In the Interim Budget, the government had announced a scheme –PM-Kisaan—that gave 120 million farmers owing upto two hectares of land Rs 6,000 a year
Making good of a decisive mandate, the new Narendra Modi-led government will now need to make good of its promises to tackle agrarian distress in the earliest. Modi 2.0 has trusted Narendra Singh Tomar by giving him the Agriculture and Farmers' Welfare ministry to ensure that the benefit of the government's schemes reaches the farmers.
Assisting him in the job will be Parshottam Rupala and Kailash Choudhary who have been appointed Ministers of State in the Agriculture and Farmers' welfare ministry.
In the Interim Budget, the government had announced a scheme –PM-Kisaan—that gave 120 million farmers owing upto two hectares of land Rs 6,000 a year.
Funded entirely by the government, the scheme will be kicked in retroactively from December 2018. Beneficiary farmers have already received the first two tranches of Rs 2,000 each.
The scheme will cost Rs 75,000 crore in 2019-20.
During his election campaign in Madhya Pradesh, Narendra Modi had also announced that his government would extend the scheme to all farmers of Madhya Pradesh if the BJP was voted back to power.
While this demonstrated the government’s intent to walk the talk on addressing farm distress, the malady need an enduring solution given that weaknesses could only worsen as landholdings shrink.
With the elections over, all eyes now are on the new government’s Economic Survey as well as the first full budget that it will present in the first fortnight of July, 2019.
The chief economic adviser Krishnamurthy Subramanian and his team are believed to be working on a pointed policy prescription to deal with infirmities in India’s farm economy.
Subramanian, who was appointed as the new CEA in December, is authoring his maiden Economic Survey that the new government will table in Parliament ahead of the full budget’s presentation.
The policy matrix for farm will likely pivot around a mix off regulatory and technological pillars to dismantle fragmentations in markets. The focus is expected to shift to make India an intergated market. This will require removing of a number of regulatory and logistics barriers.
Agrarian distress has been one of the crucial electoral issues this season as the last two years saw farmers protesting in several states, demanding better prices and debt write-offs. Low retail prices may be heartening to consumers, but persistently low food prices, have meant that farmers’ income have remained flat.
India’s long slowdown in food prices – “disinflation” in economists’ jargon – may well be symptomatic of a problem of abundance.
The current price crash is partly due to a bumper winter-sown crop that flooded mandis. With few buyers, the glut forced farmers to dump products at throwaway prices to clear up a piling mount of vegetables.
This is showing up in food inflation, a proxy to measure how costly or cheaper commonly consumed items have become on an annualised basis, which has moderated sharply.
Vegetables, potatoes and onions do not attract minimum support price (MSP)—where the government purchases crops from the farmers at a certain assured price.
In July 2018, the Centre had also announced a sharp rise in minimum support prices (MSPs) for 14 summer-sown kharif crops. The government had set the MSP at a minimum of 1.5 times the cost of cultivation. This proposal was made in the budget for 2018-19, based on the calculations made by the Commission on Agricultural Costs and Prices.
This was the biggest increase in the Narendra Modi government’s tenure.
A state-supported MSP mechanism acts as a cushion, reducing the dependence on private wholesale buyers, and helps fixing a minimum floor price that farmers are almost guaranteed to get even if markets are swamped by an abundant harvest collapsing mandi rates.
High inflation hurts people’s buying power, while low levels can indicate poor demand and weak economic activity. Currently, it is the latter that seems to be playing out in the rural economy.
Latest price trends show that market prices are lower than inflation-adjusted prices. Market prices at wholesale mandis seem to be at significantly lower levels than the MSPs.
This is symptomatic of a lower farm income, something that lies at the core of the current rural distress in many parts of the country.
One of the reasons behind the glut is also because production is increasing at a pace higher than a corresponding increase in population. From a production-centric focus, the shift now needs to happen on the supply side.The main focus of the policy changes are expected to be on the marketing side. This is one of the bigger ideas that the first set of policies would concentrate on - how to use technology and reduce regulations to bring markets closer to the farmers.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.