Farmers' march in New Delhi: Agricultural policies are not working on ground; existing mechanisms need reform

The agrarian crisis did not happen overnight. The problem started after 1991-92 — until then, both farm and non-farm sectors grew at the same level.

Prasanna Mohanty November 28, 2018 16:50:53 IST
Farmers' march in New Delhi: Agricultural policies are not working on ground; existing mechanisms need reform

Editor's note: This article is the second of a two-part series analysing the agrarian crisis in India, in light of the various marches and protests undertaken by farmers in recent months to highlight their problems.

The agrarian crisis did not happen overnight. As a Niti Aayog report shows, the problem started after 1991-92 — until then, both farm and non-farm sectors grew at the same level. After 1991-92, the non-farm sectors took off to a higher growth trajectory (following economic liberalisation) to more than 8 percent while the farm sector remained stuck, with the long-term growth trend of a mere 2.8 percent.

Liberalisation opened up agriculture trade but did little else. Broadly speaking, three key policy challenges were identified for this: a sharp decline in output growth, steady decline in public sector investment in agriculture and a need to improve competitiveness in the agro-food chain by enhancing efficiency in production, marketing and agro-processing.

The decline in investment is arguably the most critical part. Starting with the National Agriculture Policy of 2000, several policy measures have been taken to improve investment, particularly encourage private investment, but the decline continues. The Agriculture Statistics of 2017 shows that while public investment has remained more or less static between 2011-12 and 2016-17 – 0.3 to 0.4 percent of GDP (based on 2011-12 series, at market price) – private investment has progressively gone down from 2.7 to 1.8 percent, dragging the overall investment from 3.1 percent of GDP in 2011-12 to 2.2 percent in 2016-17.

One of the policy measures adopted to overcome this has been to improve credit supply to agriculture. The Economic Survey of 2014-15 showed that agriculture credit increased substantially since the turn of the century – annual growth rate going up from 8 percent in 1981-91 to 17.8 percent in 2001-2011 – but it also pointed out that “there has been a sharp increase in the share of large-sized loans...which warrants scrutiny”.

Farmers march in New Delhi Agricultural policies are not working on ground existing mechanisms need reform

Representational image. Reuters

Study of the RBI data by R Ramakumar of TISS showed that the share of direct agriculture loans of less than Rs 2 lakh (in the total amount disbursed) progressively went down from 86.2 percent in 1990 to 44.3 percent in 2010. At the end of March 2017 (up to which data is available), the RBI data shows that this has gone further down to 40.28 percent – meaning that a larger share of credit continues to go to rich farmers and agri-businesses, rather than small and marginal farmers – which is the policy objective of liberalising credit disbursement norms.

While we are on loans to farmers, here is some food for thought. Every time farmers’ loans are waived, bankers and economists go ballistic. No less than RBI governor Urjit Patel reacted sharply to it by saying (in April 2017) that farm loan waivers “undermine an honest credit culture”, “increasing cost of borrowing for others” and “eventually affect national balance sheet”. In sharp contrast, no one of any significance has ever uttered such harsh words when corporate loans are written off as NPAs – which is routine and much higher in magnitude and thus pose a far greater risk to the economy and credit culture, by Patel’s own logic. Here is how.

According to the RBI’s 2017 report Operations and Performance of Commercial Banks, agriculture’s share in the total bank NPAs stood at a mere 8.3 percent (or Rs 60,200 crore) while that of the non-priority sector (industry and infrastructure) was a whopping 76.7 percent (Rs 5,58,500 crore) at the end of March 2017. At the end of March 2016, the situation was similar – agriculture’s share of NPAs was a mere 8.6 percent (Rs 48,800 crore) against that of the non-priority sector’s 75.2 percent (Rs 4,25,700 crore). So, which loan waiver should raise the eyebrows of policy makers, economists and bankers – farm or non-farm?

Another key policy thrust in agriculture has been to provide crop insurance to protect farmers from natural calamities – another major cause of farm distress. The Centre for Science and Environment assessed the flagship Pradhan Mantri Fasal Bima Yojana (PMFBY) and found several flaws – sum insured is substantially lower than the scale of finance (cost of cultivation plus some profit) reducing farmers’ claims; inadequate and delayed claim payment; delayed payment of premium by states; negligible coverage of sharecroppers and tenants etc.

There is yet another issue. In the last two years, 2016-17 and 2017-18, the difference between the premiums received and the compensations paid by the insurance companies amounts to Rs 16,000 crore – according to the Union agriculture ministry data accessed through an RTI. Farmers pay only 1.5 to 5 percent of the premium while the rest is shared equally by the Centre and states. The question is: Should this money not be put to better use by investing in agriculture instead of handing over to the insurance companies (all of which are now private) as profit?

Raising farmers’ income is yet another policy debacle. On multiple occasions, the Niti Aayog has said the avowed policy of the government to double it by 2022 is not possible and that the real income of farmers has been declining between 2011-12 and 2015-16. Doubling the income would require output growth to be accelerated by 33 percent and a higher price realisation – the Niti Aayog said in its policy paper of 2017.

The rise in minimum support price (MSP) as a direct method of higher price realisation has not kept pace with the rise in input costs for years and hence, the demand to implement the Swaminathan Commission formula continues. Moreover, in absence of commensurate public procurement, market prices remain below MSP, both post-kharif and post-rabi harvests, making a mockery of higher MSP. A recent report (there are, in fact, many such reports throughout this year) shows that the prices of cereal, paddy, oilseed and cotton crashed in more than 1,700 markets in October. This also demonstrates that the market reforms have failed to bring better price realisation to farmers.

On the other hand, input costs have been going up. Except for urea, which is under government control, the prices of other fertilisers, seeds, herbicides, pesticides and diesel routinely go up and the government can do nothing about it, having de-controlled these items as a part of the liberalisation process. How does one increase farmers’ income if neither input costs nor output prices can be managed by the government or market?

This leaves another critical issue: land. The overwhelming presence of small and marginal landholdings and landless (92.82 percent as per the last NSSO data) – which are on a nosedive – are not only bad for productivity but also bad for institutional credit, insurance and other government support. To overcome this, the Niti Aayog has come out with a ‘model agricultural land leasing law’ for the states to follow (T Haque committee report).

Implementing this model law would need the states (land is a state subject) to amend their land laws, particularly those relating to tenancy rights. So far, this is a non-starter and the future does not seem particularly bright since hardly any farmer with surplus land is expected to risk giving land on long-term lease (which is essential to make an investment on land for better productivity). Who will guarantee that the tenancy rights will not be restored in the long term?

The only meaningful land reform attempted — after zamindari was abolished, land ceiling was imposed and surplus and wasteland was distributed among the landless in the first three decades after independence — is the Forest Rights Act of 2006. It gave ownership rights over the forest land and forest resources to the tribals and other forest dwellers, who have been residing in these forests for generations but their rights have not been officially recorded.

It should have been implemented in two years (by 2008). But, according to the latest update from the tribal affairs ministry, as on 31 August, 2018, only 44.6 percent of ‘claims’ have been granted so far – not to talk of the ‘potential’ lost due to lack of awareness among the tribals about their rights (particularly the community forest rights) and reluctance of the state governments and their forest departments to do an honest job of it.

To conclude, the above narration is by no means exhaustive but is an attempt to provide a big picture to put the agrarian crisis in perspective and highlight the inadequacies of the policy responses to it. Evidently, sops, half-hearted measures or political skulduggery would make no difference. What is needed is a macroeconomic vision, accompanied with appropriate policies, plans and strategies. This would essentially involve an overhauling of the existing mechanisms which have spectacularly failed to take care of half of India’s workforce and more than two-thirds of its population who are agriculture dependent. Until that happens, farmers, landless and tribals have no option other than periodically marching to the seats of power.

Click here to read Part 1 — Farmers plan march in New Delhi: Agrarian crisis is deep and pervasive, but not fully appreciated or remedied

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