Himanshu, who teaches at Jawaharlal Nehru University, talks about the current distress in the farming sector and areas which need immediate attention.
Archana Mishra | April 3, 2018
How did the agriculture sector go into crisis?
There was distress for quite some time. The situation improved from 2004 to 2011. Since 2011 conditions have been bad for farmers. Some kind of stress was building up; still, it was not a crisis-like situation. But when this government took over, a series of events happened and the situation worsened rapidly. We are seeing the implications of it now. Some problems were already there, but this government is responsible for aggravating those problems.
Can you elaborate on these problems?
The problems started from 2011-12. Basically, the input price, that is, the cost of cultivation, was going up. At that time fertiliser prices went up rapidly because the government introduced a nutrient-based subsidy (NBS) scheme that led to an unprecedented hike in prices of non-urea fertilisers. The second big input cost that increased was wages. From 2008 to 2013 wages were rising very fast. Until 2014 oil prices were also very high and the government at that time abolished diesel subsidy. All this reduced the profit margin of farmers substantially. Output prices, on the other hand, were not rising very fast. So, there was a crisis building up from 2013 onwards.
READ: Farmers' income: Double trouble
In 2014 oil prices crashed. It is a natural phenomenon that whenever oil prices go down, the price of agricultural commodities, particularly those traded internationally, collapses. So farmers cultivating cash crops suffered a huge loss.
On the other hand, 2014 and 2015 were drought years. Double drought is something which is very difficult for any government to handle. With price collapse and simultaneous droughts, production and prices suffered. At the same time inflation was soaring high. So income in the agriculture sector started to plummet. It triggered a crisis.
Was the government not in a situation to handle the crisis?
The government received a huge bounty after the oil prices fell. Many other sectors of the economy benefited from it. The government should have immediately moved the revenue into the rural areas and controlled prices by providing subsidies or price support. But the government in its first two years ignored the agricultural sector completely. It made the crisis impossible to handle because the problems had been neglected for so many years.
The agriculture investment in the crop sector by this government is negative. In 2013-14, the investment was Rs 2,40,087 crore. It reduced to Rs 2,26,079 crore in 2014-15 and to Rs 1,88,876 crore in 2015-16. The figure for 2016-17 is yet to come. In the first two years of the current government, the agriculture investment in real terms went down by four percent – a huge amount. The government reduced the expenditure on the Rashtriya Krishi Vikas Yojana by more than half. So, instead of helping farmers, the government went on reducing the expenditure.
Why is the entire thrust upon minimum support price (MSP)?
MSP can be a short-term solution. MSP by its design is supposed to be operational when the price of agricultural commodities goes down. Whenever the prices go below the market prices then the government intervenes in the market, buys the produce and basically raises prices in the market. In case the market prices are too high then the government need not go for the support price. The government announces 28 different MSPs for 23 crops each year. But they are on paper as not all are procured. The MSP programme has not worked effectively in our system except for rice and wheat.
Why are there issues with the calculation and announcement of MSP?
Going by the Swaminathan Commission Report the MSP should be an additional 50 percent on the cost of production (C2+50%). But so far it is given on the basis of expenses incurred by farmers on seeds, fertilisers, fuel, labour, irrigation along with unpaid family labour (A2+FL) which is less than the total cost of production, which includes other expenditures too. Mr Jaitely has done the smart thing: he has not explained cost in this year’s budget. The government has not yet said which formula they would use. All sorts of interpretations are open. If they go by the promise made by the government in the run-up to elections then they must be giving C2+50%. Whether they will do it or not, we don’t know. And the delay in announcement is because the government does not want to procure it.
Procurement is an essential requirement post-production. Where are we failing?
Improving procurement incurs some money. The government is giving the excuse of fiscal deficit. This time the fiscal deficit has gone down to 3.5 percent. Their promise is to bring it down to 3 percent. Money is not in the government kitty. We need a whole structure for distribution. Doing that means incurring subsidies. Unless the government has a structured system to procure and distribute it through public distribution system, this thing will always run into a problem because you procure and don’t know what to do.
Do we have the infrastructure to absorb the produce?
The government has to buy it from the farmers and distribute it to the people. We have PDS and the mandi system, the oldest system of procurement. What is missing in this is the money part. There is already an Act [National Food Security Act] which mentions of distribution. But what stops the government from buying pulses and edible oil, and distributing to PDS shops?
The demand-supply chain is also affected by the import and export policy. Your comments?
We need to have a very good system of monitoring the price internationally. Now we are in the globalised world, where price transmission is quite fast and global prices are affecting domestic prices. We are not insulated from international price fluctuations. The agriculture and commerce ministries need to be proactive. Depending on the domestic situation they need to have import-export policies. These policies are today ad-hoc. The collapse in pulse prices is a clear example of it. The government was aware that ‘pulses grown area’ has gone up dramatically after the higher price announcement. So they knew production will increase but at the same time, they imported million tonnes of pulses from Mozambique. The biggest problem for farmers is the volatility in the prices. The government has to control it through MSP and various other means so that prices are stable over a period of time. It also makes the production pattern stable. in allowing prices to go up, the government basically gives a wrong signal to the farmers.
Why are the prices of agricultural commodities so volatile?
Agriculture by nature is volatile. There are millions of producers and nobody talks to the other. You take a decision based on the current prices. Like, when sowing is done in June or July, you look at prices that exist in May and June. Suppose prices are very high, every farmer will grow that particular crop, like pulses while switching from rice. So pulses production will jump by 20-30 percent but the demand will not increase because food consumption is always inelastic. We don’t change our consumption pattern based on that. So prices of pulses collapse because there is excessive supply in the market. But the rice prices which were lower earlier (because of which farmers moved to pulses) actually will increase because of its lower production. So by November, we are completely in the opposite situation of what we were in May. We don’t see price inflation or deflation in case of wheat and rice because the government tries maintaining the stable price. For all other crops, the government doesn’t do it.
What are the other areas which need attention?
There is no substitute for long-term investment in agriculture. It has to be done in multiple dimensions. The government has to provide more for irrigation so that farmers are insulated from the vagaries of weather. Each time there is a drought, we go into crisis. At least now the economy is in good shape to expand the irrigation network. Our irrigation coverage area has not yet crossed 50 percent in last one decade. Why can’t we increase it to the level where farmers are not affected by weather fluctuations every year? Second is research and development to bring out more varieties that are resistant in less rain-fed areas. Most of the research is coming from private multinational corporations. The government has abdicated itself from the responsibility of doing that. Green Revolution was done with government money. Today, it is not spending money on research. Third is post-production. We need to provide more support to food processing industries, storage and warehousing, and transportation. Farmers in this country are too small to create those infrastructures. It has to either come from big private corporates or government. Fourth, provide a level-playing field for the market. Today, agricultural produce market committees are heavily politicised and they are the ones who are benefitted the most. That is why we are not seeing any reform in the market sector. They are responsible for fluctuations and crisis. There is a vested interest.
Is agriculture a loss-making sector now?
Agriculture in itself cannot be called as a loss-making venture. It is very crucial. Food security is very essential and food inflation can lead to serious problems. So the governments of developed and developing countries put in a large amount of money to make sure that agriculture is viable. Like in education, even after completing higher education if we don’t get a job it does not mean we stop investing in education. Agriculture is the backbone of the economy. It cannot be looked at in terms of profit and loss. It is essential for the survival of the economy. This government went into the other direction by reducing the expenditure.
Is it because agriculture does not give revenue to the government?
Directly, it does not give revenue. The agriculture sector is not taxed. Most of the agricultural commodities are out of the GST. But the government should not look at agriculture in terms of revenue. If the government would have spent a good amount of money in 2013-14 they wouldn’t have to spend money as loan waivers. If farmers would have got their income and paid their instalments, the government wouldn’t be giving a loan waiver. The government is not saving money but the money is not used in investment. It is like you are killing the patient putting in the ICU and then giving the medication. Why can’t you give the medication in the beginning so the patient does not go to the hospital?
Do we need to tax the agriculture sector?
Why should we do it? 85 percent in this sector are small farmers. Their average annual income is less than Rs 60,000. The taxable income starts from Rs 2.5 lakh. To tax this 60 crore population we require a huge infrastructure. It won’t benefit the government.
Barring Green Revolution, when has the agriculture seen its best phase?
From 2004 till 2011, overall agricultural growth was 3.5-4 percent which has been the highest in the last two and a half decades. It was the best period of agricultural growth that you can think of. Farmers benefitted from trade shifting towards agriculture. During the UPA tenure, the agriculture price inflation was very high. Agriculture price inflation is very high for consumers but it benefits farmers. The wages basically were rising because farmers were getting more money for their produce, agriculture investment went up dramatically, credit increased by four to five times and a big loan waiver of Rs 70,000 crore in 2008-09. The overall economy grew up till 2011-12 more than eight percent per annum. There was an overall demand coming from the economy. The non-agricultural sector was doing very well. The cumulative effect was that agricultural wages were rising. The progress stopped in 2013 and within one or two years of the agricultural crisis setting in, wages collapsed.
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