Statsguru: Sorting out farmers' incomes

Reportedly, Bibek Debroy suggested to tax agricultural income, which led to a public outcry

Over the past few days, India’s agriculture has received much public attention for two apparently contradictory concerns. The first issue was the possibility of taxing agricultural income. NITI Aayog member Bibek Debroy reportedly suggested this move for widening the tax base and pruning exemptions. However, this led to a massive public outcry and within a few days both the NITI Aayog and ministry of finance ruled out such a move. Beyond the political economy though, the data show such a tax would rope in a very small fraction of farmers into the tax net.

Chart 1 maps the distribution of agricultural households by the size of land possessed and an overwhelming number of farm households have tiny land holdings.




Source: Income, Expenditure, Productive Assets and Indebtedness of Agricultural Households in India NSSO

Chart 2 shows that, even if taxed, given the existing tax slabs, incomes from such small holdings will merit an exemption.




Source: Income, Expenditure, Productive Assets and Indebtedness of Agricultural Households in India NSSO

Chart 3 reiterates this point by mapping the average annual income of the farm households.  

 

Source: Income, Expenditure, Productive Assets and Indebtedness of Agricultural Households in India NSSO

The second issue was about the government’s promise to double farmers’ incomes by 2022. But achieving a doubling of incomes in real, not nominal, terms could be rather challenging. Recent estimates by another NITI Aayog member, Ramesh Chand, paint a bleak picture.

Chart 4 shows that in real terms, farmers’ incomes have been stagnant. Moreover, while they have been growing in nominal terms, the rate of growth has decelerated. So what can be done?

Source: Doubling farmers income, Ramesh Chand, 2017
Note: Click on the legend to see various data.
 

Chart 5 tries to provide some clues. It contrasts the growth rate of each sub-component and compares it with what is needed to achieve a doubling of incomes. The task becomes relatively less arduous when it is broken down. 
 

Source: Doubling farmers income, Ramesh Chand, 2017