Agriculture: Bringing the states back in

There is only one way to increase farm and non-farm rural incomes — adopt a state-specific approach

The recently released Situation Assessment of Agricultural Households and Land and Livestock Holdings of Households in Rural India, 2019 (SAS) serves as an important reminder of the diverse and regionally specific nature of agriculture in India. Agricultural incomes and the interlinkages between farm and non-farm activity vary significantly by state. Thus, pathways for “doubling farmers income” or enhancing productivity through market competition have to be determined in consonance with state-specific realities. This is the primary reason why agriculture is a state subject and why the Centre’s farm laws are fundamentally flawed.

The average total monthly income of an agricultural household in 2018-19 (June-july) was ₹10,829 (including pensions and remittances). Of this, farm income (crop production and farming of animals) contributed less than 50% to an average household’s total income. But hidden in this pan-india statistic, as a Centre for Policy Research analysis reveals, are significant state-level variations. Farm income dependence is about a third of total incomes in states such as Kerala (22%), West Bengal (28%), and Odisha (35%) and as high as over 60% in Punjab (61%) and Madhya Pradesh (66%).

A closer look at sources of income presents a puzzle. Average monthly farm income in Bihar was ₹4,478 compared with ₹1,929 in Jharkhand. However, average earnings from wages were about the same. Farm incomes account for 57% of total income in Bihar while their contribution to total income is a mere 37% in Jharkhand. Total income of an average agricultural household in Jharkhand is far lower than Bihar. There are bigger surprises — the average monthly income from agriculture in Kerala is ₹4,688 (not significantly more than Bihar). Farmers in Karnataka earn nearly 26% more than farmers in Maharashtra.

The degree of dependency on farm income is, of course, linked to the size of operational landholdings. At an all-india level, it is only when land size exceeds one hectare that farm income to total agricultural income reaches the threshold of 50%. But again, there are state-specific variations. In Kerala, nearly 87% of agricultural households were in possession of between .01 and 1 hectare of land. Agriculture accounted for a mere 19% of total monthly income.

Interestingly, even households with larger landholdings in Kerala (2-4 hectares) only drew 36% of their household income from farming; that figure is 47% for Tamil Nadu, 78% for Bihar, and 80% for MP. In Bihar, 86% households possessed between .01 and 1 hectare of land. Agriculture accounted for 45% of total income. In Madhya Pradesh, a far lower 52% of households have less than 1 hectare of land and agriculture accounted for 32% of their income, but for the average agricultural household in MP, income from farming constitutes a high 66% of all income.

Finally, on the vexed question of Agricultural Produce Market Committees (APMCS) and markets, SAS data confirms a reality that both previous surveys and field research have established. At an all-india level, far from being a monopoly, APMC mandis are relatively marginal sites of sales and that the vast majority of farmers sell their agricultural produce in local market sites outside state-regulated mandis. But, here again, there are important regional and crop-specific variations in marketing conditions, including in the presence of government procurement systems across states.

Just this cursory glance at headline figures highlights the complexity of the policy challenge. Agricultural productivity, market access, nonfarm linkages, other employment opportunities and social protection all need attention, but the policy priorities and strategies for increasing both farm and non-farm rural incomes will all have to be state-specific.

Writing in these pages days after Parliament passed the farm laws, we argued that the laws are flawed because they adopted a reform approach that seeks to centralise policy in what is an extremely diverse and context/region-specific sector. The relationship between agricultural practices, markets and State institutions is so varied across states that the average farm income in Bihar is nearly as high as that of Kerala but for very different reasons.

In order to respond, we need to make two crucial shifts in our national debates. First, recognise that there is no getting around states; we have to shed the disenchantment with state failure and yet place accountability firmly on state governments. Second, we need to mobilise to invest in State capacity at the state government level. This means building up planning capacities, mechanisms for cross-state learning (a role that NITI Aayog can play very effectively), and investing in local governments. Both better coordination and decentralisation are critical to building region-specific farm and non-farm linkages and growing local economies.

No amount of central legislation can resolve these critical issues. We now need to shift the terms of the policy debate and ask what will it take for states to invest in serious reforms and address the critical challenge of agriculture.

Yamini Aiyar is president and chief executive, CPR Mekhala Krishnamurthy is a senior fellow and director of the State Capacity initiative, CPR and associate professor, Ashoka University The views expressed are personal