A Nation for Farmers : Part I

OVER three lakh farmers committed suicide in India between 1995 and 2015, according to data from the National Crime Record Bureau (NCRB). This is a result of systemic neglect of the agricultural sector in the Indian economy. Grandiose efforts to boost the industrial sector, like the "Make in India" and 'Start-up India' dominate the rhetoric and policy priorities of the Government. The situation deteriorated to such an extent that since 2015, the government stopped publishing farmer suicide data. The suppression of data is to manage the political fallout of the issue on elections.

Indian agriculture is largely rain-fed and therefore vulnerable to changes in climate and environment conditions. A bad monsoon can lead to crop failure and create a cycle of indebtedness for the farmers. Indian agriculture is also dominated by small farmers who are unable to afford investments in technology and resources to improve agricultural production. The agriculture sector engages 47 per cent of the labour force in the country but contributes only 17 per cent to overall GDP. Farmers in India are not able to make a living from their produce alone and therefore live in a state of perpetual poverty.

Raju Shetti, Member of Parliament from Maharashtra, introduced two bills seeking 'freedom from indebtedness' and the 'right to guaranteed remunerative minimum support price' on August 03, 2018, and has received support from 21 political parties. The draft of the two bills namely: The Farmers' Freedom from Indebtedness Bill, 2018 and The Farmers' Right to Guaranteed Remunerative Minimum Support Price for Agricultural Commodities Bill, 2018, has been prepared by the All India Kisan Sang Coordination  Committee, an umbrella organisation of around 200 farmer organisations from across the country. However, the central government has continued to ignore the demands of the distressed farmers and has not taken by the bills.

Agrarian Crisis

The green revolution (the late-1960s to mid-1980s) was instrumental in ensuring food security and self-sufficiency. However, it also led to excessive use of agriculture inputs and loss of traditional seeds and farming techniques, increasing the dependence on fertilisers and pesticides and eventual land and soil degradation. During the green revolution, India's agricultural strategy had sought to raise productivity through high-yield varieties while seeking to keep input costs low through fertilisers subsidies and seed grants and a guarantee of a minimum return through minimum support prices.

The neglect at the policy level has precipitated a severe agrarian crisis. No successive ruling party has shown adequate interest in addressing the root causes of the crisis. Fiscal policies are extremely critical for ensuring the life and livelihood of farmers. However, the current fiscal policies through loan waiver promises and ad-hoc financial support have provided short term relief rather than ensuring long term self-sufficiency of farmers.

However, after India economic liberalisation in the early 1990s with a focus on free-market reforms, the institutional support structure for agriculture was slowly withdrawn. The government shifted focus to industry, technology and service sector-led economy, and expenditure on irrigation, agricultural research and investment on development projects stagnated.

This neglect at the policy level has precipitated a severe agrarian crisis. No successive ruling party has shown adequate interest in addressing the root causes of the crisis. Fiscal policies are extremely critical for ensuring the life and livelihood of farmers. However, the current fiscal policies through loan waiver promises and ad-hoc financial support have provided short term relief rather than ensuring long term self-sufficiency of farmers.

Loan Waiver/Financial Schemes

In post-independence India, farm loan waivers have been regularly used as a policy instrument, to political ends. Loan waivers have found a place in political manifestos as it is the most politically convenient and easy solution for parties to secure the votes of the farmers.  There is also a degree of political ambiguity in all promises of debt relief, as loan waiver always comes with conditions.

Loan waiver may be effective in providing some immediate relief, but it does not fundamentally alleviate the farmers' problems of rising costs of seeds, labour and resources. Since 2014, eleven states have written off loans to farmers – Andhra Pradesh (2014), Telangana (2014), Tamil Nadu (2016), Maharashtra (2017), Uttar Pradesh (2017), Punjab (2017), Rajasthan (2018), Karnataka (2018), Assam (2018), Chhattisgarh (2018), Madhya Pradesh (2019) – have all announced waivers, with debt relief paid through state budgets.

The Farmers' Freedom from Indebtedness Bill 2018 intends to confer a right on indebted farmers to obtain an immediate one-time complete loan waiver, and a right of all farmers to obtain institutional credit. The Bill also seeks to subsequently constitute a National and State Commission with powers to pass awards and recommend appropriate measures for relief to farmers from disasters.

The former governors of Reserve Bank of India, Raghuram Rajan and Urjit Patel protested against state governments' decisions to waive loans. Raghuram Rajan said, "it often goes to the best-connected rather than those most poorly off. Second, it obviously creates enormous problems for the fiscal of the state once those waivers are done. And, unfortunately, it inhibits investment down the line".

Urjit Patel remarked that "a farm loan waiver undermines an honest credit culture and impacts credit discipline … it engenders moral hazard and also entails the transfer from taxpayers to borrowers. We need to create a consensus that farm loan waiver promises are eschewed. Otherwise, sub-sovereign fiscal challenges in this context could eventually affect the national balance sheet".

The Niti Aayog has also opposed loan waivers by the state governments. Ramesh Chand, Member, Niti Aayog and agriculture policy expert, said, "Why NITI Aayog has been opposing farm loan waivers is, if you look at the percentage of farmers who have any outstanding loans from institutional sources, it is not even 50 per cent. So, you are spending lakhs and crores of rupees and not even half of the farmers are benefiting. In some of the states, not even 25 per cent of farmers avail institutional credit. If states are doing, it is their area, but if Centre is doing it is helpful to pay attention to equity aspects also, that you spend so much money and in many states, not even 25 per cent of the farmers are benefiting".

Experts also suggested that ad-hoc financial schemes such as the Pradhan Mantri Kisan Samman Nidhi, which provides financial support of Rs 6,000, annually payable in three equal instalments to every farmer owning up to two hectares of agriculture land, would cause more harm than good without durable farm sector reforms and development of complementary marketing infrastructure.

MSP, instead of acting as a safety net created false incentives for prioritising particular crops, leading to a high emphasis on cereals and sugar cane and reduction on the overall diversity of crops.

The Farmers' Freedom from Indebtedness Bill 2018 intends to confer a right on indebted farmers to obtain an immediate one-time complete loan waiver, and a right of all farmers to obtain institutional credit. The Bill also seeks to subsequently constitute a National and State Commission with powers to pass awards and recommend appropriate measures for relief to farmers from disasters.

Minimum Support Price (MSP)

The prices of agricultural commodities are inherently unstable; a bumper harvest one year can lead to a sharp drop in price – which could have an adverse impact on future supply as farmers sow less of that crop in the following years. To counter this, the government fixes an MSP for major agricultural products, each year, to give a guarantee to the formers that a fair price is fixed to their upcoming crop.

MSP which became a benchmark reference price is extended only to a limited range of crops. MSP, instead of acting as a safety net created false incentives for prioritising particular crops – leading to a high emphasis on cereals and sugar cane and reduction on the overall diversity of crops. Mono-crop culture also encouraged excessive water usage, which led to soil degradation and reduction in the groundwater table.

Despite the government-mandated MSP, at times farmers are forced by middlemen to sell their crops at lower prices, because of the inefficiency in the implementation of the MSP programme.

The Farmers' Right to Guaranteed Remunerative Minimum Support Price for Agricultural Commodities Bill, 2018 aims to confer a right on all farmers, to obtain guaranteed remunerative MSP with minimum 50 per cent profit margin over the comprehensive cost of production, upon the sale of agricultural commodities and connected matters.

The price of produce has been the core issue in most recent farmer agitations in the country. National Commission on Farmers headed by Dr. M. S. Swaminathan submitted its report in 2006. One of the recommendations of the Commission was that MSP should be at least 50 per cent more than the weighted average cost of production. This recommendation was not incorporated in the National Policy for Farmers 2007. The government recently decided to increase the MSP of Kharif and Rabi crops and other commercial crops for the season 2018-19 with a return of at least 50 per cent over the cost of production. However, reports suggest that this important decision to increase the MSP was unfortunately calculated on old data. 

The government should bring MSP for all crops, and not just for commercial crops, and while calculating an MSP the government should consider all the factors including, cost of seeds, labour, fertilisers and monsoon for that year and should not run on old data.

The Farmers' Right to Guaranteed Remunerative Minimum Support Price for Agricultural Commodities Bill, 2018 aims to confer a right on all farmers, to obtain guaranteed remunerative MSP with minimum 50 per cent profit margin over the comprehensive cost of production, upon the sale of agricultural commodities and other connected matters.

Instead of better credit schemes, improved market access and fair prices will build both resilience and self-sufficiency in farming households.

The Bill also proposes to constitute the National and State Farmers Agricultural Costs and Remunerative Price Guarantee Commissions, autonomous bodies, to determine the comprehensive cost of production of agriculture produce plus at least 50 per cent profit margin as a guaranteed remunerative MSP of all commodities. 

To fundamentally improve the rural economy and shield farmers from shocks, especially as farmers adapt to increased climate variability, the Government needs to address the deeper issues that plague the agricultural sector. Loan waivers and poorly implemented fund transfer schemes might win votes in the short term, but it will not improve the lives of farmers. Instead of better credit schemes, improved market access and fair prices will build both resilience and self-sufficiency in farming households.

[This is the first of a three-part series. Parts II and III will be published soon.]