Soon after the Economic Survey 2016 brought out a startling fact – that the average farm income in 17 States of India, which means roughly half the country, was less than Rs 20,000 a year, a newspaper reported of the ongoing squabble between officers of the Supreme Court and the defence services over washing allowance they get as part of the income package. The defence service employees were reportedly questioning why the officers in Supreme Court were getting a higher washing allowance of Rs 21,000, while the entitlement of armed forces officers stood a little less at Rs 20,000.
That makes me wonder: don’t farmers have clothes to wash?
If the average income of a farm family in half the country equals just one of the 108 allowances (in total, for all the services put together) that the government employees get as part of the 7thPay Commission, the prevailing income disparity becomes too gnawing. More so when a careful perusal of the NSSO (National Sample Survey Office) data that the Economic Survey 2016 had quoted shows how glaring is the income divide. The NSSO had deviated from the usual practice of computing farm incomes on the basis of what the farmer sold in the market to actually for the first time work out farm income on the basis of marketable surplus a farmer sold in the mandi and adding to it what he saved for his family consumption, which means it is the average of the total value of farm output in roughly half the country.
The shocking details of almost non-existent farm incomes that the Economic Survey 2016 provided failed to evoke any outrage. Perhaps it was because Prime Minister Narendra Modi had at the same time promised to double farmers income by 2022 thereby overshadowing the income reality. On various media channels, I often happened to be the only panellist citing the farm income statistics to drive home the point how income inequality was woven in the predominantly market driven economic structure. That an average farm income of Rs 20,000 a year would translate into less than Rs 1,700 a month, rarely drew an outpouring of anger at the way farming was being deliberately kept impoverished. This is further substantiated by the latest agricultural growth estimates of the Central Statistics Office showing the nominal gross value added (GVA) in agriculture in October-December 2018, to have dropped to its lowest in 14 years, clearly showing how the farm incomes have further plummeted. It failed to shake up the nations conscious. Even if the nationalism debate had not kept the nation preoccupied, I doubt if the drastic slump in farm incomes would have evoked a swift policy response. Instead, the plight and systematic decimation of agriculture over the years has for all practical purposes been taken for granted.
A study by the Organisation for Economic Cooperation and Development (OECD) in collaboration with the Indian Council for Research on International Economic Relations (ICRIER) has computed the total loss farmers have suffered, between 2000-1 and 2016-17, from being denied the rightful price at a staggering Rs 45-lakh crore. Add to it the findings of Niti Aayog which estimates that in the five year period, between 2011-12 and 2015-16, real farm incomes have increased by less than half a percent every year, 0.44 per cent to be exact, the farm distress is compete. It further admitted that the near-zero income of farmers in the last two years (after 2016) has forced the government to launch a direct income support scheme (PM-Kisan) which makes a provision for directly transferring Rs 6,000 every year to the bank accounts of small farmers.
With agriculture in such a dismal state, it is futile to expect the non-farm sector to be performing well. Latest study shows that rural non-farm wages in the past five years too have dipped to its lowest. A CMIE study said of the 56.6-lakh job losses encountered in past 12 months, almost 82 per cent or 46-lakh are from rural areas. Rural India had somehow survived the unprecedented distress conditions, and this is nothing short of a miracle. Any other business with such explicit huge losses written all over would have collapsed by now, and in fact disappeared from the economic horizon.
Not only in the past 20 years, agriculture had remained at the receiving end even prior to that. According to an UNCTAD study, global farm gate prices when adjusted for inflation had remained almost static in the 20 year period, between 1985 and 2005. In other words, farm incomes have remained frozen for almost four decades. In such a dismal scenario, I shudder to think how farming families had been surviving all these years. Just to illustrate, an American farmer, Mike Callicrate, says that the price at which his father sold corn some 44 years back, on Dec 2, 1974, was $3.58 per bushel (equal to 25.40kg). In January 2018, he sold corn at $ 3.56, down two cents from what he earned 44 years ago. Overproduction had pushed down the farm gate prices as a result of which farmers were perpetually in debt. Take the case of milk. What the farmers realise in Europe is only 19 pence for a litre of milk, which has led to closing down of a large number of small dairy farms. “To be born in debt, and live all through in debt, is like virtually living in a hell,” remarked Declercq Gilbert, a 93-year-old farmer in Leshonnelles village about 15 kms from Mons near Brussels, when I met him last year.
Indian agriculture too had slogged with farm incomes remaining almost frozen. To get an idea as to how farm incomes had remained subdued in the past five decades, I had worked out the growth in Minimum Support Price (MSP) vis a vis the basic salaries for various section of employees. This will give us a clear idea as to how farmers have been denied their rightful price all these years. In 1970, the MSP for wheat was Rs 76 per quintal. Forty-five years later, in 2015, the MSP for wheat was Rs 1,450 per quintal, an increase of 19 times. For the same period, I examined the increase in basic salary plus DA (not adding other allowances) for different sections of employees. For government employees, the increase was 120 to 150 times; for college/university lecturer/professors it was 150 to 170 times and for school teachers the increase was 280 to 320 times. If only the wheat MSP was raised in the same proportion, which means if it had gone up let’s say 100 times in the 45 years period, farmers should have received at least Rs 7,600 per quintal. What they actually got was an MSP of Rs 1,450 per quintal in 2015. In other words, it is the farmers who are bearing the cost of subsidising the consumers. The entire burden of keeping food prices low has been very conveniently passed on to farmers.
Farmers dumping tomato, potato and onion on the streets have been a frequent phenomenon. For the past three years, numerous news reports point to farmers being denied the appropriate price in the mandis, often the drop in prices ranging between 25 to 40 per cent on an average. Using the latest CACP cost of production statistics for rabi and kharif seasons and comparing this with the average income per crop as worked out by the Dalwai Committee on doubling farmers income, Down to Earth magazine (Feb 16-28, 2019) has presented a damning analysis. Accordingly, against the production cost of Rs 32,644 per hectare for wheat, the income realised by farmer is only Rs 7,639, leaving a shortfall of Rs 25,005 per hectare. In case of paddy, the gap is Rs 36,410 per hectare; for maize, the loss a farmer incurs per hectare is Rs 33, 686; and for arharit is Rs 26,480 per hectare.
Although only 6 per cent farmers as per the high-level Shanta Kumar committee gets the benefit of MSP, the fact remains that the announcement of MSP neither helps in setting a floor price nor does it guarantee an assured price for farmers. This is primarily because the mandate for CACP, which works out the MSP for various crops, is not only to provide an assured price to farmers but also to ensure that it does not lead to inflationary pressures. Macro-economic policy therefore has a lot to do with the prevailing farm crisis. The prices have been deliberately kept low, and in most cases is actually less than even the cost of production that the farmers have to entail. The overwhelming tragedy is that when farmers cultivate crops, what they don’t realise is they are in reality cultivating losses. Whatever be the crop and the technology applied, the fact is that the match is invariably fixed against farmers.
The MSP the government announces actually includes out of pocket expenses incurred by farmers in crop cultivation (A2 cost) plus the cost of hiring farm labour (FL), including family labour, a farmer employs. In addition to this cost, which is labelled as A2+FL, the government claims the MSP being announced since the beginning of the kharif season last year contains 50 per cent profit. Although the government claims it has honoured the recommendation of Swaminathan Commission which had suggested 50 per cent profit over the comprehensive cost, but the new formula falls short of what was in reality recommended. Nor has the government been able to ensure that procurement is made at the MSP it has announced. Several farmer leaders have questioned the government claims, and the trade data showing the shortfall in prices paid to farmers in various mandis is routinely shared on social media.
It is the methodology of working out the cost of production that has somehow gone unquestioned. Although an elaborate system exists for collating statistics pertaining to cost of production, crop cutting experiments to work out the production achieved and so on, the costing falls acutely short of the way prices of agribusiness/industrial goods are worked out. While the employees get 108 allowances in addition to basic pay plus DA, and the cost of processed foods includes administrative cost, and marketing cost plus profit as it may deem fit, when was the last time we heard of farmers getting at least four allowances -- house rent allowance, travel allowance, health allowance and educational allowance for their children included in the final price? And why not, after all a farmer too has to look after his family. He too has to support his children’s education, take care of his family’s medical expenses and so. Worked out on per hectare basis, these allowances can be easily included in the MSP calculations or can be paid directly into their bank accounts.
Denying farmers their right income (what to talk of additional emoluments) too comes with a heavy social cost, which often gets clubbed under mounting indebtedness. Take the case of a 22-year-old graduate student, Gopal Babarao Rathod, son of a small farmer from Yavatmal in Maharashtra, who committed suicide two years back. Explaining how the rural youth, like their lucky counterparts in the cities, too carry an aspiration, he wrote in asuicide note: “A teacher’s son can easily afford to pay a fee of Rs 1-lakh to become an engineer but tell me how a farmer’s son can afford so much fees?” He then went on to say: “why is it that the salaried employees get dearness allowance (DA) without even asking for it whereas farmers are denied adequate compensation for their produce?”
As per the National Crime Record Bureau, between 1995 and 2015, a total of 3,18, 528 farmers have committed suicide. Mounting indebtedness is the primary reason for the serial death dance that continues with impunity. Since the annual farm suicide statistics does not give a favourable picture of the country’s economy, the government has not released the suicide data after 2016.
All this adds to visible disruptions in social fabric. “No girl wants to marry a farmer. Young farmers are leaving farming and going to Pune and Mumbai to work as taxi and rickshaw drivers. They say that if not money, they will at least get a bride in the city,” Mohan Patil from Satara in Maharashtra told a newspaper. There are over 3,000 young men struggling to get married in Ahmednagar district alone says an article in Business Line, quoting a study. This is true of Haryana, Punjab, Uttar Pradesh, Madhya Pradesh, Chhattisgarh and many other states. Even in the prosperous apple belt of Himachal Pradesh, not many girls are willing to settle down in the villages. Low income levels and the harsh working conditions are cited as the main reason for girls unwilling to settle in rural areas. Not only in India have young farmers found it difficult to get a bride, it is not so easy even in Europe, England, Canada, Australia, and United States. Aimed at finding a suitable match for the young people in farming, a very popular French TV programme called ‘Love in the field’ has been running successfully for several years now. Enquiries revealed that similar TV shows are also being aired in England and Canada.
As the policy emphasis remained essentially on increasing crop productivity primarily to ensure that availability of food remains comfortable, farm income never received the kind of thrust it deserved. The decline in farm incomes is an outcome of an economic design that has been followed. As I said earlier, agriculture had been deliberately kept impoverished to keep economic reforms alive. More recently, Raghuram Rajan has said that the biggest reforms would be when we are able to move people out of agriculture, to migrate to cities which need cheap labour. Even the new Chief Economic Advisor has called for more investments in industry so as to pull the youth from agriculture. If agriculture has to be treated as a source of cheap labour in the cities, it speaks of the flawed economic thinking that has led successive governments to dismantle the strong foundations that sustained millions of rural livelihoods.
This is exactly what the World Bank had directed India way back in 1996. It had wanted India to move 400 million people from the rural to the urban areas in the next 20 years, by 2015. These are “agricultural refugees” swarming into the cities looking for menial jobs. It is primarily for this reason that over the years, in addition to more or less static farm incomes, public sector investments in agriculture were also kept deplorably low, hovering between 0.3 to 0.5 per cent of the GDP during the period 2011 to 2017. The total investments, both public and private, have also been declining steadily – from 3.1 per cent of GDP in 2011-12 to 2.2 per cent in 2016-17. Compare this with the tax concessions being given to industry, which measures 5 per cent of GDP. The best way to kill agriculture therefore is to starve agriculture, which employs 50 per cent of the country’s population, of public sector investments. #
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Strengthen Public Procurement System
At a time when MSP benefits only 6 percent farmers and the remaining 94 per cent farmers are in any case dependent on exploitative markets, the focus has to be on strengthening the public procurement system. Besides making MSP more realistic, covering all aspects of cost calculations, the emphasis has also to be on ensuring that whatever surplus farmers bring to the markets is purchased at the official price announced. Although the government did announce assured procurement under PM-ASHAA but failed to ensure its implementation.
But there are two problems the government is encountering. First, the World Trade Organisation (WTO) is keeping a close watch on the increase in MSP prices, which are classified as farm subsidies in the international trade parlance. US, EU, Canada, South Africa, Pakistan besides others have repeatedly questioned MSP on wheat, rice and pulses saying that the prices have breached the permissible de-minimissupport limit allowed to developing countries. India is expected to keep MSP within the prescribed 10 per cent limit of the total value of a particular crop. This acts as a strong deterrent to raise MSP as per the farmers demand and not face the ire of WTO.
Not only WTO, there is strong lobby within the country that advocates dismantling the APMC mandisso as to enable farmers to realise price discovery. The underlying objective is to allow private terminals to take over instead, laying the foundation for corporate farming. Already several states have suitably amended the APMC Act removing fruits, vegetables and livestock products from the mandi operations. But this has neither helped farmers realise a better price for their produce nor reduced the arrival of fruits and vegetables into the regulated markets. In fact, Bihar had revoked APMC Act way back in 2006 with the objective of attracting private sector investments in market operations. Nothing like this happened, and even now truckloads of paddy and wheat are routinely brought and sold illegally in Punjab and Haryana mandis.
Instead of dismantling APMC mandis, the policy emphasis should be on expanding the existing network of mandis. There are nearly 7,600 APMC markets operating at present and if a mandi has to be provided in 5 kms radius, India will need 42,000 mandis. Public sector investment must be directed towards strengthening the mandinetwork. If India can provide Rs 6.9 lakh crore for building highways I see no reason why at least Rs 1-lakh crore out of it cannot be diverted for public sector agricultural market infrastructure.
The reason is simple. Unless there exists adequate market infrastructure, no meaningful reforms are possible in agriculture. While it is generally agreed that APMC mandishave become a den of corruption with strong cartels of middlemen operating, the answer does not lie in throwing the baby with the bathwater. APMC is crying for a change, and the introduction of electronic operations (in eNAM markets) has certainly helped. But a lot more needs to be done if genuine improvement is required. Merely replacing the public sector with the private companies will defeat the very purpose. Let me make it clear, nowhere in the world, and that includes the US /EU, have the private markets helped farmers with a better price. Even the value chains, which are getting into academic fashion, have failed to prop up farm incomes. #
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Agriculture Too Needs Policy Support
Moving from ‘price policy’ to ‘income policy’ the government has brought in an element of fresh air into public policy. While doubling farm incomes by 2022 remains more less a slogan, Telengana’s ‘Rythu Bandhu Pthakam’ scheme under which farmers were initially paid a sum of Rs 8,000 per year per acre (with no upper cap), followed by KALIA scheme launched by Odisha, and since then some variants brought in by Jharkhand, West Bengal, Karnataka and more recently in Andhra Pradesh have heralded a direct income support programme for small and marginal farmers. The Union government too has chipped in with its PM-Kisan programme, which entails providing Rs 6.000 per year, in three instalments, for small farmers with landholding less than 2 hectares. While the first instalment of Rs 2,000 has already been paid to a large number of farmers, the government said it would need an additional Rs 75,000-cr every year to fund this scheme.
Whether it is because of political compulsions or driven by the dire need to augment farmers income, the introduction of a direct income measure for farmers is indeed a significant step. Even though the amount allocated is meagre, I am sure it will be enhanced substantially in the years to come. The nation must stand with farmers at these difficult times. Direct income support has to be followed with a more elaborate nation-wide programme to provide an assured income to farmers. At least a minimum of Rs 18,000 per month per farm family, linked to crop production, geographical location and inflation, must be ensured. The idea is not to issue a salary cheque every month but to work out a mechanism that guarantees an assured income package. For this, the Commission for Agricultural Costs and Prices (CACP) needs to be renamed as a Commission for Farmers Income and Welfare, with the term of references changing suitably.
Compared to an average domestic support of $60,586 per farmer in US; $ 10149 in Japan; $ 16562 in Canada; EU $ 6,762; China $ 863; and $ 345 in Brazil, an Indian farmer barely gets a support of $ 227, which is primarily by way of indirect subsidies. On the contrary, compared with the massive subsidies doled out to the industry, referred to as ‘incentive for growth’, farm subsidies appear rather miniscule. In addition to the huge industrial subsidies, economic stimulus packages, and the corporate NPA write-off every year, the government has recently ensured 7,000 steps, big or small, for ease of doing business.
When will agriculture receive such a policy impetus? #
Give farmers a fair deal. The tribune. April 1, 2019
