Mount­ing bur­den

The agrar­ian cri­sis has reached the tip­ping point, be­yond which it will hit the na­tional econ­omy

Down to Earth - - COVER STORY -

RE­CUR­RENT DROUGHTS per­pet­u­ate poverty. More so in a coun­try that is pre­dom­i­nantly ru­ral, with 60 per cent of the pop­u­la­tion re­ly­ing di­rectly on farm­ing, and nearly two-thirds of fields fed only by rain.The con­sec­u­tive crop fail­ures, due to too much and too lit­tle rain, have al­ready pulled down the agri­cul­tural growth rate to 0.2 per cent, from 3.7 per cent in 2013-14. Food prices have started to creep up. Fi­nance Min­is­ter Arun Jait­ley has said agri­cul­ture has be­come a sec­tor of con­cern.But this is not a re­cent phe­nom­e­non.

Down To Earth high­lights a few in­di­ca­tors that show that the cri­sis over In­dia’s agrar­ian econ­omy, and ru­ral econ­omy in gen­eral, has been brew­ing for many years and could be far more se­ri­ous than it seems. These in­di­ca­tors also show where the gov­ern­ment went wrong in its strate­gies.

De­clin­ing ru­ral wage: The Eco­nomic Sur­vey 2014 cel­e­brated the fact that the ru­ral wage growth had de­clined to 3.6 per cent in 2014 from 20 per cent in 2011. “If the trends con­tinue, ru­ral wage growth can con­tinue to de­cel­er­ate, mod­er­at­ing in­fla­tion­ary pres­sures,” noted the sur­vey, which looked at de­vel­op­ment only from the per­spec­tive of in­fla­tion. But it was obliv­i­ous of the fact that the de­cline in­di­cated a ma­jor dip in in­come for 400 mil­lion daily wa­gers (see graph).

There is no way to ex­plain the dip in ru­ral wage rate. But in­di­ca­tors show that the slow­down in the real es­tate sec­tor and con­struc­tion in­dus­try in ur­ban ar­eas, which em­ploy mil­lions of mi­grant labour­ers, could be a ma­jor rea­son. Ac­cord­ing to Jayan Jose Thomas who teaches eco­nom­ics at the In­dian In­sti­tute of Tech­nol­ogy, New Delhi, con­struc­tion has been the only source of non-agri­cul­tural em­ploy­ment for peo­ple in ru­ral ar­eas since mid-2000s. For ru­ral men, it ac­counted for 70 per cent of the net in­crease in non-agri­cul­tural em­ploy­ment.But the slow­down has trig­gered a re­verse mi­gra­tion. Vil­lages are now flush with more labour­ers than be­fore, bring­ing down the wage rate.The sit­u­a­tion will worsen in the near fu­ture, as econ­o­mists say 10 mil­lion peo­ple will move to ru­ral ar­eas af­ter the ur­ban econ­omy starts slow­ing down.

Another rea­son could be de­clin­ing in­ter­est in the Ma­hatma Gandhi Na­tional Ru­ral Em­ploy­ment Guar­an­tee Act (mgnrega), which guar­an­tees 100 days of em­ploy­ment. Since the Act was launched in 2005, it has given a boost to the lo­cal wage rate. But fund al­lo­ca­tions un­der the Act have re­duced since the nda gov­ern­ment came to power. Peo­ple in sev­eral ru­ral pock­ets have been wait­ing for their wages for seven to eight months. This year, de­spite con­se­quent crop fail­ures, the Act reg­is­tered 40 days of job de­mands—one of the low­est in re­cent years.

De­clin­ing food grain sup­port price: In times of dis­tress, the min­i­mum sup­port price (msp), fixed by the gov­ern­ment for a crop, should have come to the res­cue.But the gov­ern­ment's re­cent de­ci­sions point to down­siz­ing of­fi­cial sup­port for higher msp.In the last three years, the in­crease in msp for wheat and paddy has been 4-5 per cent, much less than the in­fla­tion

rate (see graph). In fact, soon af­ter imd pre­dicted that the mon­soon sea­son this year could wit­ness a deficit rain­fall, the Re­serve Bank of In­dia sug­gested that the gov­ern­ment should limit the in­crease in agri­cul­tural sup­port prices to con­trol in­fla­tion.

The gov­ern­ment of­fers the sec­ond level of sup­port to farm­ers by procur­ing more food grains so that farm­ers earn max­i­mum out of their re­duced pro­duc­tion. But in 2014-15, the gov­ern­ment pro­cured 51 mil­lion tonnes of wheat and paddy, which is 30 per cent lower than last year (see graph). The states are also us­ing less food grains from the Cen­tral al­lo­ca­tions un­der the Food Cor­po­ra­tion of In­dia. With farm­ers now selling their food grains in the open mar­ket, whole­sale prices of paddy and wheat have crashed by 16 per cent and six per cent re­spec­tively.In sev­eral parts of Bun­delk­hand, farm­ers have sold wheat at one-eighth of msp.In Punjab and Haryana, farm­ers are dump­ing stocks in front of gov­ern­ment pro­cure­ment cen­tres.

Food price dip: Why did peo­ple spend more dur­ing high in­fla­tion years of 2011 and 2012, and are spend­ing less now, a phase of un­prece­dented low in­fla­tion even touch­ing zero per cent? In Novem­ber 2014 the whole­sale price in­dex recorded zero. Ac­cord­ing to an anal­y­sis of con­sul­tancy com­pany crisil, the year-round fall in food and fuel prices should have gen­er­ated a sav­ing of 509 bil­lion for In­dian con­sumers in 2014-15; by 2016 it would have reached 1.4 tril­lion. Such high sav­ings should have de­liv­ered a big kicker to con­sumer spend­ing. But this is not the case.The an­swer lies in de­clin­ing ru­ral spend­ing due to less earn­ing. Dur­ing 2008-12, as per nsso sur­veys on con­sump­tion ex­pen­di­ture, ru­ral peo­ple spent much more than ur­ban con­sumers, thus sig­nif­i­cantly con­tribut­ing to over­all na­tional spend­ing.The pe­riod co­in­cides with ru­ral wage boom. It was such a big con­tri­bu­tion that the coun­try could tide over the global eco­nomic re­ces­sion smoothly.

This year food grain pro­duc­tion is ex­pected to lower by five per cent com­pared to last year. In an ideal sit­u­a­tion, the prices would have gone up. But whole­sale prices for paddy and wheat have crashed. The sit­u­a­tion is not go­ing to im­prove in near fu­ture as the global food prices are touch­ing a his­toric low.

Wage rate would dip fur­ther as 10 mil­lion peo­ple will move to vil­lages in the near fu­ture

The Food Price In­dex has fallen 22 per cent from its 2011 peak. In­dian farm­ers are al­ready feel­ing the pinch of this crash; farm­ers grow­ing ex­por­to­ri­ented com­modi­ties, such as cot­ton, rub­ber, tea and su­gar­cane, have plunged into cri­sis due to dwin­dling re­al­i­sa­tions and sur­plus stock. With do­mes­tic and global food prices dip­ping, it is go­ing to be an eco­nomic may­hem for farm­ers.

Credit bub­ble: Ru­ral credit lend­ing is ris­ing. Ideally, this should have been good news for farm­ers in need of the pre­cious credit.But as the re­cent crop loss and un­favourable gov­ern­ment poli­cies in­crease the debt bur­den, it will lead to a sit­u­a­tion where credit lend­ing agen­cies will be crip­pled with bad loans. Con­sider this. In­dia wit­nessed an un­prece­dented growth in farm loans last year. By Jan­uary this year, says in­vest­ment farm Emkay Re­search, banks’ agri­cul­tural lend­ing grew by 17 per cent com­pared to last fis­cal year; non-food credit grew by 10 per cent. This is not just a year-on-year in­crease.The 70th round of nsso re­leased in Fe­bru­ary shows that agri­cul­tural lend­ing grew by 24 per cent dur­ing 2003-13.The agri­cul­tural gdp grew by just 13 per cent dur­ing the pe­riod. This is wor­ry­ing as it in­di­cates that while other growth fac­tors like pro­duc­tion and con­sump­tion re­main stag­nant or are de­clin­ing, agri­cul­tural gdp is grow­ing due to credit growth.If agri­cul­tural lend­ing from all in­sti­tu­tional sources like the public sec­tor and co­op­er­a­tive banks is con­sid­ered, farm credit is around 60 per cent of the agri­cul­tural gdp, ac­cord­ing to Emkay's as­sess­ment (see graph on p38).

In a way, it is a credit bub­ble wait­ing to burst. Since over 80 per cent of the bor­row­ers are small farm­ers who don’t have the ca­pac­ity to pay back, it leads to de­mands for loan waiver. This year, Ma­ha­rash­tra, Te­len­gana and Andhra Pradesh gov­ern­ments have de­manded the waiver of a loan of ` 920 bil­lion; in 2008-10, it was ` 650 bil­lion. This threat­ens banks’ abil­ity to sus­tain lend­ing.

All these in­di­ca­tors point to one thing: farm­ers are at a crit­i­cal stage, worse than the sit­u­a­tion of early 2000s that re­sulted in a spate of farmer sui­cides.The gov­ern­ment must act be­fore it’s too late.

Devi Singh of Pooth vil­lage in Bharat­pur dis­trict of Ra­jasthan could harvest these few sacks of mus­tard and wheat af­ter un­sea­sonal rains bat­tered his field early this year

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