From Plate to Plough: It’s not about loan waivers

Indian farmers are facing multiple crises. Punjab’s case highlights their problems.

Written by Ashok Gulati , Ranjana Roy | Published:February 27, 2017 12:00 am
ideas-759 If a loan waiver was the solution to the problems of the peasantry, there should not have been any farm distress after 2008-09. (Illustration by C R Sasikumar)

THE ANSWER TO who will form the next government in Punjab is currently sealed in the ballot boxes. Meanwhile, there are reports that the Election Commission has written to the home minister, reinforcing its demand to make electoral bribery a cognisable offence. But what about the assurances made in election manifestos which promise voters the moon before the polls? The reference here is to Punjab’s elections where all major political parties have promised to waive farmers’ loans — that means any incoming party will be under tremendous pressure to fulfill its promise. And if this is done in Punjab, very soon, it will spread like an infectious disease across other states, taking the same shape as the 2008-09 mega loan waiver of the UPA government, which finally cost the exchequer Rs 52,517 crore.

If a loan waiver was the solution to the problems of the peasantry, there should not have been any farm distress after 2008-09. But those problems still persist, simply because their answers lie somewhere else.

Take the case of Punjab. The state has been a forerunner in agriculture since the Green Revolution. Its agri-GDP registered an average annual growth of about 10 per cent during the first four years of the Green Revolution (1966-67 to 1969-70). But during the period of the current government, agri-GDP growth dropped to 1.5 per cent per annum (2007-08, 2014-15, latest available data), which is even lower than the national average of 3.2 per cent, and way below the best performer, Madhya Pradesh, whose agri-growth stood at 10.9 per cent per annum during the same period (see graph).

Notwithstanding the fact that Punjab’s per ha productivity is pretty high, the moot question is — where did Punjab go wrong, and what sort of policies can get it back to a high growth trajectory on a sustainable basis?
First, Punjab seems to have become a victim of its own success. Grain, primarily wheat and rice, occupies 80 per cent of its gross cropped area (GCA), with almost the highest productivity in India. This was great when India was suffering from food shortages; however, the situation today is completely different. After 2007-08, India emerged as a net exporter of cereals. Stocks of cereals crossed 80 million tonnes (mt) on July 1, 2012, more than double the buffer stock norms. As a result of this “abundance”, the increases given in minimum support prices (MSP) of wheat and paddy were very meagre. That brought down the profitability of these crops, and thus, the income of Punjabi farmers.

Just to give a flavour of the MSPs in India vis-a-vis some neighbouring countries, the MSP of wheat in China was $ 385/MT in 2014-15, in Pakistan $325/MT versus India’s $ 225/MT. Similarly, for Indica rice, China gave a support price of $ 440/MT against $ 320/MT for India’s common rice.

Punjab’s peasantry suffered due to bans on exports of wheat and rice (during 2007-11), stocking limits on private trade and heavy taxes and commissions imposed on purchases of wheat and rice from the state, which are as high as 14.5 per cent. In a country where one per cent tax on the purchase of jewellery creates an uproar, it is ridiculous to have a 14.5 per cent tax on basic staples like wheat and rice. The net result of this misguided policy is that the food processing industry, which can add value, feels extremely reluctant to enter Punjab — most roller-flour mills in Punjab buy their wheat from Uttar Pradesh.

Second, although Punjab was the first to build a good marketing infrastructure for wheat and rice, it failed to create similar facilities for perishables like fruits and vegetables (F&V). As a result, the prices of perishables remain volatile, increasing the risk of farmers who feel reluctant to shift to high-value agriculture. Only 3.4 per cent of Punjab’s GCA is under F&V, compared to 8.3 per cent at an all-India level. There is a limit to augmenting farmers’ incomes through cereals, unless a lot of value addition is done.

The state has to shift towards high-value horticulture and dairy to benefit farmers. Punjab has one of the highest milk productivity rates in India, but the share of milk production processed by the organised sector is just 10 per cent, compared to 20 per cent at an all-India level and 53 per cent in Gujarat. This speaks of the need to ramp up milk processing facilities in the state.

Third, the most critical problem of Punjab agriculture is its depleting water table, primarily dipping due to paddy cultivation during summer. The nexus of ground water irrigation-free power-assured procurement are sending the wrong signals to farmers. The water table declined by 0.7 metre per year from 2008 to 2012. Currently, 75 per cent of blocks in Punjab are declared “dark blocks” where water is over-exploited. It looks as if the current generation is taking away the water rights of future generations.

With one kg of rice consuming 3,000-5,000 litres of irrigation water, exporting common rice is not a very wise proposition for Punjab’s agriculture. This has to be rationalised; government should incentivise technologies like direct seeding of rice and drip irrigation in rice. Pilots in these areas show savings of 30-50 per cent irrigation water. The promotion of high-value agriculture necessitates investment in cold storage and processing, much of which can be operated through cost-effective solar power.

Instead of giving free power, the state can reward the peasantry for saving power through cash incentives, which will also help in checking water depletion. Hopefully, these issues will be taken up by the new government in order to take Punjab to a higher level of prosperity.

Gulati is Infosys Chair Professor for Agriculture and Roy is Research Associate at ICRIER
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