Take bold decisions like restricting subsidies on food, mgnrega, etc, to less than 25% and increasing investment in the sector to 75%.
Prime Minister Narendra Modi is one of the best orators in Indian politics today. He is not only coherent and inspiring in his speech, but also connects with his audience well. He is ambitious and committed to putting the economy on fast track. He sets high targets and drives the government machinery to achieve that. In the process, he raises aspirations and expectations of people which if not met, run the risk of hurting his own and government’s credibility.
Unrealistic and unfulfilled promises would hurt his political capital, as people would begin to doubt his intent, his understanding of involved challenges, or the capability of his government to deliver. The case in point is his often-repeated ambition of doubling farmers’ real incomes (DFI) by 2022. By all means, we want to see him succeed in his ambition; however, our analysis and professional acumen inform us otherwise. We believe that farmers’ real incomes cannot be doubled even by 2025. The target of achieving it by 2030 emerges more plausible. In saying so, we run the risk of being unpopular but as Gandhiji said, “It’s easy to stand with the crowd. It takes courage to stand alone.” And so, we gather courage to say that the ambition of DFI by 2022 is only a pipe dream and not a serious target. We argue our case below.
PM Modi shared his “dream” of DFI by 2022 for the first time in February 2016. Thereafter, the dream was repeated in the successive Union budget speeches of the finance minister. In April 2016, the Dalwai Committee was formed, that wrote 14 volumes, identifying ways to double farmer’s 2015-16 income-level, in real terms, in seven years. Since there was no updated estimate of actual level of farmers’ incomes in 2015-16, the committee estimated it by applying net state domestic product (NSDP) growth rates on estimated state-wise farmers’ incomes of 2012-13 (from NSSO). The committee found that an average Indian farmer household earned Rs 96,703 in 2015-16 (this was `77,977 in 2012-13-NSSO). Doubling this to `1,93,406 (at 2015-16 prices), by 2022-23, needed real incomes to grow at CAGR of 10.4% at an all India-level, and at differentiated rates at state-level. Graph 1 compares the actually achieved growth rates in farmers’ real incomes (NSSO 2002-03 to 2012-13) with growth rates required (2015-16 to 2022-23) to double farmers’ income.
For states like Bihar, whose real incomes of farmers fell at (-)1% (CAGR) between 2002-03 and 2012-13, to achieve the dream of DFI, they should now have CAGR of 12.3% between 2015-16 and 2022-23! This sounds very unlikely. There are similar unrealistic expectations from other moderate-performing agricultural states like West Bengal, UP and Jharkhand.
As two of the seven years have already passed, and given the performance of agriculture in 2016-17 and 2017-18, the required CAGR in the remaining five years will be much higher than these rates. For example, instead of 10.4%, possibly, national average incomes of farmers should grow at 13% if DFI is to be achieved. To achieve this dream, the committee estimates that about `6.4 lakh crore (in 2011-12 prices) is needed by the country as additional investment and 80% of this must come from the government. It does not, interestingly, mention how the government intends to facilitate this amount.
On February 19-20, 2018, the ministry of agriculture and farmers’ welfare organised a conference on Agriculture2022-Doubling Farmers’ Income. To identify ways and means to DFI by 2022, about 300 stakeholders argued their case. The PM shared his aim to overhaul the sector and achieve DFI through his four-pronged strategy of (1) reducing costs of cultivation—through neem-coating urea and soil health cards; (2) fetching better prices for produce—through new cost plus-pricing MSP formula, reforming agri-markets through e-NAM and upgrading 22,000 village-markets; (3) reducing wastages in value-chain—through proper storage, logistics, food processing, and implementing Operation Greens-TOP (tomatoes, onions and potatoes); and (4) diversifying sources of farmer incomes—through blue, organic, sweet revolution. Overall, there is no dearth of recommendations for the PM, but how many of the recommendations will be accepted and implemented, and by when will they deliver is an open question.
We may differ with PM on number of years needed to fulfil his dream, but we are with him in his drive to DFI. For the journey ahead, we have three suggestions/questions for him. First, can he dump the inherent consumer-bias in country’s marketing and trade policies? Massive and growing food subsidies—marred with high inefficiencies—is an example of the bias. He needs to revisit the archaic ECA, inefficient APMCs, ad-hoc export bans, and ensure a stable policy-environment for domestic agri-trade and exports to flourish. Second, how does he plan to absorb production boom that will result from the implementation of various recommendations? Will the consumption keep pace with the production? Will the solution be in processing, exports, or augmenting demand? Third, can he dump the subsidy model and embrace an investment model? Of total resources (`3.66 lakh crore) going to agriculture and food (see graph 2), can he restrict subsidies on food, MGNREGA, and farm inputs to less than 25% and increase the share of investments in/for agriculture to 75%. Unless the PM makes these bold and rational policy decisions, chances of augmenting farmer incomes are bleak, let alone doubling by 2022-23.