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Monday, July 13, 2020

A straw that is worth clutching at

Boosting farm incomes is the best way to combat the Indian economy’s woes today.

Written by Harish Damodaran | New Delhi | Updated: September 5, 2019 4:05:41 am
boosting farm incomes, india farming woes, indian agriculture crisis, economic slowdown, gdp data, agriculture sector, indian express, nso data The last quarter’s data suggests that farm prices are showing signs of recovery. (Express Archive/Representational)

The current economic slowdown began with Bharat. It has to also end with Bharat.

According to the National Statistical Office’s GDP estimates for April-June 2019 released on Friday, India’s agriculture sector — which includes forestry and fishing — grew 2.04% year-on-year during the quarter. But what is significant isn’t the “real” growth (i.e. at constant prices) in gross value added or GVA. More relevant is GVA – the value of output of a good, less the cost of all inputs and raw material used in its production — rising by 7.90% in “nominal” terms or at current prices. It means farm prices going up by 5.74% in April-June 2019 over April-June 2018.

This is, in fact, the highest increase in agricultural produce prices since July-September 2016, the quarter that preceded the demonetisation announcement of November 8, 2016. Since that overnight scrapping of all outstanding high-value currency notes by the Narendra Modi government, there have been some quarters where farm GVA growth has actually been lower in nominal than in real terms. Those quarters (April-June 2017, July-September 2018 and October-December 2018) had, in other words, registered negative inflation or deflation.

The last quarter’s data suggests that farm prices are showing signs of recovery. Many commodities — from maize, bajra (pearl-millet), jowar (sorghum) and cotton, to onion and milk — are fetching good or better rates today compared to a year ago. If sustained in the coming quarters, it can help reignite growth in the broader economy through a revival in rural consumption that comes with higher incomes. The all-round slowdown we are seeing, after all, started with agriculture.

Till the first half of 2014-15, agricultural GVA at current prices — a reasonable proxy for income or “take home” of farmers — was growing annually in double digits quarter after quarter. But a crash in global commodity prices brought this down to single digits. A temporary price recovery took place from 2016-17, partly enabled by the back-to-back droughts of the preceding two years. However, it was cut short by the “domestic” shock of demonetisation, followed by the goods and services tax.

The accompanying table shows that nominal farm sector GVA growth has been in single digits for nine straight quarters now. Remember, doubling of incomes in five years requires annual growth of 14.4%; it’s 12% even for the six-year doubling target from 2016 to 2022 set by the Modi government.

There is a ray of hope, though, from the latest farm produce inflation figure of 5.74% based on the GVA deflator. This straw is definitely worth clutching at, especially in a scenario of decent monsoon rains. After a poor June that recorded 32.8% deficiency, the country as a whole received 4.6% above-average rainfall in July and a surplus of 15.3% in August. As a result, the sowing area deficit in the kharif season, which was 26.7% relative to last year’s coverage till July 5, had reduced to just 1.7% by August-end.

That raises the possibility of a bumper kharif crop, due for harvesting from October. With water levels in India’s 107 major reservoirs reaching 76.2% of their full capacity as on August 29 — against the corresponding level of 68.4 % for 2018 and the last 10-years’ average of 61.1 % for this date — the prospects are even better for the coming rabi season.

There’s, indeed, no better time than now to take two big steps that can truly turn things around in the agriculture sector.

The first is doing away with all provisions in the Essential Commodities Act and state-level Agriculture Produce Market Committee (APMC) laws that enable governments to impose restrictions on sale, stocking, domestic movement or export of farm produce. This can be done through an omnibus legislation conferring farmers the right to sell any quantity of their produce to anybody, anywhere and at any time, while extending similar freedom to agri-processors, traders and retailers to buy, stock up or export. A simple announcement of intent on the government’s part in this regard is enough.

Second, exempt traders dealing in farm produce from the 2% TDS (tax deducted at source) levy on cash withdrawals exceeding Rs 1 crore a year, imposed in the 2019-20 Union Budget. Like it or not, produce trading has always been predominantly cash-based. Farmers, too, like to be paid in cash. Demonetisation and assorted curbs discouraging cash payments above Rs 10,000 to any person in a single day — the 2% TDS comes on top of this — have severely impacted both liquidity and sentiment in mandis. The ultimate sufferer has been the farmer, whose time is better spent in the field than in the bank waiting for payment.

In today’s conditions, where digital is still some distance away in rural areas, there is a case to allow full payment in cash for produce sold by farmers in mandis. The 2% TDS can also be made non-leviable, if the excess cash withdrawn is used solely for transactions in APMC mandis, backed by appropriate gate/entry pass and bhugtan patra (payment slip) records.

The above two measures can do much to bring back price sentiment and liquidity in agricultural markets, just when farmers are set to harvest a bumper crop. The most effective and immediate solution to the economy’s woes as well is to boost the incomes of those who will spend it best.

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