The country must double its support to farmers, from the current levels of about 6-8% of the value of agri-output
It was in the mid-1980s that the ‘India-Bharat’ phraseology was fist pushed into political jargon, by farmers’ leader Sharad Joshi, with ‘India’ representing the urban elite of the country and ‘Bharat’ synonymous with its neglected rural folk. Joshi, at the time, was leading lakhs of farmers protesting against anti-farmer policies, ranging from export-controls and movement restrictions to stocking-limits on agri-produce and low agri-prices. He wanted to free agriculture from government control. He, however, succeeded only partially.
Today, Indian policy-making seems to be in the same direction, slanted towards the interests of the urban elite and away from those of Bharat. Once again, the urban elite in policy-making are celebrating, given India has moved up four positions, from 134 to 130, in the World Bank ranking of 189 nations for the “ease of doing business”. This is being cited as a major achievement, given prime minister Narendra Modi has promised to take India into the club of the top-50 countries by the time his term ends.
But, such “patting oneself on the back” doesn’t augur well. It is more noise than strategy, and feeds the foreboding that NDA-II may also end up like NDA-I, with a India Shining campaign (overall GDP growth hovered around 8% in FY04) while agriculture performs poorly (agri-growth averaged about 1.2% per annum during 2002-04). We all know the final result, how NDA-I was voted out in 2004.
In all fairness, India’s overall GDP growth for FY16 is still inspiring, anywhere between 7-7.5%, although some diehards in the government swear by “more than 8%”. But if this growth is to translate into significant poverty-reduction, one must ask how agriculture is fairing, given most of the poor are in agriculture or related occupations; the sector engages almost half of India’s work-force and supports roughly 60% of its population.
The news from agri-front is not good. Last year, with a rainfall deficit of 12%, agri-GDP grew by only 0.2% (at basic prices). This year rain deficit is even worse (14%), and means back-to-back drought with much lesser water in reservoirs than last time. The reports from drought-affected states point at significant losses in agriculture. In Madhya Pradesh alone, the soya crop is likely to fall more than 40% over last year. Farmers face a similar situation for many other crops in Maharashtra, Karnataka, Odisha, etc. The results likely so far suggest that overall agri-growth could be in the negative zone, unless the government massages data to keep the morale of the economy up! In any case, agri-growth in the first four years of the 12th Five-Year Plan is likely to be below 1.5%, against the target of 4%. This reflects extreme neglect of Bharat by India’s policy elite. Will such neglect give rise to another Sharad Joshi who will rally for the cause of Bharat? Only time will tell. Those in the pursuit of making India the manufacturing hub of the world, a la China, must remember that all developed economies with large populations, be it the US or the EU, or big emerging countries, like China and Indonesia, have been supporting their farmers with the help of myriad policy tools—whether it is high output prices or low input prices or direct income support or through crop insurance, etc. OECD has developed indicators like Producer Support Estimates (PSEs) to estimate the levels of total support directed at farmers as a percentage of gross farm receipts.
India aspires to compete with China, but are our policy makers aware how China produces more than double of India’s foodgrain production from total agricultural land that is less than that of India? And with an average holding size that is half of India’s? One of the reasons behind this spectacular achievement of China on agri-front is the level of support it gives to its farmers. China’s PSE level, as percentage of the gross farm receipts, increased from 2% in 1995-97 to 19% in 2012-14. Similarly, for Indonesia, PSE has gone up from 4% to 21% over the same period. There are no PSEs available for India, but the subsidies on major inputs like fertilisers, power, irrigation, and agri-credit, which are the main policy instruments through which the Indian government supports farmers, hover between 6-8% 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. For instance, in Pakistan, the MSP for wheat is $320/tonne and in China, it is $385/tonne, against India’s $226/tonne (FY15).
It is interesting to note that the Chinese government has realised the limitations of using a price-driven policy to provide inputs at cheaper rates to farmers. It has started the process of 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 $17 billion). The government has also increased the coverage under crop insurance to 73 million ha (45% of total planted area in 2013) by providing a premium subsidy of 80%.
Are there any lessons here for India? Two important lessons emerge:
* If India wants to feed its people well, it has to almost double (if not triple) its support to farmers, from the current levels of about 6-8% of the value of agri-output, and
* it should move from a price-support policy to income support, directly on per hectare basis.
It has to be more like a direct benefits transfer. Can India make this bold move? The chances are dim, as there is no champion in the Modi government to reform agriculture. Unless the prime minister himself realises the need for this, and acts fast on it, the condition of Indian peasants is not going to improve. The current set of elitist policies may not deliver for the poor, and the latter may hit back through the ballot when their time comes.
Gulati is Infosys chair professor for agriculture, and Terway, is a research assistant, ICRIER. Views are personal