Solving the farm riddle

Traditional policies have failed to make agriculture attractive

The second advance estimates of national income for the current financial year that were recently released by the Central Statistics Office (CSO) made a sobering read. For 2018-19, the overall growth of gross domestic product (GDP) has been pegged at 7 per cent compared to 7.2 per cent in the first advance estimates. But one of the most worrying aspects was the data on agriculture growth. Growth in gross value added (GVA) in the agriculture, forestry and fishing sector has decelerated from 5.1 per cent in the first quarter of the fiscal to 4.2 per cent in the second, and to just 2.7 per cent in the third. Even a year-on-year comparison looks poor, as agri-GVA grew by 5 per cent in Q3 of FY18. This is in tune with a largely middling performance by the agriculture sector in the past five years.

This has two disturbing consequences. For one, there is widespread farm distress that refuses to abate. Despite economic diversification, the fact is that almost half of India is still involved in the farm sector. Several state governments have declared massive farm loan waivers to reduce the discontent, but that is hardly a long-term solution. As the farm sector continues to struggle each passing quarter, there is considerable worry that the farm unrest could likely sustain. The other implication of this is the expected run rate for agriculture growth will keep climbing to achieve the government’s goal of doubling farm incomes by 2022-23. The Expert Committee on Doubling Farmers’ Incomes has stated that to achieve this target, agriculture growth rate would have to be 10.4 per cent per annum from a base period of 2015-16. Given the modest growth rates in agri-GDP so far, the actual growth rate required now is estimated to be closer to 15 per cent over the remaining four years. This is almost impossible, as the best five-year growth rate in the past 25 years has been 4.3 per cent in 2009-10 and 2013-14. The growth rate in the past five years has been significantly lower at 2.9 per cent. 

So what is the way to tackle the unrest in the agriculture sector? It has to be accepted that traditional policies have failed to make farming remunerative. The experience of the recent past shows that even though farm output is increasing, farmers’ income growth is nowhere near the level required to improve their living standards. Governments, both past and present, have resorted to knee-jerk reactions such as announcing farm loan waivers and higher minimum support prices. Both are unsustainable and distort the market. The current government has in the interim Budget presented earlier this year unveiled a scheme of direct income transfers as well. In this, it has followed several state governments such as Telangana and Odisha. But there are question marks over its implications on the fisc at a time when none of the other subsidies has been touched. For example, a committee headed by Shanta Kumar had suggested deregulation of fertilisers and payment of subsidy to farmers through direct benefit transfers should happen together. Nothing has been heard about implementing the suggestions. The only way forward is to seek bold agriculture market reforms to reduce the distortions created due to interventionist and restrictive policies that depress producer prices below international market levels.