The crisis also provides an opportunity to usher in policy reforms.
By CSC Sekhar
The Covid-19 crisis is likely to pose a serious challenge to agriculture and rural economy. The impact could be different at different levels and across time horizons. Immediate supply-chain disruptions could translate into demand contraction later in the rural economy, which could have an adverse impact on economic growth.
In the short run (before the lockdown ends), the problems are twofold. Farmers are unable to harvest and market Rabi crops (wheat, gram, mustard), and also fruits and vegetables.
This is because of non-availability of labour and machinery for harvesting, lack of transport facilities and closure of markets/mandis. They are unable to use cold storages for crops like potato because of closure of cold storages and short supply of ammonia needed for cold storages. It can lead to crops wasting away on the field, local distress sales and lower prices for farmers.
The second problem is for agricultural labour (55% of total agricultural workers). This segment is unable to earn a living because of movement restrictions and lack of adequate income and safety nets. But the problems will not disappear after the lockdown. Immediately upon its lifting, large-scale arrivals are very likely in the markets. This could result in sudden depression of wholesale prices due to excess supply, which could adversely affect farmers.
This period could also witness sudden increase in labour supply due to easing of mobility. This may push down wage rates. But the increase in demand may offset this decrease somewhat. The net effect depends upon the larger of the two effects. This sudden increase in economic activity could result in ignoring much-needed physical and social distancing, particularly at mandis. This may defeat the very purpose of the lockdown. So it is essential to plan a phased lockdown strategy.
Farmers’ incomes in the Rabi season are likely to be much lower owing to likely crop losses and the likely depression of prices due to sudden rush in agricultural markets. Farm labourers are certain to face lower earnings because of movement restrictions and low agricultural activity. These, combined with lowered demand for animal products such as chicken, on account of Covid-19 fears, the incomes of rural population are likely to be hit very hard. Also, a slowdown in the construction sector, which absorbs majority of agricultural labour in lean seasons, will aggravate this crisis.
Urgent policy initiatives are needed. Postponement of procurement to the third week of April and staggering of procurement within states/districts to avoid overcrowding of FCI centres are needed. Farmers may be incentivised to delay bringing produce to the markets. To this end, higher MSP may be provided for delayed sales to FCI. Haryana has made a proposal—farmers would get remuneration of Rs 1,925 per quintal of wheat between April 20 and June 5; Rs 1,975 between May 6 and May 31; and Rs 2,050 in June.
The second measure is to make immediate direct payments to farmers and labourers. The government has announced frontloading of Rs 2,000 under PM-Kisan. This amount may be increased to Rs 6,000. Similarly, a payment of Rs 2,000 may be made immediately to all active MGNREGA job card holders. As per revised MGNREGA wage rate, this payment constitutes wages for only 10 days to job card holders. There are 8.69 crore beneficiaries of PM-Kisan and 7.6 crore active MGNREGA job card holders.
Payments to farmers and farm labourers will entail an expenditure of Rs 67,340 crore, which constitutes 2.1% of estimated sectoral GDP and 0.4% of total GDP. If the payment to farmers is not hiked to Rs 6,000 and only Rs 2,000 is made, then the expenditure will be much lower at Rs 32,580 crore (just 1% of the estimated sectoral GDP and 0.2% of total GDP).
The crisis also provides an opportunity to usher in policy reforms. Moving away from price and input subsidy-based approach to direct income-based approach is the first one. When the policy objective is to ensure minimum income for farmers and rural workers, direct income transfer may be a better policy instrument than indirect instruments such as output price support or input subsidies. A well-functioning eNAM could have helped not only in better price discovery for farmers, but also in maintaining physical distance amongst the actors, which is crucial in the current context.
(The author is Professor, Institute of Economic Growth, University of Delhi. firstname.lastname@example.org)