After Gujarat, rural crisis may eat into BJP’s poll prospects in 2018

TEST AHEAD Antiincumbency driven by farm distress could be stronger in Rajasthan, Chhattisgarh and MP, which will vote next year

The BJP’s diminished tally in rural Gujarat has brought the issue of agrarian distress driven anti-incumbency to the fore. Among major states, Rajasthan, Madhya Pradesh (MP), Chhattisgarh and Karnataka will go to the polls in 2018. Except Karnataka, the BJP is in power in all these states. The results could also set the narrative for the 2019 general elections, much like they did in 2013. The BJP won 85% of the total Lok Sabha seats in these four states in the 2014 elections.

How big a factor will rural discontent be in these four states? The answer depends on the relative importance and performance of rural economy.

BIG RURAL PRESENCE

Three out of these four states are overwhelmingly rural. According to the 2011 census 68.8% of India’s population is rural. Among Rajasthan, MP, Chhattisgarh and Karnataka, the first three have a greater than all-India average share of rural population. This also manifests itself in a bigger share of agriculture in output and employment (See Chart 1).

FALLING FARM GROWTH

A comparison of agricultural growth under present and previous governments shows that it has fallen in all four states.

We compared Compound Annual Growth Rate (CAGR) of the agriculture and allied activities component of GSDP (2004-05 series) from 2008-09 to 2013-14 and GVA (2011-12 series) between 2013-14 and 2016-17 . For Rajasthan the latest available figure is 2015-16 (See Chart 2).

To be sure, CAGR comparisons for agricultural growth can sometimes be misleading due to seasonal fluctuations in the years take for analysis.

A comparison of Year-on-year (YoY) growth in agriculture shows that these states have largely followed the all-India pattern of poor farm growth during 2014-15 and 2015-16 . Both of these were rainfall-deficient years.

PROFITABILITY DOWN When it comes to agriculture, even bumper harvests need not translate into good incomes for farmers. This could be the result of a fall in prices. This makes it necessary to look at profitability indicators.

In India, the Commission for Agricultural Costs and Prices (CACP) releases state-wise data for cost of cultivation and returns on important crops.

The profitability figures used below capture profits (value of output over cost) based on the C2 estimate of cost of cultivation. C2 includes expenditure on hired and owned machinery and labour (animal and human); inputs such as seeds, fertilisers; irrigation; land revenue; interest on working capital; rental value of owned land and rent paid on leased in land; and imputed value of family labour.

Unfortunately, these numbers come out with a significant time lag. A comparison of the latest available numbers shows that profitability declined for all major crops in these four states (See Chart 3).

To be sure, the latest numbers only capture first two years of the incumbent governments in some states. However, a couple of points are noteworthy.

During the campaign for the 2014 elections, BJP’s Narendra Modi had promised to increase Minimum Support Prices to provide returns which were 1.5 times the cost of production of farmers.

This must have been music to the ears of farmers who were facing a decline in profitability, as is shown by the CACP data given above. This promise has not been kept.

Madhya Pradesh and Rajasthan have seen large-scale farmer agitations demanding remunerative prices and loan-waivers in the last few months. Although we do not have statistics to track income and profitability during this period, the unrest suggests that things might have turned from bad to worse.

In this scenario, rural headwinds to the BJP’s political fortunes can be expected to become stronger in 2018. Not surprisingly, there are reports that the coming Union Budget could be farm-focused.

NEWDELHI:

IN THE RUN UP TO THE 2014 LOK SABHA POLLS, MODI HAD PROMISED TO INCREASE MSP AND PROVIDE BETTER RETURNS TO FARMERS. HOWEVER, THE PROMISE HAS NOT BEEN KEPT

All India Madhya Pradesh Chhattisgarh Rajasthan Karnataka All India 2008-09 to 2013-14 0

Chhattisgarh Profitabilty in % (Net rate of return as percentage of C2) Chhattisgarh All India Madhya Pradesh Rajasthan All India Madhya Pradesh All India Karnataka All India Madhya Pradesh Rajasthan Karnataka All India 2013-14 to 2016-17 Karnataka Madhya Pradesh Rajasthan

TE 2011-12 TE 2014-15