The election results in the three key states—Madhya Pradesh, Rajasthan and Chhattisgarh—are a clear indication that rural distress is one of the main reasons for the defeat of the ruling party
The election results in the three key states—Madhya Pradesh, Rajasthan and Chhattisgarh—are a clear indication that rural distress is one of the main reasons for the defeat of the ruling party. While the government increased the minimum support prices (MSP) for kharif crops sharply in July this year, farmers’ incomes have not seen any rise. Agricultural wage growth has remained depressed despite a normal monsoon due to muted growth in domestic and global food prices.
Mandi prices have been below the MSPs announced in July 2018, growth in exports of agricultural produce dropped and nominal agriculture GVA in July-Sept 2018 quarter grew only at 2.8%, implying a negative deflator due to low farm prices. Retail-based consumer price index was 2.3% in November, the lowest print in past 17 months, led by a sharp fall in food inflation.
In fact, some components in the inflation gauge basket such as pulses, vegetable and sugar are in near double-digit deflation. These three commodities have about 10% weight in the CPI index, and account for a quarter of the CPI food basket. Subdued food inflation is the root case of rural distress and is driven by weakness in global food prices. According to the Food and Agriculture Organisation, global food prices are down 1.9% in 2018 compared with 2017.
The rising rural distress may increase the pressure on the Centre to take populist measures such as nation-wide farm loan waiver. Since 2017, several states have already announced farm loan waivers, which now total Rs 1.2 lakh crore. A farm loan waiver can provide temporary relief but will not solve the livelihood crisis in the hinterland.
A better alternative would be to implement the Shanta Kumar Committee report on restructuring of FCI which suggested direct cash subsidy to farmers to buy agri-inputs like fertiliser. The government should also focus on rural infrastructure which would create employment for low-skilled agricultural labourers and boost non-agricultural rural wages.