The recent eruptions of farmers’ protests in Madhya Pradesh (MP) and Maharashtra indicate that all is not well on the economic front, especially in agriculture. If this could happen in MP, which claims to have registered the fastest growth in agri-GDP at 9.7% per year during the decade-long period of 2005-06 to 2014-15, then it can happen in any state, any time. MP has been a showcase of BJP’s performance in agriculture. But now it appears that agriculture is going to be the Achilles heel of prime minister Narendra Modi. Its poor performance at an all-India level, at less than 2% per annum, during the Modi period (2014-15 to 2016-17) also exposes chinks in the PM’s armour. Unless addressed quickly, and in a sustained manner, this neglect of agriculture may cost him heavily in 2019. It may turn out to be like the ‘India Shining’ days of NDA-I, while Bharat was whining!
What has really gone wrong in agriculture during the Modi era, and how can it be fixed? We focus here on prices and farm loans, although agriculture suffers from multiple fractures!
The current farm crisis in MP seems to have been triggered by the crash in onion prices, but it also drew strength from the news of loan waivers announced by Uttar Pradesh (UP) and Maharashtra. The seeds of competitive loan waivers were sown by the PM himself, when he announced in one of the UP election rallies that farm loans will be waived off in the very first cabinet meeting of the UP government, if the BJP was voted to power in UP. And UP chief minister Yogi Adityanath followed his master’s advice diligently. Farmers in other states had been watching, and this surely is going to fuel unrest in other states, be it Haryana or Punjab, Karnataka or Tamil Nadu. Where will it stop, no one knows. We won’t be surprised if it costs state treasuries even `200,000 crore in the months to come, taking state-level deficits closer to 4% of their GDP.
What is it that farmers are really asking? Simply, remunerative prices for their produce. One may recall that the BJP had promised in its election manifesto of 2014 that it will ensure 50% margin over cost. Where does the Modi government stand on that promise after three years of being in power, compared to, say, the last three years of the Manmohan Singh (MMS) government? We dug out official data of net margins (MSP minus cost C2) from CACP reports of last six years (see accompanying graph). The bitter truth is that net margins in most agricultural commodities like paddy, maize, cotton, gram and sugarcane during the Modi regime have actually declined. On top of this, if one looks at just 2016-17 data, there were negative margins on several commodities: jowar (-18%); ragi (-20%); sesame (-14%); sunflower (-13%) groundnut (-4%); moong (-7%), urad (-4%), etc. With the glut of production in tur, where market prices went way below MSP, the real losses were even higher. Potatoes, onions and tomatoes seem to have met the same fate. No wonder, there is widespread unrest amongst peasantry. They first suffered the wrath of back-to-back droughts in the first two years of the Modi government, and now, in the third year, despite good rains and bumper harvest, they are suffering due to collapse in prices. Loan waivers are not a solution to deep-rooted problems of agriculture. They are quick and dirty band-aids
that give temporary breathing space to policy makers.
The best way to handle prices is to “get the markets right”. Remember, prices are determined by forces of demand and supply, and cost enters through the supply curve. Just cost-plus pricing, without considering the demand-side, can lead to even greater distortions and, therefore, needs to be avoided. But how does one get the markets right? Take the case of tur, a classic example. India had a bumper harvest of tur in the last season. But government had banned its exports, private trade was not allowed to hold its stocks, and trading in futures had also been banned. No wonder, with bumper harvest on one hand and strangulated markets on the other, prices crashed, tumbling way below MSP and creating misery and unrest amongst farmers. The solution is simple: Abolish all export bans, private stocking limits, and restrictions on futures trading in all agri-commodities. This is all the more desirable in commodities whose imports are open at low or zero duties. If this is not done, government will be forced to buy all sundry commodities whose prices nosedive, which is neither efficient nor a feasible policy option.
For perishables like onions, potatoes and tomatoes, we need more and better storage facilities, linkages with processing firms, contract farming, opening land-lease markets, and so on. Basically, we need to develop efficient and equitable value chains a la the AMUL model in dairy.
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But there is one problem on the agri-credit front that needs to be addressed urgently. Farmers need cash immediately after harvest to pay back their debts from formal and informal sources. Warehouse receipt system, giving them advance against their stocks, is the way to go. The biggest failure of RBI and Nabard, over all these years, is on the financial inclusion front. Even in 2013, the latest year for which information is available, of the total outstanding debt of rural households, 44% came from informal sources. Interest rates in informal sector hover anywhere at 15-30%. Thus, instead of interest subvention schemes, the government needs to focus on financial inclusion, if it wants to address farmers’ problems on sustainable basis.
Ashok Gulati is Infosys Chair professor for agriculture and Prerna Terway is research associate, Icrier