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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