Doubling farmers’ income: Can it be a reality?

There is much agreement among economists and policymakers alike that India’s agriculture is in distress. The newspaper reports of farmer suicides and distress sales of vegetables point to a gloomy picture and warn about the impending obstacles to the government’s target of doubling farmers’ income by 2022. Addressing the challenges to agriculture gets even more important when the sector that employs about 49 per cent of the workforce contributes only 14 per cent to the country’s GDP.

The challenges arise primarily because agricultural is an inherently risky sector. There are five basic risks in agriculture: input, market, price, credit and weather-related risks. Input risks arise from soil quality, the effectiveness of fertilisers and pesticides and possibility of pest attacks. Thanks to the over-regulated APMC markets in states, stock limits through the Essential Commodities Act, 1955, and unpredictable export policies, farmers face various market risks. Price volatility is a common risk. During times of underproduction, prices shoot up but farmers do not have enough harvest to sell. During a glut, prices crash. Access to credit is another source of risk. Although priority sector lending (PSL) norms of commercial banks in India mandate a certain fraction of loans to be disbursed to agriculture, in reality, these loans go to large farmers as banks find them less risky borrowers. The small and marginal farmers that make up more than 70 per cent of the total pool of farmers are forced to borrow from the usurious money-lenders at extremely high rates of interest. As they get trapped in debt, many of them are left with no option but to end their lives. Finally, the weather is the dominant risk faced by farmers. With just about 44 per cent of the Net Sown Area under irrigation, a majority of the peasants in India are overwhelmingly dependent on the monsoon. The risk is getting exacerbated due to climate change, as the recent Economic Survey has highlighted.

Post Green Revolution, Indian agricultural policy has followed a two-pronged approach. First, farmer incomes are protected through the Minimum Support Prices (MSPs) announced for a variety of crops every year. Second, research, extension and introduction of high-yielding variety seeds, better fertilisers and focus on mechanization. This has been accompanied by falling public investments in agriculture. The MSPs have been effective for mainly paddy and wheat as the government has proper procurement mechanisms for these two crops. At the same time, excessive focus on MSPs has resulted in a ballooning subsidy bill coupled with rising costs of production, without any concurrent improvement in farmer remuneration. Governments have also resorted to loan waivers from time to time, putting extra pressure on the fiscal deficit.

Given the policy complexities enumerated above, there has been a change in thinking in policymaking from ensuring stable prices to ensuring stable incomes for farmers. This shift in policymaking has resulted in the introduction of various schemes, such as a nationwide electronic National Agriculture Market (e-NAM), a model law on Contract Farming, tax incentives to Farmer Producer Companies, an agricultural insurance scheme, promotion of organic farming, diversification to horticulture and so on. The recent announcement of a hike in the MSP should be a short-term step to provide immediate relief to farmers in distress. The long-term success of agricultural policy will depend on how the above schemes are implemented.

The author is a research scholar at Delhi School of Economics. Views are personal.