Rural economy may save us, but policy incoherence is unhelpful

With their September quarter updates, most of the agencies which track the Indian economy — from credit rating agencies to multilateral lenders — have increased their estimate of the extent to which the economy will shrink this fiscal to around 9 per cent. The updates were no doubt spurred by the staggering 23.9 per cent shrinkage in GDP in the first quarter data. This means that in one quarter — the estimate for GDP growth averaged a negative 5 per cent three months ago — the expected downtrend has doubled. I have no doubt that as more data become available and data gaps are plugged, this estimate, too, shall rise sharply.

Amidst all this gloom, there is one bright spot — India’s largely ignored rural sector. In its latest outlook, credit ratings major CRISIL expects agricultural GDP to grow 2.5 per cent year-on-year this fiscal, the only sector of the economy which will be recording actual growth this fiscal. In the first quarter for which actual data is available, agriculture grew 3.4 per cent.

The news gets better. Rainfall (up to August 31) has been 7 per cent above normal across the country. This has resulted in sowing — a good indicator of potential output — hitting a record high. Overall acreage grew 6 per cent with almost all key crops reporting large increases in area sown. Rice acreage is up 6 per cent, Arhar is up 8 per cent, groundnut up a whopping 31 per cent and so on. This means another bumper kharif harvest.

However, agriculture on its own cannot save even the rural economy, leave alone the entire economy. According to NITI Aayog, non-farm activity already accounts for over 60 per cent of rural GDP. Agriculture itself accounts for only a little over 15 per cent of GDP; so even a stellar show by our farmers is unlikely to pull the economy out of the hole it is in right now. Despite agriculture accounting for over 44 per cent of employment, low farm gate prices have meant that rural wages have stayed depressed.

With the massive reverse migration triggered by the stringent Covid lockdown — the largest movement of humanity seen since Partition — remittance income, a crucial support for rural consumption — is also likely to see a sharp fall.

Covid impact

There is another lurking danger. The virus. While total Covid cases have surged past the 5-million mark in India, the bigger worry is the rising incidence in poorly equipped rural districts. Only 20 per cent of rural districts had more than 1,000 cases in June. By August, more than half of all rural districts had over 1,000 cases and this number is shooting up. Densely populated States such as Uttar Pradesh and Bihar have only an abysmal 11 beds per lakh population, well below India’s already low average of 55 beds per lakh population. If the pandemic’s surge coincides with the harvest season, even the glimmer of hope offered by agriculture will be snuffed out.

The rural sector is also critical for other sectors. Over half of mining, quarrying and construction output depends on the rural sector. Utilities like electricity and gas have one-third of their income from rural customers, as do other services.

This means that unless governments — both at the Centre and in the States — get their act together, the brief flicker seen in some areas like tractors or two-wheelers, driven by rural demand, will stay just that — flickers.

This is why the three agriculture-related Bills introduced in the Lok Sabha this week, meant to replace ordinances issued in June, assume so much importance. The goal of all three reform measures is the same — transforming agriculture in the country and raising farmers’ income.

Seeds of change?

The Bills — the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 and the Essential Commodities (Amendment) Bill, 2020 — together aim to lift restrictions on farmers in accessing markets, realising better prices for output and removing the end-consumer bias in measures like the Essential Commodities Act.

Introducing the Bills (except the Essential Commodities Bill, which was piloted by the Consumer Affairs Ministry), Agriculture Minister Narendra Singh Tomar said that the measures will remove barriers on trade in agricultural produce, and enable farmers to engage with consumers and investors of their choice.

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, for instance, seeks to dismantle the choking restrictions placed by laws like the APMC. It seeks to provide for the creation of an ecosystem where the farmers and traders enjoy the freedom of choice relating to sale and purchase of produce. This is done by enabling remunerative prices through competitive alternative trading channels to promote efficient, transparent and barrier-free inter-State and intra-State trade and commerce of farmers’ produce outside physical premises of markets or deemed markets notified under the various State APMC Acts, which prohibit farmers from selling their output outside ‘notified’ markets and to licenced traders, leading to massive malpractices and exploitation.

With various other measures restricting even intra-state and inter-state movement of many crops, the farmer was essentially at the mercy of a handful of traders in a limited geographic zone.

The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 basically seeks to facilitate contract farming and empowering Farmer Producer Organisations, which will tackle the other big issues faced by farmers — lack of price certainty and assured sales. It will also help fragmented small holdings to aggregate into more economically viable entities, without alienating land ownership.

The changes to the EC Act, while touted as pro-farmer, will actually help traders in cereals, pulses, oilseeds, edible oils, onion and potatoes from restrictive regulations on stockholdings, movement and pricing of such agri-produce.

While the stated intentions are great, there is the proverbial slip between the cup and the lip. Even as the Bill to remove onions from the purview of the Essential Commodities Act was being introduced in Parliament, the commerce ministry banned all exports of onions under the foreign trade policy!

This right hand working against the left hand is typical of what the government does, given its silo structure and lack of cohesive vision.

So there is a department to help tobacco growers, even as other departments place either restrictions on tobacco consumption, or tax it to death!

India’s agriculture sector — in particular its farmers — have demonstrated time and again that they can still manage to improve output despite the innumerable difficulties and obstacles placed in their way. If our neta-babu-bania nexus can be broken and farmers truly unshackled, our farmers can help produce not just a mountain of food, but growth and prosperity. The challenge lies in unshackling them.

COMMENT NOW