India shining, Part 2

Government must not ignore the warning signs. It needs to double its overall support to farmers and move from price policy to direct income support.

Written by Ashok Gulati , Prerna Terway | Published:November 10, 2015 12:03 am
india, indian farmers, farmer policies, anti farmer policies, farmers protest, narendra modi, nda govt, modi nda, nda farmer policies, Reports from drought-affected states suggest significant losses in agriculture.

It was farmer leader Sharad Joshi who propagated the usage of “India”, representing urban elites, and “Bharat” for neglected rural folks in the mid-1980s. He was leading lakhs of farmers protesting against anti-farmer policies, ranging from export controls to movement restrictions, from stocking limits on agri-produce to low agri-prices, etc.

He wanted to free up agriculture from government controls. He succeeded only partially. Today, policymaking seems to be heading in the same direction — towards urban elites, and to the neglect of Bharat. Once again, the urban elites in policymaking are celebrating, with India climbing up four positions in the World Bank’s ease of doing business rankings. This is being cited as a major achievement, given that Prime Minister Narendra Modi has promised to bring India into the top 50 in his first term.

This self-patting is more noise than strategy, and gives an inkling of how NDA2 may also end up like NDA1’s “India Shining”, when the overall GDP growth hovered around 8 per cent but agriculture performed poorly at about 2.5 per cent. We all know the final result — how NDA1 was voted out of power in 2004.

Nevertheless, India’s overall GDP growth is still inspiring for FY16, between 7-7.5 per cent. But if this growth is to translate into significant poverty reduction, one must ask how agriculture is faring since most of the poor are in or around agriculture, engaging almost half of India’s workforce and supporting roughly 60 per cent of its population.

And the news from the agri-front is not good. Last year, with a rainfall deficit of 12 per cent, agri-GDP grew by only 0.2 per cent (basic prices). This year, the rain deficit is bigger (-14 per cent), and it’s back-to-back drought with much lower water in reservoirs. Reports from drought-affected states suggest significant losses in agriculture. For example, in Madhya Pradesh alone, the soya crop is likely to be down by more than 40 per cent over last year. The situation is similar for other crops in Maharashtra, Karnataka, Odisha, etc. The likely results suggest that overall agri-growth could be negative, unless the government starts massaging data to keep up the economy’s morale! In any case, agri-growth in the first four years of the 12th Five Year Plan is likely to be below 1.5 per cent, against a target of 4 per cent. This reflects extreme neglect of “Bharat” by the urban policy elites of “India”. Will this neglect throw up another Sharad Joshi to rally the cause of Bharat? Only time will tell.

Those in pursuit of making India a manufacturing hub, a la China, must remember that all major countries with large populations, like the US or EU, as well as emerging economies like China and Indonesia, have been supporting their farmers through myriad policy tools — high output prices, low input prices, direct income support, or crop insurance. The OECD has developed indicators like producer support estimates (PSEs) to assess the levels of total support to farmers as a percentage of gross farm receipts.

India aspires to compete with China, but are our policymakers aware of how China produces more than double India’s foodgrain from an agricultural land smaller than India’s and with an average holding size half of India’s? One of the reasons behind China’s spectacular achievement on the agri-front is the level of support given to farmers.

China’s PSE level increased from 2 per cent in 1995-97 to 19 per cent in 2012-14. For Indonesia, the PSE has gone up from 4 per cent to 21 per cent over the same period. There are no PSEs available for India, but subsidies on major inputs like fertilisers, power, irrigation, and agri-credit — the main policy instruments through which  the government supports farmers — hover between 6-8 per cent of the value of agri-output (2012-14). This is way below what a Chinese or Indonesian farmer gets. Even on the output price front, Indian farmers get much lower MSPs compared to their counterparts in Pakistan and China. In Pakistan, the MSP for wheat is $320/ MT and in China, $385/ MT, against India’s $226/ MT.

The Chinese government has realised the limitations of using pricing policy to provide inputs at cheaper rates. It has begun making direct payments for input subsidies to farmers at a flat rate per unit of land. Overtime, aggregate amount of transfer has increased from 12 billion yuan in 2006 to 107.1 billion yuan in 2014 (about $17bn). The government has also increased the coverage under crop insurance to 73 million yuan per hectare (45 per cent of total planted area in 2013) by providing premium subsidy of 80 per cent.

There are two important lessons here for India: One, if India wants to feed its people well, it has to almost double (if not triple) its support  to farmers, from current levels of about 6-8 per cent of the value of agri-output; two, it should move from price policy support to income support directly on per hectare basis. More like a DBT. Can India make this bold move? The chances are dim, as there’s no champion of agriculture in the Modi government. Unless the PM himself realises the need for this and acts fast, the condition of Indian peasants isn’t going to improve. The current set of elitist policies may not deliver for the poor, and they may hit back through the ballot when their time comes.

Gulati is Infosys chair professor for agriculture and Terway a research assistant at Icrier 

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