Agrarian crisis: Bias against agriculture needs to go for revival; higher investment, change in attitude towards sector a must

The first reaction of the Bharatiya Janata Party-led Central government after the party's debacle in the Hindi heartland states of Madhya Pradesh, Chhattisgarh and Rajasthan seems to be to waive farm loans, which is a telling comment on the state of the agrarian distress in India and the need to pay immediate attention to the crisis. This was expected, too, since 90 percent of the rural constituencies in Madhya Pradesh and Chhattisgarh and 70 percent in Rajasthan are agricultural, where the ruling party suffered a huge setback. Repeated farmers' protest marches may have evoked little response, but an electoral debacle will not be, particularly when the 2019 general elections are looming large.

But farm loan waiver is, at best, an emergency relief that will do little to address the distress in the agricultural economy. What is needed is revived interest and investment in this most crucial sector of India's economy, which provides employment to nearly 50 percent of the total work force and supports more than two-third of the country's population. Official data shows that public investment in agriculture has remained between 0.3 and 0.4 percent of the GDP (based on 2011-12 series at market price) between 2011-12 and 2016-17, which is grossly disproportionate to its significance in the economy. The total investment, both public and private, has also been declining steadily — from 3.1 percent of the GDP in 2011-12 to 2.2 percent in 2016-17. This trend needs to be reversed, but for that to happen, the general sentiment and economic discourse surrounding investment in agriculture first needs to change.

What it means is that referring to investment and relief to the farm sector as "subsidy" — something that is a burden on the economic and hence should be eliminated or reduced — should change and be replaced with something more positive like "fiscal stimulus", which was what the fiscal support to the industry was described as during the post-2008 economic crisis.

 Agrarian crisis: Bias against agriculture needs to go for revival; higher investment, change in attitude towards sector a must

Representational image. PTI

That there is a clear bias against agriculture is also reflected in the way policymakers and economists refer to loans being written off for farmers and industrialists. When it comes to farmers, writing off loans is called a "waiver" — giving up something at the cost of economic prudence and health. However, far larger loans to industries that are often written off are referred to as banks' non-performing assets (NPAs).

Now, NPAs are commonly understood as "bad loans" for the banks or financial system as a whole, and hence lenders were remonetised recently to restore their health and enable them to loan out more to boost economic growth. In such a framing, the defaulting industries disappear from public mind and are replaced with that of tottering NPA-riddled banks that need to be rescued as soon as possible.

Here, it is pertinent to provide a comparative picture of bad loans to farmers and industries to establish how such discrimination actually harms the economy. The latest data from the Reserve Bank of India (RBI) shows that bad loans to the agriculture sector is minuscule in comparison to industry-related NPAs, and that waiving farm loans is not as harmful to the economy as it is made out to be. In fact, it is the NPAs of industries that should alarm policymakers and economists.

According to the RBI's 2017 report titled 'Operations and Performance of Commercial Banks', the agriculture sector's share in the total NPAs of banks was just 8.3 percent (or Rs 60,200 crore) at the end of March 2017, while that of the non-priority sector (industry and infrastructure) was a whopping 76.7 percent (or Rs 5,58,500 crore). The situation was not much different the previous year, as well, at the end of March 2016 — agriculture's share was stood at a measly 8.6 percent (or Rs 48,800 crore), while that of the non-priority sector was 75.2 percent (or Rs 4,25,700 crore).

Once this bias against agriculture, the negative references in economic jargon, is done away with, the rest will be easier to deal with because then farmers will not be seen as a burden on the economy but as a major driver of growth.

A good example of this change in attitude is Telangana's "Rythu Bandhu", or farmers' investment support, scheme, under which farmers are given Rs 4,000 per acre per crop, or Rs 8,000 in a year for two crops. With the Telangana Rashtra Samithi (TRS) re-elected, this will be raised to Rs 5,000 per crop, or Rs 10,000 per year. The TRS registered a spectacular win in this round of Assembly elections, increasing its seat share from 63 in 2014 to 88, and a part of this credit is attributed to this Rythu Bandhu scheme, which is a stark contrast to farmers' anger against the BJP in the three Hindi heartland states it lost.

The impact of the Rythu Bandhu scheme may not have been assessed yet as it was launched in the 2018-19 Kharif season with a budget outlay of Rs 12,000 crore, which was about 7 percent of state's budget. But its huge popularity attracted unusual attention for obvious reasons.

Eminent agriculture expert Ashok Gulati, who is not exactly a champion of subsidy to the agriculture sector, is effusive in his praise of the scheme. In his latest article in The Indian Express, he advocates for this scheme to be adopted in the rest of the country. "In a nutshell, politicians need to move from price-support policies and loan waivers to income/investment support on a per acre basis," he writes.

It is well known that the high growth trajectory of China and most Asian economies was actually propelled by agriculture, unlike in India. A 2013 study by the Asian Development Bank titled 'Agriculture and Structural Transformation in Developing Asia: Review and Outlook', clearly brings this difference out.

"The most successful Asian economies have pursued an agricultural development-led industrialisation pathway... The newly industrialised economies in East Asia (Japan, the Republic of Korea, and Taipei, China) followed an agriculture development-led industrialisation pathway. The fast-growing transition economies (the People's Republic of China and Vietnam) seem to be traversing a similar one. Agricultural growth has also been a prominent feature in the rest of developing Asia, particularly in Indonesia, Malaysia and Thailand. However, growth in agriculture has lagged in Bangladesh, India, Pakistan, and the Philippines; in these countries, the period of rapid sustainable growth came late or has yet to materialise," the report says.

More attention to agriculture by way of higher investment and positive attitudinal changes, therefore, may actually bring about better economic dividends and put India into a higher development trajectory like other Asian nations. The sooner this is realised, the better it would be to revitalise agriculture and rural economy.

Updated Date: Dec 13, 2018 18:33:25 IST