Farmers are angry for valid reasons, but there are no easy solutions
There are unmistakable signs the protests which started last year against three farm laws enacted last year, are regaining momentum, perhaps in sync with the forthcoming state election cycle, which includes the states of Punjab and Uttar Pradesh.
The heat generated by the protests has also created disquiet within the ranks of the Rashtriya Swayamsevak Sangh (RSS), the ideological parent of the Bharatiya Janata Party (BJP). RSS’s farmers’ wing, the Bharatiya Kisan Sangh (BKS) held protests outside the office of all district collectors on September 8, seeking action on a memorandum it submitted to the Prime Minister on August 11. The BKS statement announcing the protests was unequivocal in recognising agrarian distress. It attributed the disquiet among farmers to the absence of remunerative prices for their produce that took into account the cost of production.
Here are three charts which explain the current distress in agriculture and why there are no easy solutions.
Positive growth might not have helped farm incomes in 2020-21
India’s GDP suffered an unprecedented contraction of 7.3% in 2020-21, largely a result of Covid-19, the 68-day long lockdown, which was imposed on March 25, 2020, and other restrictions on movement and activities that lasted almost the entire year. Among the major sectors of the economy, agriculture was the only one that escaped a contraction, a result of that fact that farm sector activity was not interrupted by the lockdown.
However, there is good reason to believe that farm incomes went down during the lockdown, and perhaps subsequently as well. This is likely to have happened because of a reverse migration of non-farm workers to agriculture. The rise in number of workers is likely to have pulled down the value added or income per worker in agriculture. This was shown in an HT analysis of 2019-20 Periodic Labour Force Survey (PLFS) data published on July 27, 2021.
Relative prices have turned against farmers
Every business related to agriculture, from those providing inputs to others involved in marketing produce have “flourished”, the statement adds, but farmers are becoming “poorer by the day.” This underlines the crisis of worsening terms of trade (ratio of farm and non-farm prices) in agriculture. The ministry of agriculture releases disaggregated terms of trade data for agriculture, but these estimates are not available after 2018-19. Statistics which are available show a worsening of terms of trade between 2016-17 (99.07) and 2018-19 (96.43).
Things are expected to have turned worse on this count, as non-food inflation has surged ahead of food inflation in the recent past. The increase has been particularly steep in prices of key agricultural inputs such as diesel. For inputs such as fertilisers, even though official indices do not show a sharp rise in prices, supply shortages in various parts of the country have resulted in black marketing. That Minimum Support Prices (MSPs) are not remunerative enough this time, has also been flagged by the BKS. “The cost of all the inputs increased many fold but MSP lagged behind”, the BKS statement adds.
MSP, in its present form is not a solution to farmers’ problems
Using C2 cost of cultivation – this includes the imputed rent of owned land and therefore the long-term cost of farming – as a benchmark for MSPs and providing guaranteed MSPs to every farmer are two key demands of the ongoing farmers’ agitation. While the first is a question of increasing the fiscal burden of procurement operations, the latter involves a larger question.
Produce procured through MSPs must also be disposed of eventually. Currently, rice and wheat are the main crops procured at MSP. They are also the main items distributed through the Public Distribution System (PDS). Procured stock, which is not distributed under the PDS is accumulated. India’s food stocks -- 109.4 million tons of rice and wheat in June -- are at an all-time high, way above prescribed buffer norms of 41.1 million tons as on July 1 every year, according to the FCI’s operational and strategic asset requirements. This glut exists despite the PDS offtake being higher than normal at the moment, with the government providing an extra 5 kg of cereals per month to 800 million people under the Pradhan Mantri Garib Kalyan Yojna. This scheme will eventually be withdrawn, adding to the problem of excess stocks. Unless there is a new way to dispose procured food grains, the excess supply and overflowing stocks will continue to persist.
Income support schemes such as PM-KISAN offer very little support
Policies such as MSP based procurement are described as price support measures in agricultural policy discussions. They are not the only game in town as far as agricultural subsidies are concerned. A lot of commentators in India have been arguing that India should shift to what are described as income support measures, which, it is argued will have two advantages. Income support, unlike price support measure is compliant with the rules of the World Trade Organisation (WTO). Also, benefits from MSP procurements are skewed towards larger farmers and that too, in a handful of states. India made a shift towards providing income support to agriculture, when the present government announced the PM-KISAN scheme before the 2019 general elections. The scheme offers ₹6000 per year to every farmer in its current form. While something is better than nothing, the PM-KISAN support is too small to have any significant impact on the well-being of farmers. An HT analysis published on February 6, 2019, found that the PM-KISAN money was just 6% of a small farmer’s annual income. This number is likely to have come down further given the fact that PM-KISAN transfers have not increased. Increasing transfers to a meaningful level will entail a significantly higher fiscal burden.