Farmers' Crisis: Are Loan Waivers, MSP Hikes, Assured Income the Solutions?

What haunts Indian agriculture is structural, and if not addressed as such, one would be mistaking symptoms for the disease.

Shivraj Singh Chauhan was dethroned as Madhya Pradesh’s chief minister after a long stint lasting 15 years. Although the Bharatiya Janata Party lost in Madhya Pradesh, the party secured two lakh more popular votes than the Congress. Chauhan had a farmer-friendly image for a long time. He reportedly complained to the RSS number two, Bhaiyaji Joshi, that had the policies of the Centre not ruined agriculture, the BJP could have won in the state for a fourth time.

There is merit in this lamentation. The link between the state of agriculture and poll outcomes appears to be strong. All three states, Chhattisgarh, Madhya Pradesh and Rajasthan – where the Congress defeated the BJP – are rural, agricultural states. Last year, the BJP was nearly upended in its bastion, Gujarat, where the the party received a setback in rural areas. The prosperity and poverty of the agrarian economy have strong bearings on rural India.

Do the political parties eyeing the 2019 general elections have an assessment of what ails the Indian farmer?

The Congress party appears to be clued in. In the recently concluded state elections, the party promised that farmers’ loans would be waived. Noticeably, the BJP had made no such promise. Looking back, in 2008 the UPA government led by the Congress announced loan waivers worth Rs 60,000 crore and, subsequently in the 2009 general elections, the coalition returned to power.  Thus, it won’t be misplaced to infer that loan waiver promises raked-in a sizeable chunk of votes in both, 2009 and 2018.

Also read: Interim Budget Promises Rs 75,000 Crore Income Support for Farmers

The reason behind the loan waiver in 2008 was a crisis in agriculture. In the Vidarbha region of Maharashtra especially, farmer suicides had reached into the thousands. The ratio of ‘farmer suicide mortality rate’ to ‘non-farmer suicide mortality rate’ reached its peak in the mid-2000s in Maharashtra.

Why do farmers commit suicide?

Researchers have repeatedly found one primary reason: loan default.

As the cost of farming increases, farmers get compelled to borrow. If the crop fails or prices collapse, farmers’ incomes drop, poverty and the anxiety of not being able to repay loans pervades, and coupled with the loss of face and social shame – suicide becomes a saviour from this chain of debilitating events. In these circumstances, loan waivers certainly provide a degree of succour to the peasant.

The squeeze on farm income

A contributing reason to the distress is the low price of farm produce. The Malwa region in western Madhya Pradesh experienced promising times in the first ten years of Shivraj Singh Chauhan’s rule. Production of soya bean rose by over ten times, its price went up by nearly three times and its export from India also increased by over ten times. The boom was followed by a sharp downturn in the last four years – prices have fallen and exports have collapsed. However, the Congress has recovered its electoral fortune in the Malwa-Nimar region this year.

In the 2018 Union budget, Arun Jaitley announced that farmers would be paid a minimum support price (MSP) which ensured 50% profit over the cost of farming. However, there is a debate over which cost should be taken as the cost of farming. Nevertheless, whatever be the benchmark cost, farmers are not getting the MSP.

First, in many regions the government does not buy from the farmer; there is lack of adequate infrastructure. Second, the government does not buy every kind of crop – only a few crops, such as wheat and paddy are purchased. The Shanta Kumar Committee cited that only 6% of Indian farmers actually sell crops to the government. Thus, all farmers do not get the benefit of an MSP hike.

In October 2018, out of 14 crops for which the government announced the MSP, the market price was lower than the MSP for 12. The aim of the MSP policy is to guarantee a certain minimum price to the farmer. When the market price plummets due to the capriciousness of supply and demand, the farmer is guaranteed of a minimum revenue. If the market price is below the MSP, it means the farmer is getting forced to sell her crop at sub-MSP prices. Thus, the impact of the MSP is not being felt on the ground.

Also read: The Budget Should Have Eased Agricultural Bottlenecks and Brought Structural Reforms

A bird in the hand is worth two in the bush. Although loan waivers and the MSP have limited effects, farmers continue to demand them. The farmers who walked the roads of Mumbai and Delhi have raised these demands. Parties realise the political appeal of assuring incomes to farmers. This year’s interim Union budget promised Rs 6,000 as an annually assured income to small and marginal farmers. But this amount is a pittance compared to the cost of production. It does not cover farm labourers or tenant farmers, who are more vulnerable and outnumber owner-farmers. Yet, the pre-election sop may draw many cash-strapped voters.

Farm loan waivers, higher support prices and assured incomes provide relief to some farmers, but it is debatable whether they provide a long-term solution to the crisis. What haunts Indian agriculture is structural in nature, and it has to be confronted as such. Otherwise, one would be mistaking symptoms for the disease.

Long-term solutions

First, agriculture cannot be seen in isolation from the rest of the economy. Industries and the service sector are not creating enough jobs, while a large population remains parked in agriculture because they are not finding jobs elsewhere. In a survey conducted in 2003 by the National Sample Survey Office (NSSO), 40% farmers reported they did not like farming and, if given a chance, would take up an alternative occupation. In a 2013-14 survey by the the Centre for the Study of Developing Societies (CSDS), 61% farmers wanted to quit farming and move to urban areas.

If other sectors generate sufficient jobs, the pressures on farming would expectedly subside. Farmers would have savings on their hand, which, when ploughed back into farming, would raise productivity and production. On the demand side, greater employment generation would provide more purchasing power to the employed, thereby raising demands for agricultural goods and pushing up their prices, thus rendering cultivation profitable. However, on the jobs front, things have been depressing, to say the least.

Second, there is a need to recalibrate trade policy. Mainstream economic theory posits that free trade eventually benefits everyone. There is not much talk on when that ‘eventually’ actually comes about, or how those who lose jobs to competition with cheap imports would find alternative jobs. But overlooking uncomfortable questions do not make them go away. They only reappear later in violent and distorted avatars.

In the US and Europe, the rage of those adversely affected by free trade is coming out via the politics of xenophobia. In India, trade openness has dealt a severe blow to farm prices in many cases. The farmer has to be paid a just price and trade policies can be accordingly tailored. This may raise the price of food. A revamped Public Distribution System would protect the needy.

Also read: Will Modi’s New Farmer Income Scheme be the Band-Aid that Indian Agriculture Needs?

Third, public investment. During 1951-1965, agricultural production rose at an impressive rate. The rate of growth of the primary sector GDP in those years was higher than the average growth in the last half of the 20th century. The government invested sumptuously in agriculture during this phase of high planning, but since the 1980s, public investment in agriculture has been waning.

In 2012-13 for instance, its share was around 16% – down from 46% in 1980-81. Irrigation, infrastructure, marketing, research, extension services – many avenues still exist where planned state expenditure can make a difference. India’s agricultural productivity lies much below the global average. There is much room for improvement.

The demand for farm loan waivers and higher MSP should be raised. About half of India’s work force is engaged in agriculture, and our democracy would only strengthen if the sector’s concerns are lent an ear. At the same time, the politics of the day should be far-sighted. As Nehru in 1963 said:

“One has to find a healthy balance between the immediate benefits of today and the long-range benefits of tomorrow. All the money we have put in heavy industries is for tomorrow’s benefit… “

Although land reforms were a botched process, the Nehru-Mahalanobis strategy was correct in emphasising the “long-range benefits of tomorrow”. A similar vision needs to illuminate today’s endeavours to give farmers their due.

Debarshi Das is at the Humanities and Social Science Department, IIT, Guwahati.

Bengali version of the article was published in the Anandabazar Patrika.