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CONCEPT – FARM DISTRESS IN INDIA
Read more on - Polity | Economy | Schemes | S&T | Environment
- What are the structural issues?
- Economic reforms have failed to address the asymmetry between agriculture’s high share in employment and low share in gross domestic product (GDP). This has led to a squeeze in agricultural incomes, which is the biggest source of employment in the Indian economy.
- Indian farmers face risks of production, market and prices. They confront problems like – (i) high price volatility, (ii) various climate risks, and (iii) huge indebtedness in farmer households. The agriculture growth rates have been unsteady in the recent past. While it was 1.5% in 2012-13, it rose to 5.6% in 2013-14. In 2014-15, the rate dipped to (-) 0.2%, while in 2015-16 it was 0.7%.
- After years of stagnation, investment in agriculture rose at 10% in real terms between 2004–05 and 2012–13. But real investment in agriculture declined at 2.3% per annum between 2013–14 and 2016–17. Similar is the case of credit to agriculture that was increasing at 21% per annum in nominal terms between 2004–05 and 2014–15, rising from Rs.1,25,309 crore in 2004–05 to Rs.8,45,328 crore by 2014–15. However, the growth in agricultural credit slowed down to12.3% between 2014–15 and 2016–17, rising only to Rs. 10,65,756 crore in 2016–17.
- Cultivation costs have risen manifold since the mid-1990s, but the farmers’ incomes have stagnated or declined. Seed, fertilizer and pesticides are firmly in the hands of corporations. Agricultural credit from public-sector banks increased significantly in the past two decades — benefiting agribusiness, not farmers.
- Small and marginal farmers: India has upto 86 percent of its farmers as small and marginal, with reducing and fragmenting landholdings. That makes agriculture unproductive and loss-making. Data show the average farm size in India is small, at 1.15 hectare, and since 1970-71, there has been a declining trend in land holdings. The small and marginal land holdings (less than 2 hectares) account for majority of land holdings, so we miss out on economies of scale.
- Constant strife: The farmers are facing a state of permanent struggle, leading to agitations across India, including a major one in November 2018 at Delhi. Governments respond from time to time with handouts, schemes, doles and loan-waivers. The census in 2011 showed that for the first time since Indian independence in 1947, urban India added more people to its population than rural India did. It recorded nearly 15 million fewer farmers than there were in 1991; that’s a dropout rate of about 2,040 every 24 hours.
- Farm incomes versus Inflation in India: There is a contradiction between the two. Food items account for 40% of the Consumer Price Index (CPI) basket. Inflation targeting is now the guiding framework of India’s monetary policy (RBI - FIT). Low inflation under the NDA-2 has led to a worsening of the terms of trade for farmers. This means that non-farm prices have been rising at a faster rate than farm prices. Farm incomes cannot be squeezed indefinitely to keep inflation under check and vice versa. This is the biggest political-economy conundrum facing India’s policy makers.
- Two ways to help: Normally, governments try to do one of these two broadly -
- Price support, export-import restrictions, loan waivers
- Direct cash support (Rythu Bandhu scheme, Telangana) But it seems nothing is really working for the majority of small/marginal farmers. Distress is spreading across India, creating a recipe for a major social disaster in years to come. Loan waivers and subsidies do NOT benefit the poorest in rural India, as the most vulnerable farmers (landless or smallholders) are not considered creditworthy, and have no access to institutional credit and are entirely dependent on usurious moneylenders. Public-sector banks have turned away from small and marginal farmers since the late 1990s, forcing them to borrow from lenders who charge upward of 60 percent annual interest. For loans that the banks still gave small farmers, the terms grew adverse. Peasant indebtedness soared.
- Strong solutions: The Indian agriculture sector needs structural and strong solutions now.
- Increasing incomes. Agricultural transformation in terms of crops and productivity is very slow in India. Therefore, generating more income from agriculture is also slow. Production increase was the main objective than raising incomes. The idea of "doubling the income of farmers by 2022" is a nice one, but will need –
- An aggressive push to improve technologies by strengthening the seed sector and knowledge dissemination system,
- agricultural diversification in favour of high value commodities and the development of value chains by linking production and marketing centers, and
- developing mechanisms to ensure minimum support prices in the event of crash in farm harvest prices.
- Right institutional structures: If the above is to be done, then farmers have to be aggregated for production and marketing through promotion of contract farming, cluster farming, farmer producer organizations and self-help groups.
- Generating employment opportunities: Research shows that more than 40 % of farmers would like to quit agriculture if other jobs were available. Agriculture is hugely crowded and does not provide regular employment, and in the absence of regular employment in rural areas, the rural population, especially youth, migrate to urban areas to explore better income opportunities. By 2020, people aged 15-34 will make up 34 percent of India’s population and today, more than 70 percent of India’s youth lives in rural areas. There is no way Indian agri can absorb their energy. We need innovation like Aggregating raw and processed products (one example: Lijjat Papad, which employs more than 43,000 women); self-employment in agro-processing, agro-advisory, agriculture and rural transport, etc.; private sector engagement in custom-hire services, secondary and tertiary processing; location-specific non-farm employment in micro, small and medium enterprises, linked with the large manufacturing sector; and engagement in government programs, schools, and agriculture extension. Recently suggestions for creating new opportunities in livestock breeding, and improving construction sector conditions for migrant workers have been made - so that rural folks get more chances there to augment their primary farm incomes.
- Reducing multiple risks in agriculture: The risks farmers face have been increasing, as both production and price risks multiply. We see the impact of global climate change now, with more of droughts, floods, temperature fluctuations, and unseasonal rains and hailstorms are increasing and adversely affecting production. During normal years, farm harvest prices have fallen steeply, affecting farmer incomes. Some of the farmer insurance schemes seem good, but the compensation is insufficient and does not cover the risk of falling prices. We may now need a "Climate Resilience Scheme” to cover both production and price risks.
- Developing Agri-infrastructure: This will include access to agricultural markets, cold storage, warehouses, and agro-processing. India could not build this in step with rising agricultural production, and a lot of wastage seeped in. The supply chains of agri-food commodities are in the hands of an unorganized, fragmented, and inefficient sector. We may need more public-private partnerships in the agri-infrastructure sector. We have to develop rural agri-markets, cold storage, agro-processing, surface irrigation, and agricultural extension, and other elements of agri-infrastructure. The central government should contribute to the efforts of individual states to develop such viable PPP projects.
- Improving quality of rural life: Since basic facilities are normally not available in rural areas (including sanitation, hygiene, drinking water, drainage, schooling, and health centers), the quality of life remains low. Former President A. P. J. Abdul Kalam thought of PURA - Provision of Urban Amenities to Rural Areas (PURA) - with the aim of providing urban infrastructure and services in rural hubs to create economic opportunities. The scheme should be revived to improve the quality of life in rural areas. In addition, the several programs and schemes that exist to build social and economic infrastructure should be united for larger impact.
- The Forest Rights Act, 2006: It has the potential to democratise forest governance by recognising community forest resource rights over an estimated 85.6 million acres of India’s forests, thereby empowering over 200 million forest dwellers in over 1,70,000 villages. However, only 3% of this potential area has been realised. Maharashtra stands out as the state with the highest achievement in recognising Community Forest Resource Rights (CFR) but even Maharashtra has only achieved 18% of its potential. Similarly, Odisha, another well-feted state, has achieved barely 6% of its CFR potential.
- Swaminathan Committee report: Even though the National Commission on Farmers (the Swaminathan Commission) was set up by the UPA regime, there was no real effort to implement its recommendations. The commission proposed extensive land reforms including (a) distributing ceiling surplus and waste lands, (b) preventing diversion of prime agricultural land and forest to the corporate sector for non-agricultural purposes, and (c) ensuring grazing rights and access to common property resources. It argued that higher productivity in agriculture could only be achieved with substantial increases in public investment, especially in irrigation, drainage, land development, water conservation, and promotion of conservation farming and biodiversity. It proposed comprehensive groundwater and surface-water management, to give all farmers sustained and equitable access.
- Sins of omission and commission: The sins of omission (not implementing the Swaminathan Report, not paying the MSPs) have been compounded by sins of commission, as demonetisation badly hurt rural markets and demand. The imposition of the GST (goods and services tax) added to their cultivation costs. Livestock rearing, which saved farmers from penury and now accounts for nearly a third of agricultural value added, is under threat from cow vigilantes. It is a bad mix of factors.
- Why resolving farm crisis is important: Unrest in India’s farm economy will percolate to the larger society. The rural crisis is forcing traditional peasant communities to take up demands such as reservations, which cannot be long-term solutions to anything. A good growth in farm incomes is conducive to India’s quest for social justice too. A continuing crisis in agriculture is bound to intensify India’s caste wars. The roughly five-member Indian farm household, according to the National Sample Survey Organization, a federal data collection agency, had an average monthly income of $99 in 2013. The number of Indian billionaires on the Forbes annual list rose from 55 in 2011 to 121 in 2018. The collective net worth of our 121 billionaires was estimated by the magazine to be $440.1 billion, equal to roughly 22 percent of India’s gross domestic product. We now rank fourth in the world on the Forbes billionaires list and 131st on the United Nations Human Development Index. If these stark contrasts cannot make India sit up and rectify the situation, nothing can.
- Summary - A 'Bad Bank' may be finally created to tackle the NPA mess of Indian PSB sector & resolve the twin balance sheet problem, though it has attendant risks, and there's no guarantee of success.
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