Modi, 2019 and The Ailing Farmer

Modi, 2019 and The Ailing Farmer

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One of the reasons why Atal Bihari Vajpayee, the first pime minister from the ruling Bharatiya Janata Party (BJP), despite bringing economic development, could not retain power in the 2004 Indian elections was farmer distress. In 2004, BJP lost out narrowly to the Indian National Congress. Indian exporters were merrily allowed to export foodgrains by Vajpayee's government, while millions of tons of foodgrains lay in government godowns. And thousands of farmers were in distress due to drought in several parts of the country.

With the Indian general elections approaching in 2019, Narendra Modi, the second prime minister from the right-wing BJP, faces a similar wrath of the farmers (who make up 47% of labor force) like his predecessor. The recently concluded state elections in Gujarat are a testimony to the fact. BJP barely managed to win 7 seats more than the required majority- in the home state of PM Modi, primarily riding on urban support. The mandate was against the BJP in the rural areas, where most people are employed in the agricultural sector. While BJP did manage to win in Gujarat because of its higher urbanization rate, it could lose out a lot in a slew of state elections next year and a national vote in 2019 if it cannot win back the rural support.

Farmer protests have spread throughout the country in the past one year, having taken unique forms (Read:  Why are farmers in India protesting with mice and human skulls? - BBC ). The table  below offers but a glimpse into the Indian farmer's mounting troubles.

Table: Comparative Yield of Select Crops in Various Countries (Kg/ha)

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Source: Table 3 of the Fifth NCF Report based on Agriculture at a Glance [2002] Ministry of Agriculture

The productivity of an Indian worker is one-third of his Chinese counterpart. Moreover, the average farm size in India is small (1.15 ha) and has shown a steady declining trend since 1970-71. 72% of farmers have a landholding of fewer than 2 hectares and are considered small. This predominance of small operational holdings is a major limitation to reaping the benefits of economies of scale. Small farmers have low bargaining power and no say over prices due to little marketable surplus.

Also, there is an inverse relationship between indebtedness and the size of land holding possessed by the agricultural households. Many small farmers do not have access to formal government institutions for cheap credit and instead rely on local moneylenders who give out credit at higher rates of interest. 40 percent of the funds of farmers still come from informal sources. Moreover, there is a regional disparity in the distribution of agricultural credit as its coverage is very low in the north-eastern and eastern regions of the country, according to the Economic Survey 2016-17.

The National Sample Survey Office (NSSO) provides another hard revelation. During the last decade, the bloated debt of Indian agricultural households has increased almost 400%, while their undersized monthly income has plummeted by 300%. High indebtedness has led to farmer suicides. Over 12,000 farmer suicides were reported every year since 2013. Loan waivers by major BJP-run states like Uttar Pradesh and Maharashtra have had to be used to help seriously distressed farmers. But this will hurt the state's finances, bringing down capital expenditure. The real problem is a lack of institutionalized credit and little access to crop insurance facilities. It surely is not a lack of populist decisions.

To be fair, right after the Gujarat election scare (18th December), the BJP government slapped a 30% customs duty on select pulses to protect domestic farmers, who are already staring at low prices due to a bumper crop combined with cheap imports. Nevertheless, such reflexive policies are not an answer to the farming crisis in India. They do not strike at the root of the problem. Farmers, like investors, need predictability and long-term policies from the government.

In the recent past, growth rates of agriculture have been fluctuating at 1.5 percent in 2012-13, 5.6 percent in 2013-14, (-) 0.2 percent in 2014-15, 0.7 percent in 2015-16 and 4.9 percent in 2016-17 (PE). The dismal growth rates during 2014-16 are explained by deficient rainfall during those years, as 55% of agriculture in India is rainfall dependent. Farmers have to brace for such shocks due to lack of irrigation.

The previous and present government's answer to frequent fluctuations in price due to rain-fed agriculture has been the price-floor or Minimum Support Price (MSP) which is guaranteed to farmers for 23 crops. But data suggests that the awareness of MSP and procurement operations are high only for crops like paddy and wheat. MSP remains ineffective as a majority of the small farmers are in the dark about the existence of any such scheme. Moreover, in distress sales of perishables, farmers sell their produce at a much lower price than the MSP. The Direct Benefit Transfer Scheme (DBT) of the BJP seeks to solve these problems by directly transferring the welfare subsidy into the bank accounts of the beneficiaries but better implementation is far away.

In fact, most policies of the government could have already benefitted millions of farmers, but for implementation. The insurance scheme of the government for the farmers, PMFBY (Pradhan Mantri Fasal Beema Yojana) has underperformed due to many state governments paying premiums late and failing to assess damage properly.

Another policy of the government is the e-NAM (e-National Agricultural Market) which is revolutionary in nature. E-Nam is a pan-India electronic trading portal which seeks to create a unified national market for agricultural commodities. It seeks to remove all restrictions on internal trade of agricultural commodities. However, according to an RTI, although 5,752,104 were registered with the e-NAM scheme, there were only 169,984 average daily users of the platform—which is less than three percent of the registered users.

Therefore, while one must appreciate the free-market reforms in agriculture by the government, the implementation and awareness amongst the farmers must be questioned. The government would do so much by reigning in middlemen who take away most of the profits of the farmers as they enjoy union and some government official's support, giving them monopoly power.

In a country where 22.5% of farmer families are below the poverty line, the government has an ambitious plan to double farmers' income by 2022.  However, the Gujarat elections have shown that if the BJP wants a Congress-Mukt Bharat (Congress-free India), then it has to take the rural votes away from the Congress, which can only happen if agriculture sector picks up. There are reports that the government, in order to shed off its image of a Suit-Boot Ki Sarkar (Government for businesses), will boost agricultural spending in next year's budget and even miss the fiscal deficit target of 3% by a whisker. Despite being a semi-demagogue, Mr. Modi's re-election depends a lot on what the farmer thinks. And Mr. Modi knows it. The 2018 Budget will be worth the wait.


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