Doubling farmer’s income: Ease doing of agri-business

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Updated: Feb 15, 2020 1:42 PM

To achieve this by FY23, incomes must grow at a CAGR of 23-24% over the next three years, a feat unprecedented at the national level.

agriculture, agriculture sectorThe time is opportune for GoI to use its proposed Ease Of Doing Agri-Business Index (EoDABI).

The past few successive Union budgets have referred to PM Modi’s dream of doubling farmer incomes (DFI) as the principle guiding the government’s agricultural policies. It is both encouraging and heartening to know that this government is still steadfast on the dream, and is finding ways to achieve it. We take stock of the situation.

The PM first announced the goal of DFI at a farmer’s rally in Bareilly, Uttar Pradesh in February 2016. He shared that he wanted to achieve this goal by FY23. The year was chosen as it marks the 75th year of India’s independence, and this would be an ideal gift for the farming community on the occasion. Between FY16 and FY23, the PM had seven years to achieve this dream.

Two points are noteworthy in this regard: (i) DFI is promised to be in real terms, i.e., after adjusting for inflation, real farmer incomes are geared to double; and (ii) this is targeted only at landowners or cultivators, and not agricultural labourers (who do not own land, but operate on land owned by others for wages paid in cash or kind). As per Census 2011, India’s agricultural workforce was about 263 million, of which 144 million (55%) are agricultural labourers, and only 119 million are cultivators.

Interestingly, when the DFI dream was announced, the country did not have an estimate of the level of farmer incomes. So, the PM set up an expert committee to evaluate the actual and target level of farmers’ incomes, and identify ways to achieving the latter. The Committee, under the chairmanship of Dr Ashok Dalwai, submitted its final report in September 2018. It estimated farmers’ average monthly income in FY16 to be Rs 8,059. Upon doubling, this income should ideally rise to Rs 16,117. To achieve this goal in seven years, the committee estimated that farmer incomes would need to grow at an average annual real growth rate of 10.4%.

About the same time, in August 2018, the results of NABARD’s All India Rural Financial Inclusion Survey (NAFIS) for FY17 were released, which presented another estimate of farmers’ incomes. As per this survey, in FY16, the average Indian farmer earned about Rs 8,931. Notwithstanding the two estimates, the growth rate required for DFI was still pegged at CAGR 10.4%, with variations between states and union territories.
Historically, at an all-India level, the growth rate of farmers’ incomes has closely followed that of the country’s agricultural and allied sector’s (GVA A&A). Using the latter as a proxy for farmer income growth, we see that since FY16, GVA A&A grew at an average rate of about 4% (see graphic).

If the required growth rate to realise the goal of DFI is an average 10.4% each year, the actual performance, so far, has fallen short of target by a significant margin.

If the government still wishes to achieve the target of DFI, farmer incomes in the remaining three years (FY21, FY22, and FY23) have to grow at a CAGR of 18-19%, depending on the final estimate of GVA A&A growth rate for FY20. Considering an inflation rate of about 5%, the required growth rate in nominal terms, will be 23-24%! This type of agri-growth rate has never been achieved historically at an all-India level, at least in the recent past. However, states like Gujarat, Madya Pradesh, Chhattisgarh, and Rajasthan, among others, have delivered such growth in select years recently.

 

Such double-digit growth is unlikely to come from the agriculture sector alone, and unless the government focuses on allied sectors and non-farm sectors, the dream of DFI will not be realised. The government seems to recognise this fact, too (bit.ly/2OTQ5wf).

Therefore, simultaneous focus on all sources of farm incomes is needed. As per NAFIS, there are four sources of farmer incomes: In FY16, about 50% of farmers’ incomes came from “wages and salaries”, 35% from crop cultivation, 8% from livestock activities, and 7% from non-farm activities. Within the wages and salaries’ component, wages alone comprise about 34% of farmers’ incomes. These come largely from working under schemes like MGNREGA, and by working on others’ farms. By reducing budgetary allocation to MGNREGA (from about Rs 71,000 cr as per FY20 RE to `61,500 cr in FY21), the government may have capped farmers’ incomes from this source. Rural wages in the agricultural sector, too, have been low, and falling in recent years (see graphic).

This puts the burden of doubling farmers’ incomes on the other three sources. With the overall economic slowdown, income sources from non-farm activities—already a small component of farmer incomes—is not very likely to be effective in this regard. The government must, hence, focus on crop cultivation and livestock activities, including fisheries, poultry, cattle, and beekeeping, among others, if DFI is to be achieved.

The Dalwai committee’s reports give an exhaustive list of what needs to be done, so one can avoid reiteration. What I do wish to highlight is a learning drawn from the recently released Samrudhi—Odisha’s Agricultural Policy 2020.

Between FY03 and FY16, Odisha farmers’ incomes grew fastest in the country. The 2020 policy builds on that momentum, and advocates progressive reforms undertaken simultaneously in all aspects of agriculture and allied activities. This, I believe, may be replicated nationally. The need is for states to reform systematically and sequentially.

 

The time is opportune for GoI to use its proposed Ease Of Doing Agri-Business Index (EoDABI). As agriculture is a state subject, a mechanism can be implemented that ranks states on an index that tracks their performance on a required set of reforms, with allocation of additional funds as reward to best performers, to nudge states to reform and help GoI chase the DFI dream on mission-mode. The EoDABI was proposed in 2019 by the agriculture ministry at the Centre. It aims to track states’ performance on six parameters: (i) agri-marketing reforms; (ii) reforms for reducing costs of inputs; (iii) governance and land reforms; (iv) risk mitigation activities; (v) increasing production and productivity; and (vi) investments in/for agriculture.

It is beneficial for the entire country that PM Modi realises his dream, and we only wish him best.

The writer is Senior Consultant, ICRIER. Views are personal

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