Farmers’ produces enter deflation zone; in general they don’t get return on their investments
Last December, amid clamour for an urgent “deal” for India’s distressed agriculture sector and selectively leaked reports of a “mega” deal in the media, the Centre released data on inflation. The perceived good news turned out to be rude jolt for the government.
India’s wholesale and retail inflation were at 3.8 and 2.2 per cent respectively. The Narendra Modi government, however, could not go thumping its chest into the elections as the ramification of such numbers for the farm sector spoilt the mood.
The inflation rate was the lowest in 18 months — a period when farmers regularly protested, seeking a fair price for their produce. From wheat to potatoes to onions, they dumped crops in the open as market rates dipped to a level that would hardly recover 30 per cent of their investments.
Let’s understand why low inflation is a worrying sign for the sector and its umbilical link to farmers’ distress.
It disrupts the grand promise to double their income by 2022 that Prime Minister Modi made at a farmers’ rally in Bareilly in Uttar Pradesh on January 28, 2016. We are now halfway into that period.
Before dealing with the details of the progress on this promise, the latest inflation data showed that, since July 2018, prices of primary food articles have been in a negative zone — when the inflation rate is below zero.
This is also called a deflation in prices and this has happened in wholesale markets where farmers usually sell their produce, which means they have not been earning.
Inflation in food items in 2008-09 jacked up overall inflation, leading to the downfall of the then United Progressive Alliance government in 2014. This time, however, the deflation in food prices is not bringing down the overall index, leading to a major income crisis for farmers.
This is at a time when prices for agricultural commodities are low globally. India’s export in the sector is anyway not impressive; now even if farmers want to export, the prices are not encouraging.
Dipping food prices kept income levels subdued in 2017-18 — in two of the three years since the promise was made, farmers have not earned enough to be on track for their income to be doubled.
Add to it the general trend of farmers not earning from their produces. The wholesale price index (WPI) for food articles was lower than that for agricultural inputs for most years since 1981-82. One of the factors is the rise in input costs such as irrigation, electricity and pesticides and fertilisers.
If one looks at the average income of a farmer in India, it emerges clearly that there is hardly any income addition.
The member of an agricultural household earned Rs 214 per month on an average in 2004-14 and spent Rs 207, leaving them with a disposable income of only Rs 7 a month. This in a period that is seen as the ‘recovery phase’ for farmers, thanks to a 4 per cent-plus growth rate.
Since 2015, India has suffered two major droughts and some 850 incidents of crop losses due to unseasonal rains and related incidents. Finally, in two years of bumper harvests, prices crashed majorly. This winter, farmers have already sowed less and nearly 300 districts are affected by drought. It means, neither does a farmer have base capital to invest, nor can he risk of going back to agriculture. This has added to the crisis that manifests in extreme resentments.
Despite the low-base income level, a number of studies now show that the target to double income by ’22 is not feasible.
Income of farmers on real price (adjusted for inflation) grew only at 3.8 per cent, according to the initial findings of a study by NITI Aayog — the first of its kind — on year-on-year growth in their earnings. At this rate, the Modi government’s target of doubling farmers’ income by 2022 will not be met. It will take at least 25 years from now.
Further, according to an assessment by Organisation for Economic Cooperation and Development and Indian Council for Research in International Economic Relations, farm revenue fell 6 per cent per year for 2014-16 — the period in question. It can be argued that the promise to double is based on very low base income thus doable.
According to Ramesh Chand, a member of the NITI Aayog, productivity of India’s crop sector has grown at the rate of 3.1 per cent in 2001-2014. At this rate, income from only farm will go up by 18.7 per cent in seven years (2021). But the government wants to add on the income from livestock as well to achieve the target. If this is added, by 2022, income would go up by 27.5 per cent. But by combining increase in all potential sources of income for farmers, a rise of 107.5 per cent can be achieved by 2025.
Close to 43 per cent of India’s indebted households are farm households. These are the prime target of the current scheme as well in face of the deep agrarian distress and the rising political cost to the ruling party seeking re-election in just three months.
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