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Agrarian distress: Will Budget bat for the farmer?

Rajalakshmi Nirmal | Updated on January 21, 2018

We take stock of the farm sector and how the Centre’s new schemes have fared, ahead of the Budget

There’s been more brown than green over the past four years under the NDA government at the Centre — with agri GDP growth at 1.85 per cent — half of what was achieved in the 10 years of UPA between 2004-05 and 2013-14, at 3.7 per cent.

There is a severe agrarian distress in the country.

Crashing prices at the farmgate, freak weather, failure of the crop insurance scheme to offer adequate cover and lack of market infrastructure add to the burden of the farmers.

While the Prime Minister is hard-selling the dream of doubling farmers’ income, the fear is that it may reduce to half in the next five years. Most of the Centre’s pet schemes — eNAM, Pradhan Mantri Fasal Bhima Yojana and Pradhan Mantri Krishi Sinchayee Yojana — have hit some stumbling block or the other.

Here, we take stock of the situation in the country’s farm sector.

Sliding prices

While monsoon was reasonably good in 2017, what hit farmers hard was the low price of farm produce. In major Kharif crops — maize, arhar, moong, urad, soyabean and cotton — market prices just covered the cost of cultivation. The Commission for Agricultural Costs and Prices, which advises the government on price policy of commodities, projected the cost (actual paid out cost plus imputed value of family labour) of production in maize in Kharif 2017 to be ₹1,044/quintal and recommended an MSP of ₹1,425/quintal. But market prices were as low as ₹1,050-1,100/quintal in December. Similarly, in urad, while the cost estimated was ₹3,265/quintal and the recommended MSP of ₹5,200/quintal, market prices were ruling at about ₹3,500/quintal in November in Latur, Maharashtra. In arhar (tur), while the cost was ₹3,318/quintal, the ruling price in the market in October/November was ₹3,600-3,700/quintal.

Prices of crops in the domestic market are no more just a function of demand-supply in the market. Prices are also influenced by the export/import policies of the government and prices in the international market.

In 2016, there was complete mismanagement of policies. After pushing farmers to grow more pulses and increase the MSP, the Centre planned to procure only two million tonnes of pulses — which was just 10 per cent of the estimated 20 million tonnes of output. To compound the problem, the actual output was a much higher 22 million tonnes, resulting in a crash in prices. For reasons unclear, the Centre was also letting imports continue and the market had about 6 million tonnes of pulses coming from outside the country.

In 2017 Kharif, the government did restrict imports in such crops as wheat, edible oils and soyabean, but the move came late. Take, for instance, soyabean. This is a Kharif crop harvested in September/October. Much of the output comes to mandis in October itself and the leftovers in November. The first hike in import duty on crude soya oil — from 12.5 per cent to 17.5 per cent — happened in August, but that was not enough to bridge the difference in domestic and international prices. The second hike, from 17.5 per cent to 30 per cent, happened towards end-November when farmers had already sold much of their harvest. Thus, it was the intermediaries – the traders – who made money from the increase in soyabean prices in December.

Now, keeping in mind the Rabi 2018 pulses, the Centre imposed a 30 per cent duty on import of chana and masoor in December. The impact of this is yet to reflect in prices.

Action plan: MSP has become redundant as the government is not able to ensure procurement across crops at the promised MSP. Even if it does procure, disposing of the stock is a headache, with leakages high in the PDS (public distribution system). The only solution here is to remove middlemen and let farmers get a higher share of the consumers’ rupee.

It is in this context that the Centre’s eNAM (electronic National Agriculture Market) project launched in 2016 assumes significance. eNAM was envisioned as a pan-India electronic market place which would link farmers and traders (buyers) located at different geographical locations on a single platform. So far, though 470 mandis across 14 States have been connected under eNAM, these are not fully functional electronic mandis. A trader needs to be physically present to buy the produce as the crops are not graded. There is expectation that the Centre may announce moves in the upcoming Budget to expand eNAM seamlessly and provide additional funds for developing infrastructure at the mandis.

Frequent crop failure

A report from the Ministry of Agriculture indicates that 33 per cent of the cropped area in the country falls under ‘less than 750 mm’ annual rains — classified as low rainfall. Further, the frequency of drought has also increased in recent years. Since 2000, the country has had two to three successive years of drought — 2000, 2001, 2002 and 2014, 2015.

Irrigation is one way to drought-proof agriculture. But, currently, of the about 160 million hectares of cultivable land, only 41 per cent (65 million hectares) is covered under irrigation. The country largely uses flood irrigation technique — an ancient method of irrigating crops where water is allowed to flow through the crop and only half the water ends up irrigating the crop and the rest flows into drains. Farm scientists recommend micro irrigation using drip or sprinkler systems, to save water.

But today, only 12 per cent (8.6 million hectare) of the irrigated area is under micro-irrigation (MI), according to data from the Ministry of Agriculture and Farmers Welfare. What is also sad is that that all the irrigation capacity that is created is not fully utilised. The gap between Irrigation Potential Created (IPC) and Irrigation Potential Utilised (IPU) has increased over the years — from 10 per cent during the Sixth Five Year Plan (1980-1985) to about 23 per cent (IPC – 113.53 million hectare and IPU – 87.86 million hectare) during the Eleventh Plan (2007-2012), explained by poor management of the resource.

The crop insurance scheme, Pradhan Mantri Fasal Bhima Yojana, launched in 2016 to cover risk of prevented sowing (when a farmer is unable to sow because of unsuitable weather) and crop loss due to natural calamities including drought, has been under criticism for failure to provide adequate and timely help to farmers.

Action plan: In 2015, the Centre converged its various irrigation schemes into one and launched the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) aiming to create new sources of irrigation and effective use of water resources. The scheme’s primary areas of focus include loan assistance to States to help them complete irrigation projects, spending on micro-irrigation techniques for efficient water usage and watershed development.

While the initial target was to invest ₹50,000 crore in this project over the five-year period between 2015-16 and 2019-20, actual allocations to the scheme have been less. In 2017-18, the scheme was provided ₹7,377 crore, in 2016-17, the allocation was ₹5,767 crore (revised estimate – ₹5,189 crore). In the first year in 2015-16, the Centre spent ₹7,781 crore on the scheme.

In the upcoming Budget, expectations are that allocation to the scheme will increase and there will be thrust to fast-track the several irrigation projects. When presenting the Budget for 2016-17, the Finance Minister said that 23 of the 89 projects under AIBP (Accelerated Irrigation Benefits Programme) under PMKSY will be completed before March 31, 2017. However, when presenting the 2017-18 Budget, he said these projects were still work-in-progress (as of December 2016).

There is also likely to be an overhaul of the Pradhan Mantri Fasal Bhima Yojana scheme in the coming Budget. The Centre may try to address problems in the way crop loss assessment is done. It may also increase allocation to the scheme from the ₹9,000 crore provisioned last year. The Centre claims that in 2016-17, 30 per cent of the gross cropped area was covered under the scheme in comparison to 23 per cent in 2015-16.

Income de-growth

The crisis in the agriculture sector has been brewing for a long time. Short-term relief measures, including increase in minimum support price for crops, subsidy in inputs and loan waivers, have not helped. Over a fifth of farm households have income below the poverty line.

As per the 70th Round of Situation Assessment Survey of NSSO conducted during the period of July 2012 to June 2013, the average monthly income of an agricultural household is ₹6,426 and expenditure is ₹6,223 leaving only ₹203 in the hands of the farmer. A non-agricultural worker earns almost three times as much as a farmer, shows NSSO data, explaining why farmers are pulling out of agriculture — the number of cultivators in 2011-12 (the latest data available) was 14.62 crore, down from 16.61 crore in 2004-05.

In recent years, farmers have fared even worse.

Farm income, from a growth of 5.52 per cent in real terms in the period between 2004-05 and 2011-12, dropped to a negative 1.36 per cent between 2011-12 and 2015-16.

Action plan: Work is cut out for the Centre. To double farmers’ income by 2022-23, the annual rate of growth required is 10.4 per cent. The Committee headed by Ashok Dalwai has suggested incentivising land pooling among farmers, encouraging Farmer Producer Organisations, modernising agriculture marketing, and revamping departments of the agriculture ministry to focus on agri-logistics and capital investments to tackle farm distress.

It has also recommended an annual ‘ease of doing agri business’ survey among States to promote competition. The Union Budget for 2018-19 may see the Centre carrying out reforms on these lines.

Farm credit swells

In the 10 years between 2006-07 and 2015-16, agricultural credit increased from ₹4.68 lakh crore to ₹8.77 lakh crore, helped by interest subvention offered on loans. In 2016-17, agri credit increased further to a whopping ₹9.92 lakh crore. While this is impressive, the share of small and marginal farmers as well as eastern and north-eastern regions in total credit disbursement has been low. In the period between 2012-13 and 2015-16, the portion of credit extended to the eastern region was 10.6 per cent, central region 9.3 per cent and north-eastern region 1 cent. Also, the share of long-term loans as a percentage of total loans declined, from 75 per cent in 1990-91 to 39 per cent in 2011-12, crippling investments in farm sector. There has been complete loss of focus in creating infrastructure — irrigation, farm mechanisation, cold storages and warehouses, for agriculture. Between 2012-13 and 2014-15, total Gross Capital Formation (GCF) in agriculture showed a negative growth rate of 1.9 per cent per annum.

The Centre’s investments in the farm sector too have declined over years. The share of public GCF to total GCF in agriculture has fallen from 25 per cent in 2001-02 to about 12.1 per cent in 2013-14. It also needs mention that while on the one hand the lending tap has been kept open by the Centre, on the other, States have been generously waiving them. off. Andhra Pradesh and Telangana waived farm loans in 2014 and Tamil Nadu did it in 2016. Last year, Maharashtra, UP, Punjab and Karnataka waived loans of a total value of about ₹88,000 crore. Though the adverse impact of loan waivers on credit discipline has been highlighted by economists, these continue as a means of winning votes during elections. Given that marginal farmers who hold less than a hectare of land still depend on non-institutional sources for credit, it is only big farmers who benefit from the loan waivers.

Action plan: There needs to be focussed lending to vulnerable sections of farmers. It is expected that the Centre may address some of the anomalies in farm credit in the upcoming Budget. It is also expected that the total amount of lending to agri & allied sectors will be increased further this year from the budgeted ₹10 lakh crore in 2017-18. It is also expected that the Centre may extend the scheme of interest subvention to long-term farm loans too, to improve capital formation in agriculture.

Soil health deteriorates

Over years, the subsidy doled out for urea by the government has skewed the usage of nutrients by farmers, resulting in deterioration of soil quality, especially in Punjab, Haryana and Uttar Pradesh. While the optimal ratio of N (Nitrogen – present in urea), P (Phosphatic) and K (Pottasic) nutrients is 4:2:1, it is used in the ratio of 6.7:2.4:1 by farmers. This is because urea prices are controlled by the Centre and are lower relative to other nutrients, especially P and K where prices are market-linked.

The other problem with urea subsidy is the high leakage — to the tune of 65 per cent — as indicated by the Economic Survey 2015-16, with a third of the subsidy going towards sustaining inefficient domestic urea producers and the rest wasted by diversion to non-agricultural uses and consumption by richer farmers.

Action plan: The direct transfer of fertiliser subsidy which started last October on a pilot basis in a few States is a move in the right direction to address leakages to the black market. It is expected that in the upcoming Budget, the Centre may give directions for pan-India roll-out of DBT in fertilisers. Also, given a soil crisis is staring at the farm sector, there will be renewed push on soil health card scheme. Launched in February 2015, the scheme provides information to a farmer regarding the health (content of various nutrients and micro-nutrients) of his/her soil and provides advice on fertiliser/pesticide usage. In the last two years, the card has been distributed to 10 crore farmers, out of the total of 12 crore. A total of 2.5 crore samples have been collected and 2.46 samples tested.

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Published on January 20, 2018
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