Today's Editorial

08 September 2017

Doubling farmers income by 2022



Source: By By Ashok Gulati: The Financial Express



The prime minister, in his Independence Day speech, referred to farmers 12 times. He mentioned several specific achievements in agriculture, from soil health cards given to 9 crore farmers to enhanced crop insurance scheme, from completion of 99 projects under Pradhan Mantri Krishi Sinchayi Yojana by 2019 to encouraging FDI in food-processing and handholding farmers, from supply of inputs to marketing of produce. Finally, the PM concluded by saying, “Together, we will build such an India where farmers can sleep without worry.


By 2022, they will earn double of what they are earning today”. The first time that the PM shared his dream of doubling farmers’ income (DFI) was in Bareilly, at a kisan rally on February 28, 2016. Then, the finance minister’s budget speech mentioned it on February 29, 2016. Thereafter, it attracted attention of policy makers, economists and, most importantly, the farmers. Initially, it was not clear if the government intends to double the real income or the nominal income of farmers. However, now it is evident that the government’s aim is to double the real income, as spelled out in recent reports of the Committee on Doubling Farmers’ Income (CDFI).


On April 13, 2016, the government set up a committee under Ashok Dalwai, then additional secretary in ministry of agriculture, to prepare a report on DFI. The committee seems to have prepared the report in 14 volumes out of which four volumes, containing 718 pages, have been uploaded on the website of the ministry on August 14, 2017. All 14 volumes may cross more than 2,000 pages, and more than 300 recommendations! It would be the litmus test for the PM to read the full report and make sense of it for policy action.


It has a mine of information, which can be very useful for a PhD student; but there are several inconsistencies, too, leaving the readers baffled, and reminded of Albert Einstein’s famous quote, “If you can’t explain it simply, you don’t understand it well enough.” In any case, some of the key highlights of the report and its limitations can be summarised as follows. The report works on three areas: productivity gainsreduction in cost of cultivation, and remunerative prices. The strategic framework has four concerns: sustainable agri-productionmonetisation of farmers’ producere-strengthening extension services, and recognising agriculture as an enterprise.


The report also uses an econometric model to work out how much investment is needed in agriculture, irrigation, rural roads, rural energy and rural development to attain 10.41% annual growth in real incomes for DFI by 2022-23 over base of 2015-16. The point of note is that farmers’ real incomes have increased by only 3.5% per annum between 2002-03 and 2012-13. So, DFI means three time’s higher effort and resources. Additional investment needed to realise this works out to a whopping Rs 6, 40,000 crore, at 2011-12 prices. And this does not include investments in agri-logistics, cold chains, etc. Eighty percent of this investment has to come from the government. The investments in, and for agriculture, need to rise by 22% per annum in real terms if the dream of DFI is to be realised.


But the report is totally silent on how, and from where, these resources will be generated. In a climate of loan waivers, subsidies, and welfare programmes that dominate the budget (as the accompanying graphic shows), the likely reality is that investments are going to shrink further. Even if one makes the heroic assumption that so much investment will be somehow made, the question that still needs answering is how much agri-production will increase as a result of this, and where that increased production will be absorbed. We have seen that when production increases somewhat significantly, prices crash, as happened this year in several states for onions, potatoes, pulses and oilseeds.


If domestic consumption can’t absorb increased outputs, can we export in global markets competitively? None of these fundamental questions have been addressed in the report. Instead, we have a laundry-list of hundreds of recommendations, ranging from implementation of APLM Act to e-NAM to negotiable warehouse system to price deficiency payments to re-organising KVKs, and so on and so forth, and, finally, setting up a secretariat for DFI! Looking at all these as preconditions for DFI, one is reminded of famous Hindi idiom, “Na nau man tel hoga, na Radha nachegi”. In essence, it translates as, “If the sky falls, we shall catch larks.”


Does it mean that DFI will remain a pipe-dream by 2022? Most likely, though not necessarily. In order to take this dream nearer to reality, one may look at Chinese experience during 1978-84, when it doubled farmers’ real incomes in six years and reduced poverty by half! (India took 18 years from 1993 to 2011, to cut poverty by half ;). China focused primarily on incentives for farmers by moving from the commune system to household responsibility system in land, and ensured higher prices for farmers. Chinese prices for farmers have remained way above what India gives to its farmers. Just to cite one example, China’s MSP for wheat in 2014-15 was $385/tonne against India’s $226/tonne. Similar differences exist for other crops. This was on top of $22 billion of input subsidies.

The upshot of this example is that India needs to focus on incentives for farmers, and much else will follow. Unfortunately, our policy is biased in favour of consumers and that inadvertently makes it anti-farmer. If the Modi government can reform that by using income policy to protect the poor, and free up prices for farmers, allow private trade to stock and operate freely and have unhindered exports, India can raise farmers’ incomes significantly, if not double by 2022.

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