Why the Modi Govt thinks agriculture is a drag on the economy

All efforts to project A2+FL as the new base for measuring farm prices in future stems from the contempt policy makers carry for the agrarian economy.

Agriculture is considered a drag on the national economy and has been deliberately kept impoverished over the past few decades. The idea being to push farmers out of agriculture to migrate into the cities, which are in need of cheaper labour.

In other words, agriculture is being sacrificed to keep economic reforms alive. Moreover, the general belief is that more prices to farmers would lead to a higher food inflation, which eventually pulls down economic growth besides leading to consumer protests.

The entire burden of keeping the urban consumers happy is being very conveniently passed to farmers. Agriculture therefore is a victim of the economic design.

While addressing a press conference in New Delhi to announce the Cabinet decision on farm prices, Home Minister Rajnath Singh had stated that the higher MSP for kharif crops will entail an extra expenditure of ₹15,000 crore.

No sooner did he say this, mainline economists and economic analysts have begun to question where will the money come from. The political compulsion to raise MSP will lead to fiscal indiscipline, thereby making it difficult for the Finance Minister to keep within the prescribed fiscal deficit limits, is another issue being raised.

When the 7th Pay Commission was announced, the Finance Minister said it would entail an additional expenditure of ₹1.02 lakh crore every year benefitting 45 lakh central government employees and 50 lakh pensioners. No one asked where the money will come from nor the question of widening fiscal deficit was ever raised.

A Credit Suisse bank study estimated the additional financial burden to soar to anything between ₹4.50 to ₹4.80 lakh crores every year when the Pay Commission report is implemented across states. Again, I didn't see any economist question where would the money come from. Nor did anyone work out the impact higher wages would have on inflation.

The question where would the money come for providing a higher price to farmers therefore is a reflection of a biased mindset. No wonder, farmers have been denied their rightful income all these years as a result of which indebtedness had mounted thereby aggravating the agrarian crisis.

Punjab, Haryana to benefit most

Claims notwithstanding, the hike in MSP for kharif crops will benefit not more than 10 per cent of the farming community. As per the high-level Shanta Kumar committee, only 6% farmers receive MSP.

Since a well-oiled marketing infrastructure exists for procuring rice and wheat in Punjab and Haryana, farmers from these two states will be the main beneficiaries of the enhanced paddy price. For the rest of the kharif crops, the announcement of 1.5 times the out of pocket expenses incurred by farmers will not mean much since the States do not have adequate procurement system in place.

Like in case of pulses, for which the government had announced a higher price for two years now, the actual procurement has been hardly ten percent of the total production. In the absence of official purchase, farmers were forced to sell at a distress price varying between 25% to 40%.

The commitment to extend MSP to all crops for which prices are computed will be meaningless till adequate investments are made in expanding marketing infrastructure. Against roughly 7,600 regulated mandis that exists now, the country needs 42,000 mandis to provide market access in 5 kms radius.

Moreover, the hike in procurement prices comes at a time when global commodity prices are on the decline. It comes at a time when an OECD-FAO report released last week has pointed to a still more troublesome period ahead for farmers.

Higher price for Agriculture produce a pipe-dream

Global prices in cereals, cotton and milk will remain depressed in the next decade too. Already, milk prices have prevailed at a low level for the past 4 years resulting in the closure of thousands of dairy farms in the US and Europe. More than 17,000 dairy units have pulled down shutter in US in the past decade, and in the last three years at least 3,000 dairy farms have closed down in European Union. Even the most efficient dairy farmers in New Zealand are not able to realise a remunerative price. In India too, dairy sector is in a serious crisis and milk prices have crashed in Maharashtra where milk is selling cheaper than bottled water.

In such a global scenario, and with the World Trade Organisation (WTO) breathing down India's neck seeking a cap on public stockholding of food, the promise of providing a higher MSP to farmers may not last long.

Already, the US has questioned the increase in MSP over the period ending 2015-16 calling it a violation of WTO obligations. Accordingly, against the permissible limits, the MSP for wheat and rice has soared. Although India is strongly contesting it, the fact remains that a significant rise in MSP to provide farmers the rightful income may never happen. It has never happened in the past.

For all practical purposes, it is likely to remain an empty promise in the years to come too. Farmer unions too have to understand this.

That’s why I have always been saying that the time has come to move away from price policy to income policy. The need is to provide farmers with an assured monthly income, which is not only WTO compatible but also provides economic security to farmers. The demand should be to convert the CACP into a Commission for Farmers Income and Welfare with the mandate to assure a monthly living income of at least ₹18,000 per farm family. That will be the beginning of Sabka Saath, Sabka Vilas.

This article was first published in National Herald on Sunday. Devinder Sharma is an expert on Indian Agriculture and a distinguished food and trade policy analyst