How BJP, Cong balance inflation and rural distress
CRUCIAL LINK The choice between higher purchase prices for farmers and targeting lower overall inflation is a key contradiction in India’s political economy framework
Rural distress, most experts agree, will be a major headwind for the Bharatiya Janata Party (BJP) in the 2019 Lok Sabha elections. Interestingly, even though fuel prices were rising until a few weeks ago, rising prices never really became prominent in anti-incumbency narratives.
To be sure, petroleum prices have reversed their rising trajectory due to a fall in crude prices over the past month. This is very different from the situation during the last phase of the Congress led United Progressive Alliance (UPA) government, when inflation was a big issue. So much so that Bahut Hui Mehangai Ki Mar, Abki Bar Modi Sarkar was one the key slogans of the BJP’s 2014 campaign.
It is no coincidence that inflation and rural distress do not dominate the political narrative at the same time.
Here’s why. Almost half of India’s workforce draws its livelihood from agriculture. Food items account for more than 40% of the Consumer Price Index (CPI) basket. So, if food prices are rising at a faster pace, inflation is likely to be higher. A higher growth in food prices, for a given rate of growth in agricultural production, also means better incomes for farmers although it also means that non-farming incomes will be squeezed.
Food prices are sensitive to an important policy tool in the Indian economy, namely Minimum Support Prices (MSPs) or the price at which the government procures important crops
Minimum Support Prices are an important policy tool with governments to balance these two contradictory objectives.
An analysis of historical data shows that Congress governments have tended to favour farmers at the risk of higher inflation, while the BJP has focused more on controlling inflation even if it leads to rural distress.
The biggest proof of this can be seen in growth of MSPs under governments headed by these two parties. from the farmers. A government which wants to keep farmers happy can increase MSPs at a faster pace. But this increases the risk of alienating the non-farming community because of higher inflation.
The choice between higher farm prices and lower overall inflation is an important contradiction in India’s political economy framework.
An HT analysis for the post-re- form period shows that Congress governments have tended to take the side of the farmers, while the BJP is more likely to prioritise low overall inflation.
Three set of statistics, overall inflation, inflation for primary food articles and growth in MSPs, support this argument. Both CPI and Wholesale Price Index for primary food articles – a better proxy for prices received by farmers – have been higher during the tenure of the Congress government from 1991 to 1996 and the UPA from 2004 to 2014 compared to what they were during the first (1999-2004) and current BJP-led National Democratic Alliance (NDA) government.
Chart 1: CPI-IW and WPI-primary food article
To be sure, the entire trend cannot be attributed to a difference in the policy outlook of governments. Various exogenous factors, such as oil prices could determine the inflation situation in a given period.
MSPs, therefore, are a much better indicator of a government’s disposition towards handling the inflation-rural distress contradiction. Higher MSPs are directly aimed at increasing farm incomes even at the risk of stoking inflation. The pattern seen in headline inflation numbers discussed above repeats itself in growth in MSPs during Congress and BJP governments, with the former witnessing higher rise in MSPs.
Chart 2: Annual growth in MSPs
What explains this difference in policy outlook between the Congress and the BJP? The latter has evolved as an urban party, 0
(Y-o-Y growth in % : 1983-84 to 2019-20) 25 20 15 10 5 0 198384 198384
Congress government 199192 199192 drawing traction from its ideological parent Rashtriya Swayamsevak Sangh (RSS). The Congress initially had the strongest support among the dominant peasant communities, which started weakening from the late 1960s with the party losing ground among Other Backward Class (OBC) communities. This difference could be one factor which influenced the approach of India’s two main parties towards inflation. To be sure, some state 199596 199596 Wheat 2004 -05
NEW DELHI:
Paddy 2004 -05
ALMOST HALF OF INDIA’S WORKFORCE DRAWS ITS LIVELIHOOD FROM AGRICULTURE. FOOD ITEMS ACCOUNT FOR MORE THAN 40% OF THE CONSUMER PRICE INDEX BASKET MINIMUM SUPPORT PRICES ARE A MUCH BETTER INDICATOR OF A GOVERNMENT’S DISPOSITION TOWARDS HANDLING THE INFLATIONRURAL DISTRESS CONTRADICTION
governments of the BJP have been more sensitive to the cause of farmers than their national governments. For example, the Shivraj Singh Chauhan government in Madhya Pradesh is known to have gained politically for its pro-farmer policies.
Even when Minimum Support Prices growth was sluggish under the present government, it introduced the Bhavantar scheme to compensate farmers for prices falling below MSPs.
To be sure, the present government has spiked the increase in MSPs since the last Rabi season, with MSPs giving a return of at least 50% over the A2+FL cost measure, which represents actual cost plus imputed value of family labour in the production of a crop.
However, such a policy is more of a tactical move prior to elections than an attempt to permanently shift the terms of trade in favour of agriculture.