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Prelude to a contagion

UP’s farm loan waiver could prompt other states to follow suit, evade real reasons for agricultural distress

Written by Ashok Gulati , Siraj Hussain |
Updated: April 10, 2017 12:08:09 am
 uttar pradesh, yogi adityanath, Uttar pradesh cm yogi, farmer loan waiver, farm loan waiver, farmer distress, agriculture, up farmer, india news, indian express Uttar Pradesh Chief Minister Yogi Adityanath. (Express photo by Vishal Srivastav)

The new Uttar Pradesh Chief Minister, Yogi Adityanath, has hit the ground running. In his first cabinet meeting, he took three important decisions with regard to farmers. First, he waived farm loans of more than Rs 36,000 crore, primarily of the small and marginal farmers who comprise 92 per cent of the state’s farming community. Second, he announced that 5,000 procurement centres will be set up in the state and UP’s wheat procurement target will be gradually raised to 8 million tonnes. Third, a committee will be set up to look into the woes of potato producers who have been hit by the collapse in prices. We welcome these announcements.

His decision on the farm loan waiver, however, has raised concerns. On the face of it, the waiver looks like a populist measure; it is in line with the BJP’s manifesto in the recent UP assembly elections. But the move could have a contagion effect on Punjab, where the Congress’s manifesto had promised a similar step. The contagion could spread further. The Madras High Court has suggested farm loan waivers to the Tamil Nadu government, and many other states, like Maharashtra, Karnataka and even Kerala, that have experienced drought recently, could follow suit. Since the payment has to be made through state finances, one will have to wait and watch if farm loan waivers become an all-India phenomenon, and how that impacts the credit culture.

Is the farm loan waiver a “solution” to farmers’ woes? Certainly not. But looking at it from a broader perspective, the move appears to be partly an “atonement” for failed agricultural policies, and partly an “appeasement” measure. Let us explain this a bit with respect to UP. The state produces 30 million tonnes (mt) of wheat and about 20 mt of paddy (13 mt of rice) annually. But its procurement levels have remained pitiably low, despite wheat prices often hovering at 10-15 per cent below the minimum support prices (MSP) and paddy prices often falling to 15-30 per cent below the MSP. If one calculates the “imputed loss” to farmers for not having received the MSP over a three to five year period, the figure will easily equal the loan waiver amount.

Further, after the recent floods in UP, farmers hardly got any compensation for months, despite registering under the Prime Minister’s Fasal Bima Yojana (PMFBY). On enquiring with the insurance companies, we found that neither the state government, nor the Centre had deposited the due premium in time. Such ground realities often drive farmers to the wall, and then political parties come up with crude methods like “loan waivers” to give them “relief”.

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In a recent study on UP’s agriculture (ICRIER working paper 335), we have outlined a slew of policies to double the state’s agri-growth. These policies include creating robust procurement systems, augmenting milk processing, rationalising sugarcane pricing and freeing molasses from government controls, using solar power and running potato cold storages largely on such power, introducing high density mango cultivation, and opening land lease markets.

But what is the problem with Punjab’s agriculture? The average land holding size in the state is 3.77 hectare (ha), against the national average of 1.15 ha. It has high yields of wheat and paddy and assured procurement at MSPs. Almost 98 per cent cropped area in Punjab is under irrigation and villages are well-connected to all-weather roads. During the heyday of the Green Revolution, and even during 1970-85, Punjab’s agriculture grew at 5.6 per cent per annum, which was more than double the rate of the all-India average growth (2.3 per cent).

But then, the state started slipping. The Green Revolution greyed, and between 2005-06 to 2014-15, Punjab’s agri-GDP grew at an annual average rate of 1.61 per cent against an all-India average of 3.6 per cent. Punjab’s per capita income, which was the highest till the early 2000s, has slipped to the seventh position among the 20 large states. The state’s policies are dated and its water table is depleting fast — at almost 70 cm a year during 2008-12. Can Punjab’s new chief minister, Amarinder Singh, take the state’s peasants to the next orbit of prosperity with sustainable agriculture?

Diversification from paddy to maize, promotion of livestock and horticulture, creating a full value chain framework that extends from the farm to organised retail, and exporting the state’s agricultural produce, say, to countries in the Persian Gulf, are some measures that could help meet these challenges. Paddy procurement from the dark blocks in the state needs to be restricted and replaced by maize procurement at the MSP; such procurement should be backed by feed mills and the starch industry. The state government also needs to prune taxes and levies on wheat and paddy from 14.5 per cent to less than 4 per cent to encourage value addition through food processing. Work on the three sanctioned food parks in Punjab, at Fazilka, Ludhiana and Kapurthala, needs to be taken up on a priority basis.

There are several other vacant plots in industrial areas to which food processing industries can be attracted. Punjab’s core competency will be to graduate to a hub of food processing, based on wheat, basmati rice (not common rice), maize, cotton, dairy, bakery, potato, seed processing and fruits and vegetables. The state has the highest per capita availability of milk in the country, but processes only 10 per cent of it through the organised sector. Punjab has an advanced dairy plant of Nestle at Moga, but it needs many more such plants. An integrated cold chain project near Chandigarh is successfully exporting frozen vegetables; this can be scaled up. Punjab needs a transparent and corruption-free process to incentivise the food processing industry.

The state also needs to move to direct benefit transfer (DBT) with respect to input and output subsidies. The money should be directly transferred to beneficiary accounts. The agenda is big and complex, and one will have to wait and watch to see whether the state government can bite the bullet.

Gulati is Infosys Chair Professor for Agriculture and Hussain is former secretary, agriculture (GoI) and currently, senior visiting fellow at ICRIER

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