Unusual demand drop responsible for agri distress
LOAN WAIVERS MAY GIVE DEFLATIONARY RISKS TO ECONOMY
After a quiet first volume, the second volume of the Survey explored the negative impact of farm loan waivers and blamed the unusual demand drop alongside limited sale opportunities for the recent distress in agriculture.
It pitched for building strong market infrastructure to cushion farmers against price risks.
The Survey, which comes in the backdrop of a massive agitation by farmers in several parts of the country, leading to clamour for a waiver of farm loans, said that managing and reducing risks in agriculture could increase their incomes and profitability.
On the recent sharp decline in prices of many farm goods, mainly vegetables, the Survey said clearly increased supply led to large declines in prices; but its magnitude was much greater than a similar decline in 2014 as avenues of sale for farmers were limited due to stock limits on wholesalers and retailers of many commodities and also weak demand as compared to previous years.
It didn’t explicitly blame demonetisation for demand destruction in rural India.
In a detailed analysis of farm risks, the Survey said trade or domestic policy changes should be announced well before sowing to enable farmers to take informed decisions and they should be maintained till arrivals and procurement were over.
On farm loan waivers, the Survey said that they could reduce aggregate demand by as much as 0.7 per cent of GDP, imparting a significant deflationary shock to an economy yet to gain momentum.
“The actual impact will depend on the number of states that actually decide to grant waivers, and how they distribute them over time. Some broad patterns are discernible,” the Survey said, assuming that based on the discussions, the aggregate amount of farm loan waiver could be around ~2.7 lakh crore.
Shiraz Hussain, former agriculture secretary, told Business Standard, said: “My stand is very clear on the need and efficacy of farm loan waivers; if you give kid glove treatment to bank NPAs (nonperforming assets), why not give the same treatment to loans taken by farmers and cultivators.”
He said he was not a big votary of loan waivers, but then when NPAs of big firms can be waived, why not waive loans taken by growers?
“This we also support as stable policies will ensure that private investment in agriculture comes. To me, agriculture and, more importantly, agriculture marketing need a proper champion just like the goods and services tax (GST),” Hussain said.
On the much-talked-about farm distress in the country, the Survey said that economic distress — as measured by real revenues (prices times the quantity of arrivals deflated by the rural consumer price index) — was not a generalised phenomenon.
For example, it does not afflict wheat and Bengal gram (“chana”), whose market quantities and prices have risen, resulting in rising real revenues; But there does seem to be a decline in real farm revenues in pulses and some vegetables like potatoes.
In the agricultural year ended June 2017, the Survey said that relative to the previous year, real revenues had declined most in the case of moong (30 per cent) and least in the case of potatoes (4 per cent) with arhar and moong posting declines of around 10 and 28 per cent, respectively.