When economics catches up

Lower MSP increases, rising input costs and debt have led to the farm crisis.

Written by Deepender Hooda | Published: June 13, 2017 12:02 am
indian economy, BJP, farm economics, farmer debt, farmer loan, farmer loan waiver, minimum support price, whats is MSP, crop failure, lok sabha elections, Swaminathan Commission, farmer income, indian express news, india news, opinion The political-economy of the farm sector over the last few years explains the current crisis. Tnjab news, india news, latest news, indian express

Economics is like gravity. No matter how hard we try to defy it, it always catches up. Three years into the BJP government, farm economics has caught up. For armchair economists to dismiss farmer distress as politically motivated may be convenient, but we can’t ignore the writing on the wall: We have a serious agrarian crisis. In the past three years, average hikes in the Minimum Support Prices (MSPs) for major crops have failed to keep pace with either what was achieved in the previous 10 years or the net inflation levels for these respective years. In the same period, profit margins based on MSP purchases of major crops, according to the government’s own data, have collapsed. Finally, the outstanding farm loans have gone up by 55 per cent in the first 30 months of the Modi government.

The political-economy of the farm sector over the last few years explains the current crisis. The UPA decade (2004-14) saw stable annual increases in the MSPs: Paddy MSP went up from Rs 590 to Rs 1,400, indicating an annual increase of 13 per cent. Similarly, the average annual hike for wheat in this period was 14 per cent, arhar 22 per cent, moong 23 per cent and cotton 18 per cent.

During the 2014 Lok Sabha elections, the BJP promised a better deal for farmers. Most importantly, along with the BJP’s manifesto, it was Prime Minister Narendra Modi himself who promised a minimum 50 per cent profit margin on each crop by implementing the Swaminathan Commission’s recommendations. Then, in a disappointing U-turn in February 2015, the Union government filed an affidavit in the Supreme Court terming the implementation of the Swaminathan Report “market distorting” and unfeasible.

Adding insult to injury, there has been a steep decline in the annual MSP hikes since 2014 compared to the UPA years: The average annual increases in MSP for paddy has dipped from 13 per cent to 4 per cent in 2014-17, wheat from 14 to 4 per cent, arhar from 22 to 6 per cent and moong from 23 to 5 per cent. Overall, the average annual MSP hike across major crops has collapsed from an average of 15 per cent in the UPA years to 4 per cent in the three years since 2014. Simply put for the salaried class: Would you prefer a 15 per cent annual salary hike or a 4 per cent one? That too when you were offered a big bonus in 2014 (the Swaminathan bonus!).

The increasing cost of cultivation (the government has not passed on the benefits of reduced global oil prices to the farmer) and low MSP hikes have hit the profitability of the farmers hard. In 2010-11, a farmer made a 39 per cent profit on paddy (MSP Rs 950/quintal, production cost of Rs 670). This has fallen to 6.5 per cent and 6.7 per cent in 2015-16 and 2016-17 respectively. The same holds for all the other crops. It cannot be a coincidence that India recorded its highest economic growth in the years 2007-12 when our farmers earned the highest profits.

One result has been that the farmer has not been paying back his debt at historical rates. The total outstanding farm loans have ballooned from Rs 8.11 lakh crore in March 2014 to Rs 12.6 lakh crore — a jump of about 55 per cent over a 30-month period. Add the impact of demonetisation to the declining profit margins and growing indebtedness, and you have the recipe for a perfect storm.

On its part, facing massive backlash from the farmer, the government has come out with a seven-point agenda to double farmer income by 2022. This target itself is more rhetorical than substantive for two reasons. Firstly, it is less than ambitious — according to the rural income survey, between 2002-03 and 2012-13 the average monthly income per farmer went up from Rs 2,115 to Rs 6,426 — incomes have actually tripled in the10-year period. Secondly, it is hardly realistic in the present situation. Doubling farmer income by 2022 would need a 14 per cent agricultural income growth rate for the next five years which seems unachievable now given that 2015-16 growth number was just 1.2 per cent.

Finally, a slow-down in investment in our economy resulting in lower growth in sectors such as construction and manufacturing are a double-whammy for the hinterland. These secondary sectors have been the natural sectors for the migration of labour from the primary sector burdened with the increasing fragmentation of landholdings. With industry not in a good shape, and the farm economy in peril, the rural youth are restless. The distress is now boiling over.

The present government has two years left in office and we all want the crisis to be resolved at the earliest. The government has few options left, the time has come for it to consider implementing the Swaminathan Commission’s recommendations in full, especially ensuring a minimum 50 per cent profit margin and a loan waiver like the one promised in UP. PR stunts and a helpful media might help in the short-term but economics and gravity can’t be defied indefinitely.

The writer is a Congress MP

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  1. Manish Kumar Singh
    Jun 13, 2017 at 9:01 pm
    Directly or Indirectly Farmer dont get Their part From National Income. Some saying Inflation control, yes it is but think Inflation mainly depend upon Oil price. So some sector got profit but some sector dont get, it not call sustainable Groth. And Dont forget about the maximum groth under UPA Government. Inflation hikeddue to Oil price hiked and so GDP down. You can see this impact when doller get rupee Got straigthen then Export down. Then that Crude oil down least 3 fold then Some sector get advantage But Farmer not get their real part . That is why it crises and Some how It politically Agitated too. Recent time I got to go Purches LED tv. I asked to Retailer What about Make in India product review He said People prefer Outer Make prduct cz They reliable and Better than Make in India Product. I am talking About same product that Make in India LED 41D and Outer product LED 41C . Ppeople prefering 41C. You Can Say It need time to Gain trust to make in india product in Market.
    1. Mukundan Menon
      Jun 13, 2017 at 6:52 pm
      The mindless and empty claims with respect to the "UPA decade" apart, the Congress MP is simply using convenient reverse logic applying his arguments to replace facts on the ground in generalto exploit the so-called "farmers' agitation" to beat NDA government in the absence of anything concree. Why did Modi have to offer an agricultural package i the first pace? Because the wonderful UPA decade left so much to be desired, with the economy suffering so many ills including inflation at never-before rates. I think Indians prefer 7.5 per cent growth and less than 3 per cent inflation to the situation under UPA for one thing. Reforms in agricultural marketing and agricultural insurance, the introduction and expansion of direct benefits transfer of fertilizer subsidy, larger investment in farm sector, etc and beginning to show result and hence the Opposition kicking up agitation.Loan waivers are attractive anytime!The MP hides that bumper crops bring in price drops and disappointment!
      1. Employ Ment
        Jun 13, 2017 at 3:00 pm
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        1. P
          Jun 13, 2017 at 10:54 am
          bhaiya under congress regime Inflation was uncontrble,,,yesterday i purchasd Tomato-20/kg,,,potato-15,,,,onion-20,,bhindi(lady finger)-20/kg,,,under manmohan govt in its last 2-3 yrs,,,i never got a chance to purchase Onion below 35-40(infact it touchd 60 for contnsly one year),,potato was alwayz 20-25 ,,,,,tomato always 40 ,,,,,even green vegetables in those days were always above 25-30 even during season time,,nd it used to touch 50-60 during off season
          1. Dinesh Pilania
            Jun 13, 2017 at 6:28 pm
            So,you don't wish to pay fair prices for agriculture produce. You can pay any amount for watching Bahubali and buying fancy gadgets but you can see inflation only in agri products. If you pay 20 rupees at retail price of tomato then how much is a farmer getting? Selfish urban middle class is a major reason for agri crisis, starts weeping as soon as their is some rise in agri product prices. When input costs are rising and farmers don't get fair price for their produce, most of them are not eloquent to express their views and take to violent agitations.
          2. K
            Kanu Singh
            Jun 13, 2017 at 10:06 am
            Here are a few simple facts for the consideration of Deepender Hooda. Average annual increase in Consumer Price Index (CPI) during UPA regime 92004-14) was 7.9 percent. On an average the Minimum support price (MSP) of wheat during the same period went up by 8.4 percent. Simply put the increase in MSP of wheat barely compensated for increase in CPI. However during the same period input costs for cultivation rose by a whopping 22.5 percent per annum. Consequently the farmer suffered on an average loss of Rs. 300 per quintal during this period, which for an average farmer with a five acre farm means loss of Rs. 30000 per annum only from wheat crop. The story is no different for other crops.
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