May , 2020
Covid-19: An opportunity to reinvent India’s farm economy
11:55 am

Tushar K. Mahanti


Indian agriculture is in distress. Two news items recently appeared in national dailies. One relating to the plight of grape farmers of Nasik in selling their produce and another of the difficulty of farmers in Punjab and Haryana in engaging farm hands for post-harvesting work. These two instances probably depict the farmers’ despair vividly during the lockdown that was required to contain the spread of the Covid-19 pandemic.


Grape farmers are stressed because exports have stopped and wineries are not buying. Desperate farmers are compelled to sell grapes at throwaway prices. The larger part of the output - which is transported to other states - is stranded because of transportation hurdles and shortage of packaging material.The story, however, is not only of the grape producers or the farmers of Punjab and Haryana. It holds true for fruit growers, vegetable growers and rural traders across the country. The new guideline that was issued by the central government in the third week of April, exempting the farm sector from lockdown, has failed to allay fears and farmoperations are yet to normalise.


Covid-19 and Indian agriculture


The economic fallout of Covid-19 has once again propelled India’s farm economy into mainstream deliberation. Following the nationwide lockdown from March 24, an estimated 50 million migrant labourers are estimated to have returned to their native places from other states and cities. They account for about 11% of the non-self-employed labour force in the country. Many migrant labourers, mainly from the eastern states, work in agricultural fields in the country’s west and north. They are also significantly employed in marine fishing, post-harvest activities, managing livestock, in marketing, and in the creation of agricultural infrastructure.

The reverse migration of workers to India’s hinterlands is impacting regions differently. Agricultural operations in many parts of the country depend largely on migrant labourers. While agrarian operations in the agriculturally rich states such as Punjab and Haryana are suffering, the hinterlands are receiving an excess supply of labour, throwing up new challenges to the already crowded farm sector. The sudden addition of members in the family without income and contribution to food production is worsening the food security situation of many rural households. Indian farmers are traditionally poverty-stricken despite a steady increase in farm output. When one thinks of Indian agriculture two images invariably come to mind; one that of a bare-footed farmer ploughing on a dry field and the other is that of FCI warehouses overflowing with food grains. This dichotomy of deprivation amid abundance portrays the true picture of Indian agriculture. Agricultural production is growing but benefits of that growth are not reaching the farmers.

The farmers’ lobby puts the blame on low prices of farm produces. If the government has raised the MSP ritually, this has not helped the farmers’ cause much as the gap between the cost of production and the selling price has not changed much over the years. The food prices have remained low - putting further pressure on farm income. May be, higher prices of farm produces would raise farmers’ income but that would not give a long-term solution. Indian agriculture needs a definite strategy to develop its land, extend mechanisation, increase access to manures and HYV seeds to raise yield rates. Low productivity is probably one of the biggest problems of the Indian agriculture sector.

Covid-19 has, however, changed the debate between productivity and growth. Right now, the sector is facing the problem of reduced capacity to generate savings due to negative impact of the lockdown on its earnings affecting demand for inputs like fertilisers, pesticides, and farm machinery. Further, the demand for other industrial and consumer goods would be affected as

well with ramifications for industrial growth.


No estimates of the income loss of the farm sector have yet been done but economists believe that this sector was the most affected in the early days of the lockdown. According to a study by Acuite Ratings & Research at the beginning of April, the lockdown cost the Indian economy an estimated $ 4.64 billion or over Rs 35,000 crore every day. Even if the farm sector accounts for 10% of this loss, it will be a huge Rs 3,500 crore a day. Can the farm sector bear this burden? It must be noted that before the lockdown, the farm sector suffered

a loss of kharif crop, which got damaged due to excessive rains in October and November last year and the government had prepared a Rs 10,000 crore compensation package.


Low yields, unremunerative prices behind poor return


The non-availability of migrant farm workers is interrupting harvesting activities, particularly in northwest India where wheat and pulses are being harvested. There are disruptions in supply chains because of transportation problems and other issues. Prices have declined for fruits, wheat, vegetables, and other crops - reducing farmer’s income which was already dwindling before the onset of this pandemic.


The government aims to double the income of the farmers. And if this move would include larger investment in the sector and shifting to high value crops, the primary objective must be to raise the crop yield of Indian farms. It is generally believed that the negative consequences of low agriculture yields extend from precarious incomes of farmers to large tracts of land locked in low value agriculture, despite growing demands for high value products. According to the National Sample Survey, the average annual income of the median farmer net of production costs from cultivation is less than `20,000 in 17 states. This includes produce that

farmers did not sell (presumably used for self-consumption) valued at local market prices.


The lower yield has been affecting the overall production leading to a steady decline in agriculture’s share in national income. The growth rates of foodgrains production have been fluctuating at 1.5% in 2012-13, 4.2% in 2013-14, 2010-112011-122912-132013 0.2% in 2014-15, 3.6% in 2017-18 and an estimated 2.4% in 2019-20. The uncertainties in growth in agriculture are explained by the fact that 60% of agriculture in India is rainfall dependent and its growth is proportionally related to the amount of rainfall.


An increase in farm productivity will not only raise the overall foodgrains production in the country but it will also increase the earnings of the farmers, which is the precondition for energising the rural economy. The yield rates of major cereals in India are low when compared with the global averages.


Take the case of rice, India’s main cereal. In 2018-19, the country produced 116.4 million tonnes rice from 43.8 million hectares of land at an average yield of 2.68 tonnes per hectare

while the world yields remain at an average of about 4.6 tonnes per hectare. If India’s productivity was equal to that of the global average, it would have produced more than 200 million tonnes of rice in 2018-19 with the same amount of land. The yield rate of wheat at 3.51 tonnes per hectare in 2018- 19, however, compares well with that of most of the wheat

producing countries.


A bigger rise in the yield rate would give more output. But that would in itself not guarantee higher return for farmers. Economists believe that the main reason for the farm sector’s low return is actually rooted in India's chronic failure of coping with surplus harvests because of lack of adequate food storage and processing capacity. Ashok Gulati, an agriculture specialist

at the Indian Council for Research on International Economic Relations, has reportedly observed, “If the rains are good, you end up with a glut of crops and prices crash. The glut only highlights the inefficiencies of the farming value chain and hits farmers.”


Agricultural marketing still continues to be in a bad shape in rural India. In the absence of sound marketing facilities, the farmers need to depend on local traders and middlemen for

the disposal of their farm produce which is sold at throwaway prices. In most cases, these farmers are forced to carry on distress sale of their produce. In most of the small villages, the

farmers sell their produce to the moneylender from whom they usually borrow money.


The unremunerative prices of farm produce seem to be the major cause of low earnings. This is reflected in a steady decline in the share of agriculture in GVA – down from 21.8% in 2011-12 to 116.9% in 2019-20. This has happened despite a considerable rise in agricultural production – food grains production increased from 244 million tonnes to 292 million tonnes during this period. This was partly because the GVA is calculated in monetary value and the growth in crop production is not fully reflected due to poor prices of agricultural produce.


The question is: Should India raise its foodgrains production at the cost of the farmers? Farmers are selling the food grains at dirt cheap prices and the government is collecting them to rot in the FCI warehouses. There are millions of empty stomachs who are without purchasing power. So, it is not the issue of availability of foodgrains but that of taking them to those who need them. Covid-19 has given the government the chance to relook this dichotomy.


Improving the sector


What does the government do to increases farm income? It has increased the Minimum Support Price (MSP) for Kharif and Rabi crops of the 2019-20 season including paddy, wheat, pulses and oilseeds on the line of fixing the MSP at a level of 1.5 times of the cost of production as announced in the Union Budget 2018-19. The demand of farmers, based

on the Swaminathan Committee recommendations was MSP at 1.5 times of the C2 cost (total cost including imputed cost), but what has been given is 1.5 times the A2+FL cost (paid out cost plus family labour cost). And thus, this will ease only a part of the farmers’ problem. As per the Shanta Kumar Committee, only 6% farmers get the benefit of MSP. If this is true, the raising of the MSP by 1.5% of input costs as proposed in the last Budget will have no meaning for the remaining 94% of the farmers.


What is important is that the distress caused by lockdown to the farm sector has given the chance to the government to reinvent the equations of the sector vis-a-vis the economy.

A few things can change the face of the sector. Farm supply chains can be redirected to local areas by incentivising farmers to sell more and more of their produce in local cooperative style channels. It would accrue higher benefits by localising supply-chains, lowering transport costs, offering better and more direct prices to farmers themselves and also would help in changing the crop-cultivation pattern to meet local demands. The allocations for direct transfer to farmers through PM Kisan and including everyone who is actively involved in farming - irrespective of whether he owns a given piece of land or not - should be increased from Rs 6,000 to at least Rs 10,000 per farming family to ease the present distress. This will give farm families some cushion against the deflationary effect seen on farm prices due to the

prolonged lockdown.


India must take the advantage of the global uncertainty of food grains and rising prices. It should explore newer markets of food grains export as it has huge stocks. The world agricultural prices, especially of those of rice and wheat, have begun rising from the third week of March 2020. India already has started exporting major farm products such as rice, meat, dairy and processed food items after the government stepped in to resolve the issues related to transportation and packaging in the wake of the lockdown. It now needs to market its products aggressively in the global market.




The farm sector may be distressed due to the Covid-19 related lockdown but it is now being touted to lead India’s recovery bid. According to Niti Aayog, the farm sector will grow by three percent this year despite adverse conditions and it would add at least 0.5% to India’s GDP growth in 2020-21. It’s time for the government to recognise the strength of the sector and take serious note of its plight.



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