‘Forget Doubling Incomes, Farmers Will Be Happy If Incomes Grow At All’

Bengaluru: As India deals with growing numbers of COVID-19 cases and the economic ramifications of the resultant lockdowns, the Bharatiya Janata Party-led government has made a slew of announcements and promulgated ordinances to revive the economy, including the agriculture sector. It brought in the Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Ordinance 2020, Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance 2020, and amended the Essential Commodities Act, all through ordinances.

India’s economy is expected to contract by 4.5% in 2020-21 while the world economy is expected to contract by 4.9%, as per International Monetary Fund estimates. While India is experiencing a slowdown and its first non-agriculture recession, the “growth of agricultural output has to be matched by rising demand”, else the “excess supply with declining demand will only drive prices down”, says Himanshu, associate professor of economics at the Centre for Economic Studies and Planning, Jawaharlal Nehru University.

Most of the announcements made by the Centre “are part of the reforms ongoing for the last two decades”, and “marketing reforms alone will not provide remunerative prices for farmers if there is declining demand and depressed commodity prices”, he tells us in this interview.

Agriculture sector will be the mainstay of India’s economy and agricultural growth is estimated to be 3%, Ramesh Chand, member of NITI Aayog, said at a press conference in April 2020. Although agricultural gross domestic product (GDP) may be positive, it may not mean an increase in farmers’ incomes. “Forget doubling incomes, farmers will be happy if they maintain positive growth in incomes,” said Himanshu.

Himanshu is a visiting fellow at Centre de Sciences Humaines, and has held visiting fellowships at London School of Economics, United Nations University-WIDER and GREQAM. He has been part of government committees including the expert group on measurement of poverty (Tendulkar Committee), National Statistical Commission and Ministry of Rural Development. In 2018, he published How Lives Change: Palanpur, India and Development Economics with Nicholas Stern and Peter Lanjouw.

He talks to us about the reforms announced by the government, the outlook for farm income growth, and decrease in rural demand as a fallout of COVID-19.

Edited excerpts:

India has produced surplus food grains over the last two decades. Yet, farm incomes seem insufficient. How are the announcements made by the Centre going to change this reality?

Farm incomes depend on revenue earned by the farmer and the costs incurred. Surplus foodgrains do not automatically mean higher profits for farmers if the revenue they earn is less than the costs incurred. This can happen if the prices of output rise slower than the prices of inputs. Except for a brief period of five months last year, for the last two years output prices have been rising slowly or have declined. As a result, even though output has increased at 2% to 3%, it has not contributed to commensurate increase in incomes.

Announcements made by the Centre are unlikely to lead to higher prices of output if the demand for agricultural commodities continues to remain low. With rising diesel prices, electricity charges and fertiliser prices, even if the farmers produce more, they can incur losses. The prices of agricultural commodities will rise if there is rise in demand for these commodities. [But] that depends on domestic as well as international demand, both of which have been declining for Indian farmers.

This slowdown and recession in India will be the first non-agriculture recession. How do you see the agriculture sector perform in the current scenario, and is India on track to double farmers’ income by 2022 as promised?

The slowdown has been driven by declining demand. This has further strengthened after the lockdown and recession in the economy. While agriculture was less affected by lockdown, the growth of agricultural output has to be matched by rising demand. Otherwise, excess supply with declining demand will only drive prices down. Recent data on agricultural prices including milk and poultry suggests a sharp collapse in prices received by producers. With international prices also showing a declining trend, the downward pressure on agricultural prices is only going to intensify further.

Overall agricultural GDP may be positive but it does not necessarily mean an increase in income for farmers. Given the decline in economic activity in other sectors of the economy, it is likely that demand will decline severely. If that happens, an increase in agricultural output is unlikely to prevent farmers making losses in agriculture.

Forget doubling incomes, farmers will be happy if incomes grow at all.

While there have been announcements for long-term changes, farmers may not get remunerative prices unless there is demand for the produce. Under the present economic climate, what relief is--or must be--offered?

The only way demand can be revived is by increasing government spending, preferably in rural areas and for the poor who consume a larger share of their total consumption as agricultural produce including food. While this may take time, in the short-run, the government should procure as much as possible through MSP [minimum support price] operations [in] not just rice and wheat but also other crops such as pulses, oilseeds and other major crops. At the same time, there should be efforts to reduce input prices, particularly of diesel and fertilisers. The recent rise in fertiliser prices will only add to input costs, reducing the profit margin for farmers.

The government has announced Rs 50,000 crore ($6.6 billion) for Garib Kalyan Rozgar Yojana to offer employment to reverse migrants in the 116 districts that have recorded the most migrants’ return. With the government announcing an additional Rs 40,000 crore ($5.3 billion) for MGNREGA, how different and beneficial do you think will the new scheme be to generate employment and revive rural demand?

The Rs 50,000 crore for Garib Kalyan Rozgar Yojana is not additional spending. All of this was already budgeted in the budget of 2020-21. It has only been frontloaded. In terms of additional government spending, it has no impact. Further, some of these are infrastructural projects and will take time to get off the ground. How much of the Rs 50,000 crore is actually spent will depend a lot on the preparedness of state governments, which are struggling with finances and burdened with managing COVID-19 infections. Similarly, additional Rs 40,000 crore for MGNREGA is not sufficient given the large migration of workers back to rural areas. With all other avenues of employment declining, MGNREGA will have to do the heavy lifting of providing employment. The additional amount is barely sufficient to take care of employment generation at last year’s level, with increased wages. Most state governments have already spent a large part of their total allocation. For it to have any impact, large amounts upwards of Rs 100,000 crore [$13.2 billion] will be needed.

[Editor’s note: MGNREGA wages have been increased by Rs 20 with effect from April 1, 2020.]

The government has introduced an ordinance to create a national market for farm produce. Farmers are expected to receive remunerative prices from private players. What is your assessment and how does this impact or change MSP?

Most of the announcements are part of the reforms under way for the last two decades. Marketing reforms alone will not provide remunerative prices for farmers if there is declining demand and depressed commodity prices. The private sector is not going to incur losses to support farmers. It does not change anything as far as MSP is concerned, which incidentally is only implemented for rice and wheat. For all the fruits and vegetables that are generally traded in APMC [Agricultural Produce Market Committee], there is no MSP.

The success of private markets will also depend on the infrastructure made available for these markets. The cost of providing infrastructure has to come from the government.

There are millions of small and marginal farmers who are subsistence farmers, and need to cover the cost of taking the produce to the APMC and selling it to a private player. How will this be regulated and will it be essentially up to state governments to decide?

This is a tricky issue. Agricultural marketing is a subject under the domain of state governments. It will depend on how state governments react. Reform does not mean that there are millions of private players waiting with billions of dollars to go and purchase from farmers. They are not going to do it if the cost of purchase is higher than the sale price. But even for the private players, they are not going to get the delivery of agricultural produce at their doorstep. Somebody will have to incur the cost of packaging, sorting, grading, transportation and storage. If not the farmer then private players, which also means that their cost of acquisition will be higher.

Dispute redressal or arbitration will be a challenge for farmers, particularly the small and marginal farmers. Will contract farming, which is supposed to help farmers get a better price, make them dependent on the bureaucracy to resolve issues?

It will depend on the nature of contracts. It remains to be seen how many farmers opt for it; whether contracts are registered, and where. As of now, the government is yet to come up with model contracts, but even if it is implemented, the litigation costs are definitely going to be higher for farmers. It is unlikely that a small or marginal farmer will stand against a large corporation. There are so many questions that need to be worked out before this comes into effect. Remember, we are a country where almost all of agricultural (tenancy) contracts are oral with no legal guarantee. Most of these tenancy contracts are similar to contract farming. But the presence of tenancy laws has only encouraged both landlords and tenants to avoid the state rather than use the legal remedies available.

Cost of cultivation per unit of a crop varies state-wise. Often MSP is lower for crops other than paddy and wheat, which forces farmers into distress sale. Do the new announcements resolve this issue?

No, the government does not even procure the 23 crops for which MSP is announced. Other than rice and wheat, there are procurements at a small scale for some pulses. But even for rice and wheat, there is large regional variation with more than three-fourth of total procurement contributed by three or four states. For example, for the current wheat harvest, Punjab, Haryana and Madhya Pradesh accounted for 85% of all procurement with almost negligible [procurement] from Bihar, Jharkhand and other states. The new announcements will not resolve these issues.

The government wants to create 10,000 Farmer Producer Organisations (FPOs) in five years. What role do you see FPOs play in the current scenario?

FPOs have been in operation for quite some time. In fact this scheme was launched during the United Progressive Alliance government. But it has failed to take off. Creating FPO requires cohesion among farmers and also some support from the government. While there has been negligible support from the government, it has also not materialised due to the existing structure of production in rural areas. Issues such as caste, tenancy, choice of crops [among other issues] require a different level of cooperation for the model to succeed.

(Paliath is an analyst at IndiaSpend.)

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