Growth in agriculture is not remunerative to Indian farmers

In recent times, agriculture made headlines for all the wrong reasons: Farmers quitting cultivation; the sector turning into a perennial loss-making enterprise; and the country’s official policy to downsize the dependence on agriculture to reduce overall economic hardship among the poorest of the population.

Agriculture’s fast-declining economic importance reached such an extent that economists suggested India had already turned into a non-agrarian economy and the more people quit farming, the better the fortune of remaining farmers would be.

But two developments in the first half of September seem to be forcing us to revise these perceptions of Indian farming and farmers.

First, when India recorded 23.9 per cent contraction in the gross domestic product (GDP) in the first quarter (April-June, 2020), agriculture emerged as the unbelievable winner, growing at 3.4 per cent. This growth in the agriculture sector was based on the rabi or winter crop, that was anyway a bumper one.

Second, the kharif or the monsoon crop is already an exceptional one in terms of acreage. It has broken a four-year record, with 109.5 million hecatres (ha) under sowing.

Now, the tough question: how much will farmers earn out of this? Last fortnight, I had said — without the GDP and the latest acreage data — that farmers do not rejoice anymore at just the production figures. Indian farmers are going to suffer one of their worst losses, proportionate to their investment and excitement, according to all indications.  

Usually, crop output value is used as a proxy for farmers’ income. But in recent years, we have witnessed no co-relation between crop output and the income of farmers.

For instance, take the situation in 2016-17. This was the year when India had a record acreage that was surpassed only this kharif season. Crop value output in that year grew at 5.9 per cent, the fastest in recent times. But according to the National Account Statistics released recently, 2016-17 didn’t register any real growth in farmers’ income.

Second, the Wholesale Price Index (WPI) for agriculture indicates the price at which farmers sell their produce. Thus, it is an indication of how much they could earn. The higher it is, the more is the income for farmers.

But in the first quarter, WPI for food items was 2.1 per cent. It was seven per cent in the first quarter of last year. This means farmers didn’t get a good return from their bumper rabi crops. Does this mean the same for the kharif season?

The answer would be: “Yes”, though for other reasons. The harvest would be bumper but the government is already distributing foodgrains from its reserve as part of the novel coronavirus disease (COVID-19) relief package, free and cheaper as well. It already has an overflowing stock.

These would immediately lead to a market glut for the farmers, reducing prices for their produce. On the other hand, there might not be a huge demand for foodgrains since the loss in income caused by the pandemic has reduced purchasing power generally. This would lead to a fall in food prices. Ultimately, farmers are not earning proportionately to their production or matching agricultural growth.

As such, a farmer’s share in consumers’ expenditure on food items is very low; sometimes, it is less than 66 per cent and as low as 20 per cent in case of fruits and vegetables. Official data does point at an increase in the income from farming per cultivator in recent years.

But that is due to another reason. The growth in farm income / cultivator during 2004-05 to 2011-12 increased not due to a rise in real income but due to steep decline in the number of cultivators to 146 million in 2011-12, from 167 million in 2004-05.

A potential loss in the kharif season is an ominous sign for farmers. They make the most from the kharif season, in comparison to the rabi. In the central and northern hilly areas of the country, farmers don’t earn anything in the rabi season and depend entirely on the kharif seasons for survival.

The income out of the former is invested in the winter crops, which are usually cash crops. So, less income in kharif means less investment in rabi crops. And together, they set in a vicious cycle of low income or cumulative loss on investments.

What could be the investment by farmers on the current record-breaking kharif season? An India average investment on agriculture is difficult to infer, but we can use state-specific data to gauge the investment by farmers.

In Bihar, for instance, a farmer incurs Rs 14,310 per ha as paid-out cost for paddy. Currently, 39.6 million ha of farms are under paddy in the country. By applying the cost in Bihar to the whole country, it turns out to be Rs 56,668 crore, just for paddy and also indicative as the Bihar cost is for the year 2015-16.

If they don’t get the return from their investment, it adds on to their debt. This is because farmers fund upto half of their investment from borrowing. In states like Andhra Pradesh, Maharashtra and Madhya Pradesh, it goes up to 90 per cent.

So, the farmers who made possible the exceptional season amid a pandemic, face a triple whammy: The threat of not being able to sell their produce, risk of low return and a mounting debt. This is a usual story for Indian farmers. But with the income from non-farm sources like daily wage work uncertain, this makes it a lethal year despite a bumper harvest.