A farmer suicide at a recent AAP rally has brought into focus the agriculture crisis the country is going through. While not a new occurence, the incident reiterated the need for the government to do more to boost the declining farm economy.
Agriculture, as a percent of GDP, has fallen from 30 percent in 1990 to 18 percent now but the number of people depending on the sector hasn't fallen at the same rate.
Discussing the issue, agriculture economist Ashok Gulati told CNBC-TV18's Latha Venkatesh that there was an urgent need to incentivise those in the agri sector to move to higher-productivity jobs. "For this, we need to train them and give them better skills,” Gulati said.
While Vijay Mahajan, founder of livelihood promotion institute Basix, said the government should also focus on increasing agri productivity, rather than only offering support to the sector via subsidies and higher minimum state prices (MSPs).
JPMorgan India chief economist Sajjid Chinoy further said that going down the MSP and subsidy path was also fraught with the danger: in that, it could be inflationary.
Below is the edited transcript of Dr Ashok Gulati’s, Vijay Mahajan’s and Sajjid Chinoy’s interview with CNBC-TV18's Latha Venkatesh.
Q: You are so intimately connected with the farming community in rural India for such a long time. Is there a sudden increase in farm distress and if there is, what is the reason?
Mahajan: No, there has actually been a creeping increase in distress every year. In an occasional year, where there is good monsoon that year, there is less distress and when there is bad monsoon, the distress gets aggravated that year. The overall trend is increase in distress. Reasons for that are two-fold. Firstly, it is the extent of agricultural land per household has steadily been coming down. Now, almost 80 percent of India’s farmers are either small or marginal. That means they don’t even have 2.5 hectares of land if they are marginal farmers. So, even if the land is very productive, you can’t produce enough to feed yourself round the year.Secondly, our ground water is drying up and our canals have silted up. Everybody knows our electricity situation. Seeds and chemicals which are available in the market are often spurious. Extension services are pretty much broken down. Due to this the support systems which were put in place for intensive agriculture in the late 60s, when we ushered in the so called Green Revolution, have totally broken down and even if they exist, they don’t reach the 80 percent of small and marginal farmers.Q: So, according to you then what are the answers to your clientele, the number of large farmers? Is it just increasing MSPs and fertiliser subsidies? Or is it something else that is needed?Mahajan: Not at all. In fact, by offering subsidies on various things like fertiliser, water, electricity, credit what has happened is that the proud and self-reliant Indian farmer has been made into someone who is constantly expecting some doles. Over the last 40-50 years, instead of becoming self-reliant a farmer has become somebody who expects doles in the form of subsidies. Even the biggest farmers, at the end of getting water subsidies, electricity subsidised, fertilizers, they want subsidy on the MSPS side also. That is a wrong path and it is best if we abandon that, but that doesn’t mean that we need to abandon helping farmers. We have to help them in a different way that is by enhancing their productivity and also help those who are way below viable land size to actually exit farming. Even though right now it is very hard for traditional farmers to exit farming and find other professions, but if you go by the results of the national sample survey 2004, 40 percent of farmers had said if they could they would quit farming.Q: You have handled farm prices and the farm economy and studied it so closely. According to you, would you agree with Dr. Mahajan that this is a slow creeping distress, and it is not a sudden increase? Why is it front page news now?Gulati: The front page news today is primarily because of high volatility that has come through the weather risk. You had a bad Kharif, you had unseasonable rains in Rabi and now we are seeing the next monsoon may also not be normal. This has created a lot of uncertainty into the situation and what people are not realising this year is that there we had a double whammy; the prices started collapsing.The international prices were down because of which our exports of cotton, corn, wheat all are down and that was a backwater flow in the domestic prices. As a consumer, you feel happy that the inflation has come down, but as a producer their prices have collapsed. Agri prices went down by 25 to 30 percent and many others like potatoes. Look at what is happening in West Bengal. You had weather risk as well as market risk and this double whammy has created an increased intensity of distress in the farming community.We have to find answers on how to cover his weather and market risk. Mr Mahajan talked about decreasing the size of the holding over a period of time. The average holding size is 1.15 hectares. Even if you have irrigated, even if you are having two crops a year, you cannot feed a family of five on that. We have to think about what we need to do with our land laws and how to increase the size of the holding to more economically viable unit. Land lease markets will have to be freed and people will have to move out of agriculture.Many of my friends and colleagues in agriculture community feel that moving out of agriculture is a bad thing. Now that is what every country has gone through and we will also go through. The only thing that we need to care about is that it should be a pull factor i.e. they should be moving to higher productivity jobs for which we need to train them and give them better skills. Non-farm sectors have to grow much faster. It should not be a push factor that there is nothing left in agriculture and therefore, we can be beggars in urban area. The pull and push factor have to be distinguished and the wiser society has to find out ways to do that.Q: You said that there is a price problem at this juncture - a sudden volatility of prices; we have even heard Rahul Gandhi raising the issue that in our time we had raised minimum support price (MSP) so many times and you all have lowered or didn’t raise the MSP. Is that an answer? Is price going to be the answer or is it an answer at all? What about higher MSP? Gulati: MSP is primarily applicable for two or three crops and that to in 5-6 states. Less than 10 percent of the farmers in the country benefit from MSP. The question of MSP as an instrument for salvation of Indian peasantry is a misplaced concept. It does help in the better-off states of Punjab or Andhra Pradesh or Haryana for wheat and rice and lately, in Madhya Pradesh and Chhattisgarh. It has some role to play and in fact, commend the efforts of the government this year in cotton. Once in five years that type of a collapse can come and if supposing the Cotton Corporation of India (CCI) was not put into action, which has procured 9 million bales at MSP, you would have had a spate of suicides in the cotton belt because the problem is coming from global factors. China started buying less of our cotton because they were slowing down; Europe was also down. All these global factors start impacting. We have to understand that the government should come at the last resort so as to rescue the farmers over there. However, just jacking up MSP beyond the demand supply equation is not an answer. It can’t be done. It is better to give them direct income support rather than tinkering and literally disturbing the markets. You give higher price for wheat and rice and they will produce only wheat and rice; it can’t be exported. You will be loaded with all the stocks. In Punjab, even today, wheat is not moved for two years. Just higher and higher MSP is not a solution. Q: According to you, if for political reasons there is an increase in any of these, in subsidies or in MSP, is this going to be an undoing of all the macro-economic good that we have got in terms of lower deficits and lower inflation. How do you fear this might play out?Chinoy: Undoing is bit of a strong word, but they would certainly compromise some of the gains made on inflation as was so eloquently pointed out. We have seen some structural disinflationary processes put in together and MSP have been heart and center of that. Remember cereals inflation, which is most the directly impacted by MSP, was running at 15-16-18 percent even in years when you had a perfectly good monsoon.With lower MSP over the last four crop cycles, we have seen cereals inflation come down to 4 or 5 percent given their weight in the consumer price index (CPI) was almost 10 percent. It had a very large disinflationary impulse. It is important to realize, as DR Gulati pointed out, that MSP should be used as an insurance mechanism in the event that if there is a global shock then we don’t have insurance against. However, when we use it as a structural tool like we did for much of the last ten years, it essentially turns out to be significant allocative inefficiency and is counter productive. A higher MSP for rice and wheat will lead to overly incentivise farmers who only produce rice and wheat. For much of the last decade, we never had any kind of supply response for the other food groups who had double digit rates of inflation for a decade. I would argue that it did much more harm than good. If you do see a spike in MSPs, food inflation and wages; all of which will lead to core inflation. We have seen these cycles play out over the last decade. It will reduce policy space considerably. It will mean that the central bank will have much less space to cut interest rates and spur economic growth and therefore, create the pull factor out of agriculture that was pointed out. We have already had some fiscal relaxation this year. A lot of that space is going to be used for public investment. Hopefully, a lot of investment that was spoken about irrigation, rural roads, electrification and so to the extent that you have got more fiscal support coming for example through higher food subsidies because of large support prices. It takes away important fiscal space from the infrastructure supply development which is critically needed. That is the larger universe within which this needs to judged and seen.Q: Since you are in a micro-finance company, tell us whether farm insurance is the way forward and if that is the answer, then how should it be taken forward?Mahajan: You have touched on my favorite subject. Our organization, Basix, is the global pioneer in the field of rainfall index-based crop insurance. We started that in 2003 and it has now spread to all over the country. However, due to the effects of climate change I am not much of a fan of rainfall insurance anymore because rainfall patterns are not predictable. Therefore, any yield data which is calculated in correlation to rainfall in past years does not make any sense anymore. So, then what is the right form of insurance? The right form of insurance is what is called farmers income insurance where basically the yield and the price, both are multiplied together and minimum income is assured to the farmer.There are some countries where farmer income insurance is offered but as a short-term measure till some of the longer-term measures come in. It is for enhancing productivity, soil and water conservation which will take 4-5 or 10 years to show results.As a short-term measure, the nation needs to introduce a small farmers farm income insurance program which should mandatorily cover every framer whether he is a borrower or not a borrower.Q: Does that square with your plan? Do you think that this is perhaps a near term and a medium term solution at least to stop the immediate extent of farm distress and suicides? Gulati: Immediate thing that is needed for the farmers is compensation and they are relying on it whether Patwari is going to do assessment or crop cutting. You have to use the satellites and find out which contiguous areas have been impacted. You can put 5-10 agronomists on the job to find out how much is the extent of damage. The problem is we don't have the accounts of farmers’ right with us; with Aadhar numbers with which you can actually identify each one's plot through a pixel and attach that number with the accounts of the farmers. If yesterday evening there was a hailstorm and damage of crop, within 48 hours you can actually transfer the money to their accounts. That is the level of technology which is available and you should be using that. Even countries are using drones to assess crop damages. We have to leapfrog the old system which is time consuming; we do not know how much is going to the farmers. So, that spade work needs to be done in the next six months to one year to get all farmers accounts in place and identification of their plots through the satellite. Income insurance takes care of the market risk as well as the natural risk. We have to focus on how best to give some stable income to the farmers.But I do want to comment on one thing that the issue of MSP, that MSP was causing inflation and all this stuff. When you put export controls, you are implicitly taxing the farmer. Between 2007 and 2011 when exports of wheat and rice were stopped, nobody looked at what was happening to the farmer’s income. Do you know what the MSP of wheat is in India? It is USD 226. Do you know what the MSP of wheat is in Pakistan? It is USD 320 and China is USD 385. Saying that our MSPs were too high and they created inflation, we should look at where the global economy is going and what was happening to those prices. When you put all these blockages from the state, you can’t go out of the state. All these APMC markets are so restrictive in price discovery. These subtle instruments like the trade policy, movement restrictions, stocking limits are only to control the farmer in favour of the consumer. The whole system is loaded in favour of the consumer.
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