As India stares at the fourth consecutive drought year, the prospect of a negative growth in food grain production seems real for 2015-16. Agriculture economist Dr.Ashok Gulati says this is the first time in over 100 years that India faces four back-to-back drought years even as the Met department has further lowered the monsoon coverage to 16% below the long term average for this year. Large parts of Maharashtra, Karnataka and Andhra are already reeling from severe drought and recent estimates show even Eastern UP having over 45% below average rainfall. This has serious consequences for the farm economy as well as for rural demand, which has a profound effect on economic growth. The worsening state of the farmers has also become an issue in the Bihar elections.
Situation is serious
Gulati, who advises NITI Aayog on agriculture, says the NDA government is not fully grasping the seriousness of the situation. “I have personally visited some of the drought affected areas and the situation is so grim that in some states there could be over 20% decline in food grain production. In large parts of the country the farmer has got negative returns”, he says. He warns if the government does not come up with a sustained incentive structure for the farmers, India could slip back to the era of food shortages experienced in the 1960s.
Remember Prime Minister Narendra Modi had explicitly stated in his election campaign that farmers would be the NDA’s priority and the government would ensure they got 50% returns over their total costs. According to data collected by the government, farmers have got negative returns on many agricultural produce. There is a small positive return of 6.5% on paddy, and this too only in states like Punjab and Haryana where the MSP system works well. In eastern states, where the MSP system is very weak, farmers have had to sell paddy at 10 to 15% below cost of production. The Commission for Agriculture Costs and Prices (CACP) collects countrywide data on cost to the farmers product-wise and the prices received by them via the Minimum Support Price system put in place by the government. As per calculations by Ashok Gulati (see table) on many items farmers’ returns are either negative or just single digit positive.
|Crop||Cost (Rs/qtl). projected by CACP||MSP (Rs/qtl)||Profit over cost (%)|
Low minimum support prices
Another revealing data is that Indian government this year is offering $226 per tonne as minimum support price for wheat whereas Pakistan, with similar agro-climatic conditions, is giving about $320 dollars per tonne for wheat. In Indian rupee terms India is offering about Rs.1400 per quintal and Pakistan Rs.2000 per quintal of wheat. Ironically, the price offered by the Pakistan government to its farmers approximates the promise Narendra Modi made during his election campaign which is part of the BJP manifesto—50% profit margins over cost of production.
The NDA did not keep its promise to the farmers because its in-house economists—Dr.Arvind Subramaniam and Dr.Arvind Panagaria—warned that higher price for farmers could fuel another bout of food inflation. But this advice was given sometime November last year when the finance ministry came out with a mid-term review of the economy. Since then soft commodity prices have crashed over the past nine months, the situation has qualitatively changed and other countries have recognized that farmers need to be paid their due, if only to keep food production up and maintain food security for its people. Even China is paying its farmers $385 per tonne (Rs.2500 per quintal) for wheat compared to India’s Rs.1400 per quintal!
Clearly, this is the biggest failure on the Modi government’s part to keep its promise made explicitly in the BJP manifesto. This will come surely come to haunt the NDA in a year of drought and unabated suicides by farmers in many parts of India.
The larger crisis in agriculture is also visible in the macro picture. Agriculture growth was projected at 4% in the 12th five-year plan (2012-13 to 2017-18). So far, because of the successive drought years, agri-growth has slumped to about 1.7% annually. A negative growth in food production this year could further aggravate the situation. Narendra Modi and his economic managers clearly need to bring back focused attention on agriculture and farm distress. This may be required even for BJP’s political survival.