Budget 2018: Why Record Harvests, Govt Spending Not Enough For Farmers

Indian farms produced record harvests in 2017, and the government’s agricultural budget rose 111% over four years to 2017-18. Yet, prices crashed, 8,007 farmers committed suicide in 2015, unpaid agricultural loans rose 20% between 2016 and 2017, and 600 million Indians who depend on agriculture are struggling to get by.

This is the situation that faces the Bharatiya Janata Party (BJP) government as it heads into its last full budget before general elections in 2019, at a time when Prime Minister Narendra Modi has promised a doubling of farm incomes by 2022.

The agriculture sector will not just watch how much money is set aside in the 2018-19 budget but also how it is used, as the National Democratic Alliance (NDA) also tries to woo disaffected farmers before upcoming assembly elections in eight states–Karnataka, Madhya Pradesh, Chhattisgarh, Rajasthan and the northeastern states of Meghalaya, Mizoram, Nagaland, and Tripura.

Agriculture is the government’s “top priority”, finance minister Arun Jaitley said on January 15, 2018, admitting that “farmers were not getting the right price for their produce”. That is an acknowledgment that record harvests and government spending are not significantly improving India’s agricultural crisis.

Fewer Indians farm, record harvests, but falling income

India has seen a decline in the proportion of “cultivators”–as the census calls farmers who own or rent land–from 50% in 1951 to 24% in 2011, as IndiaSpend reported on August 8, 2014. Yet, nearly half of India’s population, or about 600 million people, still depend on agriculture.

India harvested a record 276 million tonnes–all-time highs were reported for rice, wheat, pulses, tur (pigeon pea), urad (black gram) and coarse cereals–4.01% higher than the previous record in 2013-14, according to the fourth advance estimates for the rabi (winter) and kharif (monsoon) crops for 2016-17.

Similarly, horticulture output was a record, nearly 300 million tonnes, or 4.8% more than 2015-16, with potatoes–now experiencing a glut, leading to unrest among potato farmers in Uttar Pradesh–recording a 11% increase over the previous year.

Over a decade ending 2014-15, India’s agriculture sector grew at 4% per annum compared to 2.6% per annum the previous decade, according to the 2017 Dalwai Committee report that explored how farm incomes could be doubled, as Prime Minister Modi promised in 2016–and IndiaSpend reported on March 30, 2016, as being unlikely.

An indicator of growing problems in India’s agricultural economy is a drop in the growth of gross value added (GVA)--a measure of income to farmers before their produce is sold--to 2.1% in 2017-18 from 4.9% the previous year, according to the first advance estimates of national income 2017-18.

An indicator of growing problems in India’s agricultural economy is a drop in the growth of gross value added (GVA)--a measure of income to farmers before their produce is sold--to 2.1% in 2017-18 from 4.9% the previous year, according to the first advance estimates of national income 2017-18.

The slowdown could be witnessed in India’s agricultural exports, which dipped to Rs 2.1 lakh crore, after growing more than five times over a decade ending 2014, while agricultural imports grew five times over the decade to 2015-16, Down To Earth reported on January 11, 2018.

An agricultural slowdown has evident political implications: 49% of landowning farmers voted for the BJP in 2014, Mint reported on December 20, 2017. A reminder came in December 2017 from Gujarat, where the BJP won by the narrowest margin in 22 years, winning fewer rural seats (43) than the Congress (62).

Further evidence of farm distress is evident in rising agricultural loan defaults, loan waivers by state governments and farm suicides.

Defaults, distress and suicides

Alongside record foodgrain and horticultural output in 2016-17, many Indian states were swept by farm agitations demanding higher prices for their produce from government and farm-loans waivers.

One example is tur dal. After the monsoon of 2017, imports and a record harvest caused a glut that led to a fall in minimum support price (MSP)–the price at which the government purchases crops from farmers–leading to unrest and stress in rural Karnataka, Maharashtra, Telangana, and Gujarat, IndiaSpend reported on June 8, 2017.

A similar glut in potatoes crashed prices in Uttar Pradesh (UP), prompting farmers to dump  produce on roads statewide, the Hindu reported on January 13, 2018.

Such situations spur agrarian unrest. India witnessed an almost eight-fold increase in agrarian riots between 2014 and 2016, Mint reported on December 20, 2017. In July 2017, five farmers were killed in police firing during a protest seeking farm-loan waivers and higher produce prices, the Hindustan Times reported on July 17, 2017.

As distress grew, so did farmer suicides, which increased 42% in 2015 over the previous year, IndiaSpend reported on January 2, 2017.

Indebtedness was a major reason for farmer suicides.

Nearly four in ten of 8,007 Indian farmers who committed suicide in 2015 were in debt, compared to two in ten in 2014; more rural households went into debt over 11 years; and the average rural household had borrowed Rs 1.03 lakh, according to a January 2018 IndiaSpend analysis of government data.

Nearly 70% of India’s 90 million agricultural households spend more than they earn on average each month, IndiaSpend reported on June 21, 2017.

In 2017, with farmers in eight states demanding loan waivers, India’s potential cumulative loan waiver was Rs 3.1 lakh crore ($49.1 billion), or 2.6% of India’s gross domestic product (GDP) in 2016-17, almost equal to India’s defence budget of Rs 3.6 lakh crore ($53.5 billion) for 2017-18.

The loan write-offs caused non-performing assets (NPA)–or bad debts–related to agriculture to increase three-fold over three years to 2012-13, according to a 2017 report commissioned by the government.

A major reason for persistent farm distress and the debt-and-death cycle is that 52% of India’s farms depend on increasingly erratic monsoon rains.

Despite ‘normal’ monsoon, eight states drought-affected

Although 2017 was classified as a “normal” monsoon, eight states were declared drought-affected, the Economic Times reported on April 6, 2017, revealing the vulnerability of India’s farms to uncertain rainfall in an era of climate change.

Despite spending Rs 3.51 lakh crore–equivalent to the farm-loan waivers demanded in 2017–over 67 years, no more than 48% of nearly 201 million hectares of farmland is irrigated.

The government intended to invest about Rs 50,000 crore over five years to 2019-20 through the Pradhan Mantri Krishi Sinchai Yojana–the Prime Minister’s Irrigation Programme–to reach its target of water for every farm.

But the programme was modified to revive 99 moribund small and medium irrigation projects in 2016-17, Down to Earth reported on January 19, 2018.

As production rises, so will the demand for water for irrigation, estimated to grow from 910 billion cubic meter in 2015 to 1,072 billion cubic meter in 2050. Irrigation requires more water than drinking water, industry and energy needs. Over a decade to 2011, water available per capita fell 15%, IndiaSpend reported on August 2, 2017.

Without a long-term budgetary plan, planning for sustainable groundwater management and what is called “conjunctive use”–using ground and surface water–India will face a water shortage.

As the water crisis grows, programmes like the Pradhan Mantri Fasal Bima Yojana (PMFBY)–Prime Minister’s Crop Insurance Programme–started in 2016 to insure farmers and provide financial support after natural calamities, pest or disease outbreaks, could be redundant.

As excessive extraction of groundwater makes water scarce for agriculture, it may be outside the ambit of schemes like PMFBY to provide farmers insurance against crop failure.

There is a need to ensure that farm production is linked to various markets for farmers to recover full value of the quantity produced. This will incentivise the farmer to adopt improved farm technology and management practices for higher productivity, according to the Dalwai Committee report. This requires better storage and warehousing facilities.

Better storage will reduce foodgrain wastage  

About 60,000 tonnes of foodgrain was wasted between 2011-16 in warehouses run by the state-owned Food Corporation of India (FCI). This means the grain either rots or is eaten by rodents and other animals.

FCI stocks classified as damaged dropped from 18,847 tonnes to 8,776 tonnes over two years to 2016-17, according to this August 8, 2017, government response to the Lok Sabha, the lower house of Parliament. That is still 731 truckloads–using a 12-tonne truck–of wasted foodgrain every year.

India’s cold-storage capacity for fruits and vegetables increased by 8% to 346 lakh metric tonnes over three years to 2017. This should allow farmers to reduce time to market and ensure better quality.

This is the second of an eight-part series of State of the Nation reports ahead of Budget 2018. You can read our report on renewable energy here, on urban development here, on rural jobs here, on healthcare here, on education here, on defence here and on sanitation here.

(Paliath is an analyst with IndiaSpend.)

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