After the declaration of the Rs. 20 lakh crore financial package by Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman detailed the entire plan of action over five days. Financial observers have noticed that the additional expenditure would be only about 10% of what was declared by Modi. In Sitharaman’s elaboration, the agricultural sector and the rural economy were also covered.
Financial package for the agricultural sector
This sector is important in the ongoing Covid-19 episode and also for the Indian economy. This is because it plays a vital role in generating income of around 70% of the Indian population and also for providing food security to the growing population of the country.
The government has declared mainly three things to rejuvenate the agricultural sector. Firstly, it has repealed the Essential Commodity Act of 1955 (except some provisions) and now food items can be dealt at par with other common products. Hoarding and exporting will be easier for these items.
Secondly, the government plans to reform the Agricultural Produce Marketing Committee (APMC) Act for easier selling of agricultural products. It is also aimed at seeking better remuneration for farmers.
Thirdly, it has increased allocation to MGNREGA to increase the scope of livelihood of the rural population.
How will these reforms help the agricultural sector and how will the restructuring of the Essential Commodity Act help farmers and agro traders? According to many, the Act helps consumers because when the supply of some food items - onion or pulses, for example - decreases compared to the demand for them, exports of these items are banned. This means in that situation, the farmer or the trader cannot reap the benefit of the short supply and high price of that commodity which could have led to good profit. The present system according to economists like Ashok Gulati, former Chairman, Commission for Agriculture Costs and Prices (CACP) only helps the consumers and goes against the farmers or traders of agro items.
The APMC Act govern the agricultural marketing system. After reform in the APMC Act, farmers can sell to any willing buyers who do not need to be registered in the APMC markets. It is true that the reforms will help farmers in selling agricultural produce at higher prices. It is also true that in the mandis (APMC markets) sellers have to pay commission that may vary from 4 % to 6% in different states. As of now, it is 4% in Punjab and 6% in Delhi. But different studies have observed that this commission rate goes up at times. In case of some north eastern states, the commission rate is at 12%. This conveys the message that the APMC Act deserves reform.
Moreover, if one goes to international comparison in this regard, it can be found that every year Indian farmers received prices that were on an average 14% lower than global prices (OECD) between 2000 – 2001 and 2016-2017. This was observed by a joint report of the Organization of Economic Co-operation and Development and the Indian Council of Research on International Economic Relation (ICRIER). The report also observed that about 70% of the major agricultural commodities in India received such low prices between 2014 – 2015 and 2016 – 17.
But many economists are not too impressed by these measures. Some hold the opinion that there are numerous problems in the agricultural sector and it is useless to go for reforms to face the economic crisis in the Covid-19 period. The second opinion is that changes in the Essential Commodities Act and the APMC Act will not be able to solve the problem of agriculture. Himanshu, Associate Professor, JNU, New Delhi, informed, “When some food items are short in production then free trade of these items may lead to people unrest.”
Sudipta Bhattacharya, Professor Vishva Bharati University and an agricultural economist, told BE, “The APMC Act has already been released in many states to sell farm products to the corporates. That has not solved the problems of the farmers any way. So, I do not think this will be of any help to the farmers.”
The existing problem of agriculture
The crisis of agriculture in India has been on for many years. Kumar Manjula Bhatta and others pointed out (The Economic and Political Weekly, June 8, 2019 Doubling India’s farm incomes) that historically, India’s public policy has relied on multiple strategies to overcome the agrarian crisis. It has focused on assets redistribution through land reforms, technology improvements and infrastructure enhancement to raise productivity and farm incomes. The government has also focused on the price mechanism through the policy of minimum support prices (MSP). But land reforms, which was an important demand, has been applied variedly in different states. The technological solutions by way of seed modifications has improved productivity but has now reached a threshold.
Minimum Support Price (MSP)
The MSP policy has been in vogue since 1965. Crop wise, MSP is covered for 25 agricultural commodities. It means that the government is liable to purchase any amount of these 25 products from the farmers willing to sell at the fixed MSP rates. The purpose is to maintain threshold prices in the economy so that the producers can get prices which covers their cost of production. But that has not occurred in reality. It has lagged behind the rising production costs and led to a decrease in the net income. Kumar Manjula and Bhatta observed that many crops lacked an MSP in India. Even the government had found that less than 5.8% of farm households were beneficiaries of MSPs. In 2016 – 17, most agricultural commodities like oilseeds, pulses, rice, wheat and most Kharif crops except perhaps cotton and black gram – traded below their MSPs. In some cases, prices fell below the production costs.
The total annual income from agriculture in 2017 ranges from Rs. 25,064 for marginal farmers to Rs. 6,05,845 for large farmers. This can be increased considerably provided suitable measures are taken. Modi’s target is to doubling farm income by 2021. This seems to be a distant dream as to achieve this, there needs to be about 17% to 18% growth of agriculture consistently for two to three years. This is almost impossible to achieve, given the present condition of the agricultural sector.
The additional allocation of Rs. 40,000 crore in MGNREGA is no doubt an important decision. This may lead to create a higher level of rural income generation. This is particularly more significant when crores of urban labourers are returning home in the backdrop of the pandemic. But how far this money will be utilised is a question because there are fixed areas in which labourers can be employed in MGNREGA programme.
It is seen that the agricultural sector reform measures taken by the government may not fulfill the target of stimulating the sector. It may work when the economy becomes stable. In this phase of a slowing down economy, the government should have focused on boosting the demand in the rural economy.