The present agri crisis is a result of our inability to resolve issues relating to agriculture which do surface every time the monsoon fails – where we choose to forget the severity once there is correction in weather conditions. With nearly 60-70 percent of the kharif output being dependent on rainfall, it is not surprising that farmers do face challenges when the monsoon is sub-normal.
The farming issues are manifold and start from the time of sowing to delivery in the market place. These include availability of high quality seeds, inputs such as water and fertilizers, finance at both the pre-harvest and post-harvest levels, logistics in moving the goods and finally marketing where it is sold to the consumer. The fact that agriculture is unorganized means that there are several levels of intermediaries which can stretch to 6-8 depending on the crop and location. Lacunae in all parts of the value chain tend to get exacerbated when income of farmers gets impacted relentlessly. This is well known, but reaches media headlines when there are discussions on loan waivers.
The developments in Maharashtra and Madhya Pradesh highlight these issues. Loan waivers are the latest among farm controversies especially during the UP Elections where it was a major winning point. This was followed in Maharashtra and will keep spreading to other states too. The problem with waivers is two-fold. The first is that if it is not invoked then the entire community suffers which creates social problems including farmer suicides. On the other hand, by writing off loans, one creates a moral hazard where those who service their debt are penalized and have an incentive not to repay loans in future.
Banks have always been against such schemes for this reason as the probability of non performing assets (NPAs) increases as farmers choose to default on payments. Presently, with high level of NPAs, banks are not in a position to forgive such loans but the question raised is if corporate loans can be adjusted, why not farm loans, where the reasons are more compelling. The route hence has to be through the government where such provisions have to be made in the budget. This becomes a conundrum for the states as agriculture is a state subject and the centre is unlikely to finance this cost from the Union Budget. States have a problem on hand because of the Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) rules which restrict the level of fiscal deficit or borrowing which can be undertaken. The ratio is fixed at 3 percent of Gross State Domestic Product (GSDP) and hence if states are operating at close to this number it will not be able to extend this benefit. It is this puzzle which explains part of the controversy which has erupted in Maharashtra where farmers are demanding such waivers.
The other issue which is again very pertinent relates to income of farmers. It has been observed that farm prices tend to be volatile where they rise and fall depending on the supplies. While higher prices are helpful when prices crash, it leads to distress as income falls. This is one reason why often farmers abandon their stocks on the roads as the cost of transportation exceeds the final realization (witnessed in onions and tomatoes in the past). The demand here is to have higher minimum support prices (MSPs). The government does announce MSPs for all crops (but excludes horticulture/spice) before the sowing season (both kharif and rabi).
The interesting part is that while the MSP is announced for all crops, procurement is restricted mainly to rice and wheat which has a back-to-back relation with the public distribution system (PDS). For the other crops, the MSP remains a number which does not lead to any procurement for two reasons. The first is that the market price tends to be higher and hence farmers may not wish to sell at this price. The second is that the government does not have the ability or machinery to do so. But the MSP becomes more of a signaling mechanism for the market which adjusts prices to such changes though not in a commensurate manner.
The solution here is two-fold. One, the state can provide a bonus above the MSP for specific crops depending on the demand-supply conditions. Second, the state can get into procurement of these products and use them as a buffer to counter the shortages which tend to be cyclical.
The other segments of the value chain: Seeds, inputs, logistics also have to be addressed at the state-level. There is a pressing need to improve the condition of farmers under these conditions. Productivity has to be enhanced through supply of better inputs as this is the only way out to ensure that there is a system in place in case monsoons are not favourable. There are some signs of farmers moving away from agriculture and migrating to the urban and semi-urban areas in search of better terms of livelihood. The second generation is diminishing in size and given that agricultural output has to keep pace with population growth, the reliance on imports could increase over time if this continues – which will be destabilizing. Therefore, a solution has to be found soon which is permanent in nature.
The present situation does call for remedial measures by state governments as it is important not to engender a contagion which can spread to other states too. Also, given that this is the sowing season, such issues should not be allowed to come in the way of the plans of the farmers as any change in stance can impact farm prospects this year, which is something everyone is banking on given that the monsoon is expected to be normal again.
It is unfortunate that farmers have to voice their grievance with violence but is understandable as they have not been addressed appropriately so far. It is now clear that both over-supply and low production are both sides of the same coin which reflect the suffering of farmers. The issues are pertinent and the solutions exist in the book. We only have to take out the pages and follow what is written.
Published Date: Jun 08, 2017 14:19 PM | Updated Date: Jun 08, 2017 15:03 PM