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COVERSTORY

AGRICULTURE

Seedsofdistress

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ArunJaitleyslatestbudget,whichrefusestoaddressissuessuchasthecrisisofprofitability
orpaucityofstatecredit,failstomakeanyefforttoimprovetheeconomicsofcultivation.By
R.RAMAKUMAR
PERHAPSnoothergovernmentinindependentIndiahasbeensoadeptatofferingpromisesasbombasticasthe
NarendraModigovernment.ThemostrecentpromisehascomefromArunJaitleyinBudget201617hesaidthathis
governmentwilldoubletheincomeofthefarmersby2022.
Tobeginwith,Jaitleydeliberatelykepthispromiseunclear.First,hedidnotmentionifhewasreferringtonominal
incomesorrealincomes(adjustedforinflation).Iftheformer,therehavebeenearlierinstances,suchasbetween
200405and201112,wherenominalincomesinagricultureindeeddoubled.Ifthelatter,agricultureneedstogrowat
insanelyhighrateseveryyearuntil2022.
Secondly,Jaitleydidnotmentionifhewasreferringtoincomesfromagricultureorincomesofhouseholdsinvolvedin
agriculture.Theformerwouldincludeonlyincomesfromcultivation,includinglivestock.In201213,theaverage
annualincomeofanagriculturalhouseholdfromcultivation,livestockandfarmbusinesswasRs.4,356.Thus,the
corresponding(nominal)incomein2022shouldbeRs.8,712.Inthelatter,however,totalhouseholdincomewould
includeagriculturalwages,nonagriculturalwages/incomes,salariesandurbanremittances.In201213,non
agriculturalenterprisesweretheprincipalsourceofincomefor5percentofagriculturalhouseholds.Similarly,wages
orsalariedemploymentwastheprincipalsourceofincomefor22percentofagriculturalhouseholds.Theimplications
ofsuchdiversityofincomesourcesforpublicpolicyarenottobeunderestimated.LetusassumeherethatJaitleys
claimrefersonlytoincomesfromagriculture.
Incomesfromcultivationaredependentonmultiplefactors.Theseincludetheratiobetweentheinputpriceandthe
outputpricethetypeofcropsgrowntheyieldsofcropsthenumberofcropsgrowninayeartheabilitytoraise
creditthesizeofthefarmand,finally,theratiobetweenfarmincomeandthecostoflivingindex.Ariseinincomes
fromcultivation,then,requiresaddressingconcernsrelatingtoawidearrayoffactors.Admittedly,someofthese
factors,suchasadministeringoutputprices,croppingpatternandstructuralfeatureslikefarmsize,arebeyondthe
scopeofanannualBudget.Limitsofscope,however,didnotpreventJaitleyfromgoingforthehyperbole.
Yet,budgetsandfiscalpolicycanmakeadifferencetofarmerincomes.Inputpricescanbemoderatedthroughhigher
publicexpenditureonsubsidies.Betteryieldingseedscanbetheoutcomeofhigherpublicexpenditureinagricultural
researchandextension.Thenumberofcropsgrowninayearcanbeinfluencedbyhigherpublicinvestmentin

irrigation.Overallcostsoflivingcanbemoderatedthroughhigherpublicexpenditureoneducation,healthandsocial
securitycover.
BeforeexaminingtheBudgetproposals,letusfirstmapoutafewmajorcontemporarychallengesinraisingfarmers
incomesinIndia.
Crisisoffarmprofitability
Improvingtheoutputinputpriceratio,ceterisparibus,isabsolutelyessentialtoraisefarmincomes.Figure1showsthe
movementofthewholesalepriceindicesofselectedfarminputsbetween200405and201415.Asharpriseinthe
pricesoffarminputs,suchasfertilizers,electricity,pesticides,diesel,cattlefeedandfodder,isastrikingfeatureofthe
periodafter200809,particularlyafter201112.Figure2showsthemovementofindicesofMinimumSupportPrices
(MSPs)ofselectedcrops.Forpaddy,wheat,cotton,toordalandjowar,astrikingfeatureisthenearflatteningofcurves
after201112inotherwords,duringthesameperiodthatinputpricesrosesharply,thegovernmentrefusedtoraise
MSPs.Asaresult,profitmarginsshrank,oratbeststagnated.Figures1and2capturetheproximatecauseofthe
currentagrariandistress.Thiscrisisofprofitabilityinagricultureispolicyinduced.Ononehand,thegovernments
conservativefiscalpoliciesledtoadeclineinsubsidiesandanincreaseininputcosts.Ontheotherhand,the
governmentrefusedtoannouncehigherMSPstoreflecttheriseincostsofproduction.Surprisingly,many
commentariescitetheslowgrowthofMSPsasanachievementEconomicSurvey20152016citesthemoderate
increaseinMSPsasevidenceofastutepoliciesandmanagementofinflation.
Aqualificationmaybeinorderhere.HigherMSPsdoinfluencethemarketpricesofcommodities.However,evenif
MSPshadrisen,itisunlikelythatthefullbenefitsofahigherMSPwouldhavereachedthefarmers.First,alarge
proportionoffarmersdonotgeneratemarketablesurplusandwouldnotbethebeneficiariesofhigherMSPsonthe
contrary,theywouldcontinuetobeadverselyaffectedbyhigherinputprices.Second,owingtothelackofadequate
procurementcentres,amajorityoffarmerssellatpriceslowerthantheMSP.NationalSampleSurveyOffice(NSSO)
datafor201213showthatonly13.5percentofpaddyfarmersand16.2percentofwheatfarmerssoldtheirharvestto
procurementagencies.Thecrisisofprofitabilityincultivationisfurtherexacerbatedbyafewotherpolicyinduced
constraints.Thefirstisinthesphereofagriculturalcreditandthesecondinthesphereofpublicspendingand
investment.
Crisisinfarmcredit
OvertheperiodoffinancialliberalisationinIndia,farmershavebeenpushedoutoftheambitofpublicbankingand
forcedtodependincreasinglyoninformallenders.Theimmediatereasonformostsuicidesbyfarmershasbeen,also,
theirinabilitytorepayloans.
Between1992and2013,theshareofcultivatorhouseholdsinIndiawhowereindebtedincreasedfrom25.9percentto
45.9percent.Ariseintheshareofindebtedhouseholdsinitselfisnotalarming.Whatisalarming,however,isthat
therealsowasariseintheirdebtassetratios(whichshowstheextenttowhichdebtisadrainonthevalueofowned
assets).
In1992,thedebtassetratioforcultivatorhouseholdswas1.61anditroseto2.46in2013.Therewas,thus,amajor
intensificationofdebtburdensinagriculture.Wherewasallthisadditionalcreditborrowedfrom?Notpublicbanksbut
informallenders.Forinstance,theshareofdebtoutstandingofcultivatorhouseholdsfromprivatemoneylenders
increasedfrom17.5percentin1992to29.6percentin2013.ThesethreeresultsrevealthreerealitiesofruralIndia.
First,financialliberalisationafter1991underminedtheimprovementsinagriculturalcreditachievedafterthebank
nationalisationof1969.Secondly,thoughtheUnitedProgressiveAlliance(UPA)governmentin2004announceda
schemetodoublethesupplyofagriculturalcredit,theincreaseincreditflowfrombanksdidnotreachfarmers.Thirdly,
adhocmeasureslikethedebtwaiverschemeorreliefpackagesimprovedneithertheconditionsoffarmersonthe
groundnortheoverallcreditsupplytoruralareas.
Indianagriculturehashistoricallybeenstarvedofpublicresources.However,particularlyafter1991,anumberof
publicschemeshavefacedsharpbudgetcutswithonerousconsequences.Letustaketheexampleofpublicagricultural
extension.Newpoliciesafter1991treatedagriculturalextensionasaprivategoodthatshouldensurefinancial
sustainabilityandcostrecovery.Consequently,publicspendingonagriculturalextensiondeclinedandtherural
extensioninfrastructurecollapsed.APlanningCommissionreviewin2005admittedthatthepoorrecordof
agriculturalgrowthafter1991wasduetoweakenedsupportsystemsandnearlybrokendownextension.InStates
likeAndhraPradesh,thepoorqualityofextensionsystemscontributedtoariseinthequantityofspuriousseedssold.

Manyfarmersuicidesweretheoutcomeofcropfailurescausedbytheuseofspuriousseeds.
Thecaseofagriculturalresearchissimilar.Inthedevelopedworld,publicspendingonagriculturalresearchasashare
ofagriculturalGDPrangesbetween2and3percent.InIndia,publicspendingonagriculturalresearchandeducation
isbetween0.6and0.7percentoftheagriculturalGDP.Aspendingtargetof1percentoftheagriculturalGDPwas
fixedintheNinthPlan,butthathasnotbeenachievedeventoday.Instead,policyhasfocussedonencouragingprivate
research,especiallythatledbylargemultinationalenterprises.Asaresult,thecapabilityofpublicresearchinstitutions
tocompetewithprivatesectorfirmswasthoroughlyweakened.
LetusnowconsidertheproposalsinBudget201617.Iffarmincomesaretorise,cultivationhastobecomeadequately
profitable.Ruralbankshavetoresumesupportinginvestmentsbyfarmers.Publicexpenditureandinvestmentshould
rejuvenatepublicsupportinstitutionsinagriculture.
Budgetandfarmprofitability
Tobeginwith,JaitleysBudgethasnoproposaltoamelioratethecrisisofprofitabilityinagriculture.Twoimportant
subsidiesaretofallin201617.ThefoodsubsidywilldeclinefromRs.1,39,419crorein201516toRs.1,34,835crorein
201617.Overthelast22months,theNationalDemocraticAlliance(NDA)governmenthasexpressednointerestin
implementingtheNationalFoodSecurityAct(NFSA).Ithasalsodeclareditspreferencetoconvertinkindtransfersin
thePublicDistributionSystem(PDS)toincashbanktransfers.IfnofoodistobedistributedthroughthePDS,
procurementandMSPsbecomeredundant.Regardlessofthemuchtrumpetedannouncementondecentralised
procurementintheBudget,thereductioninfoodsubsidyappearstobeapointertothislargerplan:dismantlethePDS
andmovetodirectcashtransfersminimisetheamountofgrainsprocuredopenupruralmarketstomultinational
aggregatingfirms.SuchaplanwouldultimatelyendupeliminatingtheMSPitself.
Ontheinputside,theBudgetoffersnorespiteforfarmerswhocurrentlypayexorbitantpricesforfertilizers.Amongall
farminputs,fertilizerpriceshaverecordedthesharpestriseinrecentyears.Still,fertilizersubsidyistodeclinefrom
Rs.72,438crorein201516toRs.70,000crorein201617.TheeffortintheBudgetisalsotofocusonpayingfertilizer
subsidiesdirectlytofarmers.However,itistotallyunclearhowthedirecttransferoffertilizersubsidieswouldbe
implementedandhowthequantumoftransferandeligibilitywouldbefixed.Inreality,itislikelythatthefarmerswill
beleftcompletelyunprotectedfromfutureincreasesinfertilizerprices.Andthisislikelytorenderthecrisisof
agricultureevenmoreacute.
Inhisspeech,JaitleypromisedtoraisethesupplyofagriculturalcreditfromRs.8.5lakhcroretoRs.9lakhcrore.Over
thelastdecade,ithasbecomecustomaryforFinanceMinisterstotakecreditfortherisingsupplyofagriculturalcredit.
ThefallacyoftheseclaimswaspointedoutbythiswriterinFrontlinein2011itself(seeInfarmersname,March25,
2011).
Theupshotisthatlessthanhalfoftheagriculturalcreditappearstobeactuallyreachingthefarmers.In2014,about58
percentoftheagriculturalcreditwascomposedofloansaboveRs2lakhnoaveragefarmeractuallytakesacroploan
ofmorethanRs2lakh.Morethanaquarterofagriculturalloansisdisbursedfromurbanandmetropolitanbranchesof
banks.AmajorproportionofagriculturalcreditissuppliedfromthebankbranchesinFebruaryandMarch,whenvery
littleagriculturalactivitytakesplace.Largeamountsofagriculturalcreditarealsogivenoutasindirectfinance.In
otherwords,agriculturalcreditisincreasinglybeingdivertedtourbanareasandlargecorporategroupsinvolvedin
agribusinessactivities.
Jaitleydoesnotcriticallylookatthishumongousdiversionofagriculturalcreditawayfromfarmerstothebenefitof
corporations.Heseemsobliviousofthecloselinksbetweenfarmerssuicidesandinformalloans.Hehasnoreliefto
offerforfarmerswhoaredeniedcreditbypublicbanks.Astheagrariandistressdeepens,thecontinuingwithdrawalof
banksislikelytopushmorefarmersintothehandsofprivatemoneylenders.
Budgetspendingonagriculture
JaitleystenureasFinanceMinisterafterMay2014hashadacommonfeature:hehasconsistentlycutexpenditureon
agriculture.
Taketherevenueheadundercrophusbandry.In201314,Rs.51,087crorewasspent.For201415,Jaitleybudgetedfor
aloweramountofRs.41,681crorebutonlyRs.36,628crorewasspent.Thecutbetween201314and201415was,thus,
Rs.14,459crore.For201516,hebudgetedanamountofRs.39,868crorebutonlyRs.39,324crorewasspent.For2016

17,JaitleyhasbudgetedjustRs.25,756crore.
Thereismore.OnAgricultureandIrrigation,thetotalamountspentin201415wasRs.31,497crore.Theamount
spentin201516wasjustRs.25,988crore,orRs.5,509croreless.For201617,thebudgetedamount(excludingthenew
headofinterestsubventionbroughtinfromtheMinistryofFinance)isRs.32,912crore.ThisisaboutRs.6,924crore,or
26percent,higherthanin201516.However,ifweaccountfortheamountofRs.5,509crorethatJaitleyhimselfcutin
201516,itwouldappearthathehasjustaboutredeemedhimselfandnothingmore.
Thetrendisthesameinthecaseofspecificschemesinagriculture.FortheRashtriyaKrishiVikasYojana(RKVY),
JaitleycuttheoutlayfromRs.8,443crorein201415toRs.3,900crorein201516.Theproposedamountfor201617
hasbeenjackeduptoRs.5,400crore,butitremainstobeseenifthisamountisactuallyspent.FortheKrishiUnnathi
Yojana,theamountwascutfromRs.9,823crorein201415toRs.8,884crorein201516.Thebudgetedamountfor
201617isevenloweratRs.7,580crore.
Foragriculturalresearchandeducation,thereisonlyamarginalriseinexpenditure,fromRs.4,840crorein201415to
Rs.5,586crorein201516.EventhebudgetedamountofRs.6,620crorein201617,thoughnominallyhigher,appears
hardlyadequatetoeithermeettheinvestmentneedsinthepublicsectororaccountforinflation.Jaitleysbudgetoffers
nosolutionstothemajorcausesofagrariandistress.Itmakesnocontributiontoimprovingtheeconomicsof
cultivationitfailstoplugtheleakageofagriculturalcredittolargeagribusinesscorporationsanditfailstofinance
andrejuvenatepublicsupportinstitutionsinagriculture.Jaitley,andModi,maydowelltoappreciatethattherouteto
achhedinforfarmersliesinthereversalofneoliberalpoliciesinagricultureandnotinfurtherentrenchingthem.
R.RamakumarisProfessor,TataInstituteofSocialSciences,Mumbai.