Tuesday, April 7, 2015

Agriculture in crisis

The Narendra Modi government is pushing ahead with policies that disadvantage farmers at a time when Indian agriculture is already in deep crisis.


ONCE AGAIN, the spectre of agrarian distress, which is unfortunately never far from the surface in much of India, is rearing its ugly head. Across the country, farmers, especially small cultivators, are facing severe problems with already dire outcomes. There has been a spike in farmers’ suicides in several States. Among several other signs of acute hardship are reports that once again more people are migrating from the countryside in search of work to cope with collapsing livelihoods at home. This is occurring even in places where such outcomes have not been so common in the past few years and at a time of the year (just before the rabi harvest) when they are less expected.
In Maharashtra, it is estimated that there has been a 40 per cent increase in farmers’ suicides in the past seven months compared with the corresponding previous seven-month period. In West Bengal, the State government appears to be in denial mode even though the number of farmers who have committed suicide this year in Bardhaman district alone is 106. Reports from Rajasthan, Punjab and elsewhere also point to more suicides by those from the farming community.

Of course, it is shocking that it takes something as drastic and final as a suicide to generate public acknowledgement of severe economic distress. It is even more shocking that the tendency among officialdom is to downplay the increase by changing the classification of some of these deaths into suicides by “non-farmers” (if they do not have land titles, for instance, or are women) or attributing them to “personal reasons” rather than severe economic adversity. Indeed, the Central government recently told the Supreme Court that the number of farmers who committed suicide had decreased since 2009 and that factors other than agrarian and financial distress also led the farmers to take their own lives. Such arguments suggest a cynically callous attitude to farmers and their families, and they are also an attempt to deny the basic problems that farmers face and the extreme difficulties of their situation whether or not they take the drastic step of killing themselves. Agriculturalists in different parts of India are feeling the pressure for different specific reasons. In much of northern and western India, unseasonal rain and hailstorms have battered standing crops of pulses and vegetables, and lower harvests are the primary source of concern here. It is estimated that nearly one-third of the acreage under the rabicrop has been affected. In West Bengal, potato farmers are struggling because of too much output; post-harvest potato prices have collapsed and the appalling but continued lack of adequate storage facilities means that farmers are forced to simply let their crops go to waste. In Maharashtra, farmers face a double whammy: cotton and sugar prices are down even as bad weather has meant lower output. In southern India, agriculturalists are suffering the impact of the global decline in prices of cash crops, accentuated by the adverse effects of the various trade agreements signed by the Central government.
Yet, despite the variations, there are some underlying similarities. In all parts of rural India, farmers are facing what has been called a “scissors crisis”, which is driven by the rising cost of inputs without a commensurate increase in output price. This puts them on an uncertain trajectory where their reliance on (typically very expensive) debt to finance their operations tends to grow over time and any unexpected movement can have extreme consequences. An adverse weather change, for example, can lead to a drastic decline in economic capacities such as the ability to recoup input costs, leave alone the ability to repay loans. So, the greater underlying fragility of the process of cultivation makes farmers even more vulnerable to what may not otherwise be such a major change in the weather pattern. The inadequacy of institutional mechanisms to deal with the risks associated with farming (such as crop insurance and functioning price stabilisation schemes) means that cultivators are forced to deal with these almost entirely on their own.

The rising cost of inputs reflects more than just input price changes, and indeed, the price of one of the most important elements of cost of cultivation, that of fuel, has actually been low or stable in the recent past because of low world oil prices (even though these price declines have not been transmitted fully to Indian consumers). Instead, rising input costs are part of a process of the declining technological viability of cultivation. Soil quality has worsened because of excessive use of chemicals over long periods as well as erosion and waterlogging in some areas. Irrigation is both scarce and ever more expensive as declining water tables make the use of groundwater the privilege of those who are rich enough to keep digging deeper and deeper to extract it. The emergence of new pests resistant to chemical pesticides and the uneven performance of genetically modified seeds that are supposed to reduce reliance on chemicals have complicated the possibilities of pest control and thereby affected crops. And so on.
Inadequate institutional credit

Meanwhile, the difficulties farmers face in accessing credit at reasonable rates to finance agricultural production have become more intense in the recent past. Institutional credit to agriculture did increase under the United Progressive Alliance (UPA) government even though the increase was not as much as expected or as would be necessary, and small cultivators still found it difficult, if not impossible, to get loans. Recently, things got worse in this regard, despite all the grand talk of financial inclusion under the Jan Dhan scheme, as small farmers have once again been forced to take recourse to local moneylenders and input dealers who charge exorbitant interest. The rigidity of the institutional loan structure, as also the public humiliation of defaulters by many commercial and cooperative banks, makes it difficult to deal with even for farmers who can access such loans.

Meanwhile, the crisis in agriculture has been sharpened by the lack of productive non-agricultural activities, including livestock rearing and off-farm employment. The inadequate generation of properly remunerative employment in the economy, which has been a shameful feature of the recent growth process, has meant that farmers do not have the real choice of engaging in other work even as cultivation becomes less profitable. This has added to the insecurity created by the threat of involuntary displacement because of the requirements of so-called “development”, and at least partly explains the animosity among farmers to the Narendra Modi government’s Land Acquisition Bill.

‘Shining India’ syndrome

All in all, suddenly the current conditions in rural areas are harking back to the conditions that prevailed in the early 2000s, and especially in 2004, when the devastation of agriculture and rural livelihoods proved both economically painful and politically disastrous for the then-ruling National Democratic Alliance (NDA) government. The similarities are both remarkable and perplexing: the NDA government then chose to believe in its own propaganda of “India Shining” and was punished in the elections for what seemed to be an almost insulting denial of reality. Today, as farmers reel under a combination of naturally caused problems and policy-driven adversities, the Narendra Modi government is apparently planning a major publicity campaign to persuade the people that the promised “achhe din” have already arrived for all Indians, including farmers! During that period of what can only be considered extremely depressed conditions in the rural economy, there was a growing recognition that this reflected not only structural conditions but also, and especially, the collapse of public institutions that affect farmers and farming.

UPA policy measures
The Congress-led UPA government promised to revive agriculture, and several commissions, including the National Commission on Farmers, provided detailed suggestions on how this could be done. It was evident that to put agriculture on a more viable and sustainable footing, some policy measures were urgently required in several interlinked areas. These included the correction of spatial inequities in access to irrigation and working towards sustainable water management; bringing all cultivators, including tenant farmers, into the ambit of institutional credit; shifting policies to focus on dryland farming through technology, extension, price and other incentives; encouraging cheaper and more sustainable input use, with greater public provision and regulation of private input supply and strong research and extension support; protecting farmers from high volatility in output prices; and placing emphasis on rural economic diversification to more value-added activities and non-agricultural activities.

Of course, not all of these were even sought to be implemented, and the same analysis of what needs to be done could be just as relevant today. But the UPA government was elected on promises of reversing the material decline in the countryside, and in its first five-year tenure it did undertake a number of measures that were designed to improve things at least partially. As it happens, most of the years of the UPA government turned out to be “achhe” for farmers or, in any case, certainly better than the ravages of the early 2000s. Credit to agriculture increased manifold; public investment directed to the rural areas also increased; agricultural research and extension services (critical to ensure farmers’ access to current and relevant knowledge for production) were given significant boosts through more public spending and reorganisation; and, most of all, the rural employment guarantee Act (MGNREGA) provided the rural poor a secure base of income that helped to revive the rural economy through enhanced demand and entailed some activities that could improve agricultural supply through the public works that were put in place. At the same time, movements in world trade prices were also beneficial to farmers, and so terms of trade shifts also assisted the relative improvement in farm incomes.
As Chart 1 shows, these measures did bear fruit by the end of the decade, with significant increases in the volume of production of both foodgrains and non-food crops. The value-added in agriculture also improved substantially, especially between 2009-10 and 2011-12, driven by both higher output and favourable relative price changes. In consequence, investment in agriculture also increased, both in real terms and as a share of agricultural income. But thereafter there was already some indication of a tapering off of both production and value-added in agriculture.
Chart 2 shows how capital formation in agriculture increased substantially under the UPA-1 regime and in the early years of UPA-2, driven in the later part of the decade by private investment that responded to higher crop prices and more opportunities for crop diversification as well as improved extension services. But Chart 2 also shows how the most recent period has witnessed a sharp fall in capital investment in agriculture, according to the New Series of National Accounts Statistics that has just been released. The decline was especially sharp in the last two years of the UPA government. So, in a sense, the rot, in terms of deceleration of agricultural performance, had set in by then. Indeed, for many small and marginal farmers, especially in dryland areas, even the “good years” of supposed agricultural boom did not really translate into better material conditions.

It was this gap that Modi, as the prime ministerial candidate of the NDA, exploited during the course of the 2014 general election. In his campaign speeches, he promised to ensure that farmers would get a 50 per cent return on their input costs; that agricultural prices would be stabilised and kept on a higher trajectory for cultivators even as urban consumers would pay lower prices because of improved distribution; that rural people would be able to access affordable and good quality health services; and many other things besides. After having their hopes raised sky-high by such promises, it is not surprising that farmers feel betrayed by this government. Even the Land Bill, unpopular as it is, is only one of many grievances that cultivators now nurse against official policies because of many acts of commission and omission that have led to dramatically deteriorating conditions of cultivation.
In the first year of the Modi government, the Central Statistics Office’s (CSO) advance estimates of national income suggest that growth of value-added in agriculture will be only 1 per cent compared with 3.7 per cent in the previous year. But even this may well be an overestimate given the damage to the rabi crop because of freak weather conditions. Instead of higher crop prices, farmers had to face declining global trade prices of most cash crops and a near-stagnant minimum support price (MSP) for important foodgrains and sugarcane. In addition, the Central government has now declared that it will procure crops only from farmers in deficit States, a peculiar strategy that will defeat the original purpose of moving grains from surplus to deficit areas and will expose farmers in all other places to the vagaries of market price fluctuations and declines. It has told State governments that wish to top up the MSP on offer to their own farmers that they will then have to foot the entire bill for such purchase rather than only the difference between their own price and the Centre’s price.
With falling oil prices, domestic oil and diesel prices should have come down sharply, thus benefiting farmers, but this has barely occurred because the benefits were mostly garnered by the government instead, which took advantage of the global price fall to raise its own excise duties and sales taxes. Fertilizer subsidies are planned to be cut, and the policy-created imbalance between use of nitrogenous and phosphatic fertilizers will worsen, with associated terrible effects on future soil quality and yield.

To add injury to all this insult, the past year has experienced sweeping cuts in some essential items of Central government expenditure that impact farmers directly. Public spending on agricultural development and on research and extension has already fallen in real terms and is set to decline even further in the coming year. The money for irrigation has been cut. Central government spending on health and other services which would reduce the financial burden on farmers is also being cut severely. The employment guarantee scheme has been squeezed so much that it is no longer any kind of guarantee at all, and the programme will struggle simply to survive. Those who feel that this will not affect farmers because they employ workers rather than the other way around miss the point that around 40 per cent of cultivators joined the programme as wage labour to supplement their meagre and uncertain farm incomes. So, reducing or killing this programme will also affect them very badly, and that too at a time when other sources of rural income are drying up. This is the context in which the unseasonal rain and other weather changes have had such a devastating impact on so many farmers. Even in this punishing context, government responses have been at best tardy and at worst downright offensive. The Central government is effectively treating this as the responsibility of State governments, passing the buck on this critical area of public intervention to States that are already hugely financially stretched because of the reduction of so much other Central social spending.

It is hard to understand why the Modi government is persisting with such blatantly anti-farmer policies. It is even harder to understand how it can presume that periodic radio broadcasts by the Prime Minister and optimistic media blitzes can somehow change public and farmer perceptions when the experienced reality is so very different from both the promises and the claims made by this government.
(Courtesy: FRONTLINE, April 17, 2015)

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