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Farm crisis: A good monsoon, bountiful harvest may still leave a long debt trail

Distress will continue to haunt the countryside if this year’s season of plenty due to good rains adversely impacts price realisations like last year

opinion Updated: Jul 02, 2017 07:03 IST
N Chandra Mohan
N Chandra Mohan
South-west Monsoon,NDA,BJP
Around 60% of the net cultivated area in India of 142 million hectares is rain-dependent. Of all the regions, the bulk of peninsular India depends heavily on the south-west monsoon(AP)

With the likelihood of a normal south-west monsoon, higher grain production during the kharif or summer season is in prospect. Normal rainfall will ensure that the overall sown area for foodgrain, pulses, soyabean, sugarcane and other summer crops will be similar if not higher than last year. The big question, however, is whether another bumper kharif crop season due to good rainfall benefits the farming community at large? If so, this will perhaps be the best news for the BJP-led NDA government that is confronted with the challenge of dealing with an agrarian crisis.

On the face of it, higher grain production during the kharif season boosts farmer incomes. Higher income, in turn, stimulates demand for FMCGs, tractors etc and raise overall industrial and GDP growth with a lag of a year. Good rains will, therefore, reinforce the current robust growth momentum of the economy.

But higher crop production need not be associated with rural prosperity. Last year, a bumper crop production went along with an across-the-board crash in foodgrain, fruit and vegetable prices – a deflationary process that devastated farmer livelihoods.

Unfortunately, farm prices remain lower this year as well. This has a crucial influence on the sort of crops farmers will sow in the current kharif season. Amid strong signs of food deflation, indications are that they are expanding acreage under non-food crops like cotton and sugarcane and devoting less for pulses, jute and mesta. Sugarcane responds to higher state advised prices announced by governments. Sowing and transplanting of paddy is only marginally up according to the ministry of agriculture. A better picture will emerge when sowing operations step up in July.

Why are farm prices depressed? Economists typically argue that falling food prices reflect demand-supply mismatches. When farmers reap record harvests, prices are bound to collapse with excess production. The opposite holds if there are severe shortages and prices spiral upwards. But the State heavily intervenes in Indian agriculture by providing minimum support prices for wheat, rice and several other major crops. However, in recent years, these MSPs have failed to keep pace with rising input costs of crop cultivation – making farming an increasingly unviable proposition.

However, the proximate cause for the 2016-17 price crash was demonetisation. Agriculture was adversely impacted when the cash economy dried up. Then and now, cash is needed for seeds and fertilisers, the latter which will be much costlier after the GST kicks in from July 1. With many small and marginal farmers not having access to institutional sources of finance, they have no option but to borrow from usurious money lenders. Thus while overall sowing during the kharif season goes up, there will be a long debt trail to it.

To be sure, the government has sought to address farmer grievances through higher MSPs for 15 crops, but many of these crops are currently selling below the MSP. Many state governments are responding by announcing loan waivers which they cannot afford. Loan waivers do not address the crisis of farming. They benefit only the large farmers and not small and marginal cultivators. Distress will continue to haunt the countryside if this year’s season of plenty due to good rains adversely impacts price realisations like last year. Whether the cash economy is indeed back to normal is also a big imponderable that has a bearing on the fortunes of kharif 2017.

N Chandra Mohan is an economics and business commentator based in New Delhi

The views expressed are personal

First Published: Jun 28, 2017 17:33 IST