help the farming sector in distress, and to initiate steps to bail it out in the long run. DBT is being wrongly projected as a continuation of Telengana model of direct income support, which has now been adapted in divergent forms by Odisha, West Bengal, Jharkhand and Karnataka.

Although agriculture needs a holistic approach to draw it out from the terrible crisis that it has sunk into over the decades, my suggestions to the government would be to initiate the following:  

1) After the farm loan waiver, which benefits roughly 30 to 40 per cent of the farming population, the remaining should be provided with a one-time direct income support of at least Rs 50,000 per family. These are the people who had timely repaid the crop loans and are also in need of immediate relief. This will also ensure that credit line in future is not squeezed. As to where the money will come from, it will come from the same kitty from where economic stimulus package of Rs 1.86-lakh crore for India Inc which still continues since 2009, came from.       

2) Time has come for setting up a Farmers Income Commission with the mandate to ensure a monthly income of Rs 18,000 to every farming family. The Commission for Agricultural Costs and Prices (CACP) should be renamed as a Commission for Farmers Income and Welfare with the mandate to ensure a minimum monthly living income package of Rs 18,000, which should incorporate the income accruing from MSP, FPO and other market interventions. Take the average farm income in every district, and whatever is the shortfall should be paid by income transfer directly in Jan Dhan accounts of farmers.

3) Time to revisit the FRBM Act which provides for a limited outlay for agriculture and rural sectors. For instance, according to CBGA only 6.7 percent of the Madhya Pradesh budget in 2017-18 went for agriculture and allied activities whereas 85% of the population is directly or indirectly engaged in agriculture. Similarly, the macro-economic policies the Reserve Bank of India lays out too are responsible for keeping farming impoverished. By mandating the inflation target at 4 per cent, it actually deprives farmers of the rightful income.

4) Expand the existing network of regulated markets. Against the requirement of 42,000 APMC mandis in 5-km radius, only about 7,600 mandis exist at present. Also, make it obligatory for trade in eNAM markets to purchase at the MSP that is announced for 23 crops. The modal price that eNAMs provide, which is based on the average of the day's price, is nothing but a distress price actually aimed at helping in commodity trading. It is time to learn from the failure of eChaupal that too had the same objectives of eNAM. #

Direct benefit transfer no cure-all for farm crisis. The Tribune. Jan 25, 2019.
https://www.tribuneindia.com/news/comment/direct-benefit-transfer-no-cure-all-for-farm-crisis/718855.html?fbclid=IwAR29TlgzW196zfysvl9IG9r2cxjFXUvdXAV7K9jKOI_MgV5Wi6xDemPJWZQ

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For farmers, the question being asked is where will the money come from

Courtesy: Rediffmail 

Newly elected to US Congress from New York, the young and articulate Alexandria Ocasio-Cortez, is a strong advocate for social justice. She has been questioning the dominant economic policies challenging corporate tax cuts and demanding more budgetary allocations for health, education and housing. In a recent TV interview, where she outlined her thinking of what good economics should mean for the people, journalist Anderson Cooper asked: “How are you going to pay for all of this?”

Now, shift the focus to India. In the past few years, nearly Rs 2.3-lakh crore of farm loan waivers have been announced by Karnataka, Madhya Pradesh, Maharashtra, Andhra Pradesh, Rajasthan, Telangana, Punjab, Rajasthan, Chhattisgarh and Tamil Nadu. While the possibility of many more State governments announcing such waivers before the 2019 elections is scaring bankers, the new RBI governor Shaktiman Das has struck a note of caution on farm loan waivers, saying it will lead to credit indiscipline. Merrill Lynch, the investment banking arm of Bank of America, had earlier warned that the farm loan waivers will amount to 2 per cent of the GDP.

The question that I am being repeatedly asked is where will the money come from. On a TV show the other day, the anchor was very clear when she asked: “Given that the fiscal position is very tight across the States, aren’t you worried that the farm loan waiver spree will upset all calculations? Haven’t the farm loan waivers already set a bad precedent as a result of which other welfare schemes will be scaled back?”

The issue we were discussing was the Rs 36,359- crore loan waiver that the Uttar Pradesh government had implemented. In my answer I said that even with its limitation of not reaching out to every indebted farmer, the UP loan waiver had benefitted 4.4 million farmers. This is not a small number, and the beneficiaries outnumber the population of Ireland. Compare this with the Rs 72,000-crore loan waiver that was accorded to a handful of power distribution companies between 2012 and 2014 and surprisingly no questions were asked about credit indiscipline then nor did anyone talk of UP not having the capacity to fund power discom loan waivers and resort the higher market borrowings.  

On another business channel, I was told the farm loan waivers are a deadly poison. It’s a wrong way of addressing a real issue, and leads of moral hazard. In my reply I quoted an RBI document, which states that in the four year period between April 2014 and April 2018, Rs 3.16-lakh crore of corporate bad debt has been written-off. According to another statement in Parliament, 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 the Rs 2.3 lakh-crore farm loan waiver, when fully implemented, will benefit an estimated 3.4 crore farming families, there is no qualm over a massive corporate write-off which provides a bailout to only a few companies.  

The immediate response to my counter-question made a panellist to immediately retort by saying ‘two wrongs don’t make it right’. Well, in that case do you mean to say that one wrong – which is the corporate loan write-off – is right? How can any sensible economist justify the massive corporate write-off and turn his ire towards the poor farmers, I asked. In fact, the bad corporate loans are piling up. The gross Non Performing Assets (NPAs), which is a sophisticated terminology to cover up the bank defaults, 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 talked about Insolvency and Bankruptcy Code (IBC) and Sarfaesi Act. At no stage have I seen any TV programme that calls for putting an end to rising NPAs but a number of shows have focused on waiving the waivers, calling for immediately stopping the farm loan waivers.

 

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. Surprisingly, whenever I raise the question of Rs 18.60-lakh crore going to the industry in the past 10 years as an economic stimulus package, a deafening silence follows. What is little known is that 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 and has been paid for ten successive years. In simple terms, the industry is getting a direct income support every year and one has ever questioned whether the stimulus package has created any fiscal indiscipline. No one ever asked where the money did come from for the Rs 18.60-lakh crore financial stimuli.

Take the case of 7th Pay Commission. Finance Minister Arun Jaitley has said in Parliament that the addition financial burden will be Rs 1.02-lakh crore every year. This will benefit 45 lakh central government employees and 50 lakh pensioners. When implemented across the country, with State governments, Public Sector Undertaking (PSUs) and colleges and universities fulfilling its obligations, the total annual burden will swell to Rs 4.5 to Rs 4.8 lakh crore, says a Credit Suisse bank study. No questions were ever asked where the money will come from and not did anyone question the widening fiscal deficit as a consequence. But talk of a farm loan waiver or any direct income support initiatives for farmers, the media gets hyper active in questioning the fiscal arithmetic.

In the US, as Alexandria explained, “Money will come from the same source from where the money for massive corporate tax exemptions come; from where the money for defence budgets come; and from where the money for space programme comes.” In India too, the money will come from the same kitty from where the budgetary allocations for 7^thPay Commission comes; from where the money for corporate tax exemptions come; and from where the money for massive bank write-offs for NPAs come. #

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There are fundamental problems in the design of the crop insurance scheme

A well designed crop insurance scheme is the best safety net 

Pradhan Mantri Fasal Bima Yojna (PMFBY), the flagship programme launched with much fanfare in 2016 has run into rough weather. With both the area covered and the number of enrolled farmers declining, the country’s premium crop insurance scheme is certainly in need of an overhaul.

While the Parliament’s Committee on Estimates, chaired by the senior BJP leader Murli Manohar Joshi, has in its latest report called for re-formulation of the agricultural insurance scheme, seeking transparency in its working and asking for more financial allocations to attract increasing participation from farmers, there are fundamental flaws in the design of the scheme that renders it rather ineffective.

At a time when farm gate prices had remained subdued over the past few years, and when fluctuating climatic conditions – drought, floods, as well as freak weather patterns including hailstorm, strong winds etc. had flattened the standing crop at many a places, PMFBY could have come as the much needed safety net. But a badly designed crop insurance programme has failed to come to rescue of the beleaguered farming community. Take the case of Haryana, where standing crops in 1.85 lakh acres in 15 districts were damaged in September by heavy rains and resulting floods. Interestingly, while the revenue estimates of the crop damage are ready, the crop losses suffered do not tally with the crops that were insured by the private crop insurance companies. This is because the insurance companies just collected the premium amounts from the banks without actually doing a ground assessment to know what crops were under cultivation.

The government perhaps did not visualize that there were serious problems in the way the scheme was designed. The methodology itself was faulty. No wonder, some estimates show the enrollment under PMFBY has declined by 17 per cent, from 40.2 million in 2016 to 33.2 million by 2018. Instead of rectifying the forcible enrolment, as a result of which the premium amount is automatically deducted from the bank accounts of loanee farmers, the banks have now been asked to provide the premium amount (in case of irregular accounts) by giving an overdraft for which the farmers will also have to pay interest. The basic objective being to show an increase in the number of farmers enrolled. Forcible addition of number of farmers under the scheme should not be seen as a measure of its success.  

Once the premiums are collected, a threshold limit is ascribed for the maximum claim in the event of a crop loss. In other words, if the threshold limit is low, the claim a farmer makes would get him a fraction of the loss he incurs. To illustrate, let’s look at an example from Bundli district in Rajasthan. A study conducted by Centre for Science and Environment (CSE) had shown that for soybean crop farmers were insured for a maximum of Rs 16,539 per hectare against a maximum output value of Rs 50,000. Similarly for paddy, the maximum a farmer could be compensated for was Rs 17,096 whereas the output value stood at Rs 65,000. This is also linked to the process of auction that is adopted while estimating the losses to be insured. Companies first give their preference of the regions where they want to operate, and then an open bidding is held. As a result of selective bidding the gross premium swells. Such a flawed system of estimating premium amounts does not operate anywhere in the world. This defeats the basic purpose of bringing in 12 private companies for crop insurance. Instead of building competition among the private players, the design allows for monopolization and formation of cartels. 

I have never understood the rationale of treating village or village panchayat as a unit of insurance. Why can’t the compensation be paid treating the farm as a unit? Of course, the insurance companies would not like to undertake this arduous exercise but at time when remote sensing and drone technology is available, there is no reason why the insurance companies should not be directed to treat an individual farm as the base for insurance claims. Further, since 24 crop-cutting experiments are mandated for each district, four for major crops and eight for other crops, a total of 40-lakh crop cutting experiments are required to be held every year. This could have been a huge employment generation opportunity if the government had insisted that the companies create its own workforce rather than allowing outsourcing of its agricultural officials for the purpose. But then, who wouldn’t like making profits without making adequate investments. 


Fundamental flaws in crop insurance scheme's design makes it ineffective. LiveMint. Jan 9, 2019
https://www.livemint.com/Politics/vPD0hLee4cWmmoEVvQteRJ/Fundamental-flaws-in-crop-insurance-schemes-design-renders.html?fbclid=IwAR2ZYX80-STaq1tl5IvhtI6uCiC9Vo1P_8O4KjZUuI_7AFVwvPqa2zIJDYE

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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

READ MORE - Let 2019 be an Year of Agricultural Reforms