04

The agriculture sector is expected to do well this year. But despite a normal monsoon, the total area sown in the country has decreased by 0.6% compared to last year. The gross value added (GVA) in agriculture has been plummeted to 0.3% in the first quarter of the present FY18 (April-June) in spite of  8% growth in agricultural GDP in the two quarters before that (October-March on FY17). This is a cause of concern. The almost collapse in agriculture GVA is mainly due to a steep fall in prices of agricultural output as a result of bumper production. Some of the most affected products include potatoes, onion, pulses, and oil seeds. This has raised doubts about Prime Minister Narendra Modi’s goal of doubling farmers’ income by 2022. The sharp fall of agricultural GVA in the last quarter will seriously affect the rural demand and hamper overall growth. If the purchasing power of the rural rich is affected, the demand for items like consumer durables or motor vehicles, etc. will be affected to a large extent. Motor vehicles sale in rural India is about 30%. In the last two to three years, the rural stress was very high. The rise in allocation of Mahatma Gandhi National Rural Employment Guarantee Act was, no doubt, an effective relief. But it is the duty of the Centre and the states to keep  a careful eye on spending. Leakages in this sector hamper the main purpose of the scheme. The timely declaration of minimum support prices (MSP) of 45 agricultural products could have a desirable effect provided the government had been able to purchase higher amount from larger number of farmers. One can compare India’s position in MSP of some of the major products with that of some other countries.

Double farmers’ income (DFI)

There are seven strategies for this programme. These are: 1) increase production, 2) effective use of input cost, 3) reduction of post-harvest losses, 4) value addition through food processing, 5) reform in agricultural marketing, 6) risk security and assistance, and 7) stress in allied activities. Recently, agricultural economist Ashok Gulati raised several important issues on DFI. One can first consider the source of finance. It is estimated that about Rs. 6,40,000 crore at 2011-12 prices will be required to make the plan successful. There is a huge need in investment in agriculture, rural roads, irrigation, energy, and rural development to attain 10.41% annual growth in real incomes for DFI by 2022-23 over base of 2015-16. It is known that there has been a 3.5% annual growth of farmers’ real income in 2002-03 and 2012-13. So to what extent can India provide three times the effort in many areas to achieve the target?

Many observers think that from the government budget, one can hardly hope for the required support because the government is overburdened with most of the responsibility. A huge amount of money is going in waiving loans to farmers, social welfare, subsidy etc. Recently, S.S. Mundra, a former deputy governor, the Reserve Bank of India, said in a programme in Kolkata that helping the farmer by waiving loans or by similar other means is a good thing but that cannot give long term benefit to the agriculture sector. A recent research on agriculture in India found out that the non-price factors also should have been given special importance. Capital formation in agriculture, irrigation development, rural credit, research and extension services were not given adequate importance in the post-reform period in India.

International comparison

Gulati has compared India with China in DFI. While India took 18 years, that is, from 1993 to 2011 to cut poverty by half, China did it only in six years, that is, during 1978 to 1984, by increasing farmers’ income twice. Gulati said that China focused primarily on incentives for farmers by moving from the commune system to household responsibility system in land, and ensured higher prices for farmers. The Chinese government's prices for farmers have remained way above what India gives to its farmers.

Conclusion

Proper pricing and the realisation of profit are very important. These are the preconditions to private capital investment in agriculture. Gulati thinks, “If the Modi government can reform that by using income policy to protect the poor, and free up prices for farmers, allow private trade to stock and operate freely and have unhindered exports, India can raise farmers’ incomes significantly, if not double by 2022”. There are other policies to increase farmers’ income in a short time. All these must be implemented in tandem for incentivising and reviving agriculture.