Home World Economy Government must look at policy options that go beyond loan write-offs to...

Government must look at policy options that go beyond loan write-offs to address farmers’ woes

1
0
SHARE

The farmer tills and tills and tills, but who is bothered, my friend. All he leaves behind after so much tilling, for his wife, children and grandchildren, is a mountain of debt.

Those are the translated lyrics of a song, fervently sung in Tamil. You can hear it if you call P Aiyyakkannu’s cellphone. Often, the farmer leader lets it ring. Aiyyakannu had, along with dozens of farmers from Tamil Nadu, sat on a strike at Jantar Mantar in Delhi in April.

The strike was unique in that the farmers carried human skulls, which they claimed belonged to their friends and relatives who killed themselves unable to bear the burden of debt.
Government must look at policy options that go beyond loan write-offs to address farmers' woes
After a few days when they got little else than media attention, the farmers half shaved their heads and clenched rats and snakes in their mouths. They ended the agitation on the 41st day after Tamil Nadu chief minister Edappadi Palaniswami assured them that he would take up the issue of waiving Rs 40,000-crore of farm loans with Prime Minister Narendra Modi.

Over the next few weeks, farmer organisations in many states began agitating for loan waivers, their hopes kindled by Yogi Adityanath announcing a Rs 36,000-crore loan waiver after becoming chief minister of Uttar Pradesh following the BJP’s rollicking victory in the February-March state elections.

Maharashtra followed suit to placate agitating farmers and governments of Madhya Pradesh, Haryana, Rajasthan and Karnataka are all under pressure.

Even though farmers had been staging protests in many states, the issue grabbed national attention when police shot and killed six of them in Mandsaur in Madhya Pradesh, adding fuel to the fire. On June 10, a confederation of 62 farmers organisations met at the Gandhi Peace Foundation in Delhi and decided to observe a Black Day on June 14 and blockade rail and major highways across the country two days later. “We have only two demands,” Shiv Kumar Sharma, national convenor of the confederation, Rashtriya Kisan Mazdoor Sangh, told ET. “Waive our loans and ensure remunerative prices for produce,’’ Sharma, popularly known as Kakkaji, said.

Sharma, who claims he has been arrested 44 times in his life, says he would meet no one but Prime Minister Narendra Modi. “Only he can order a solution to farmers’ problems.”

Prices of agricultural products that crashed during the demonetisation late last year never recovered as a bumper crop and consequent glut kept prices subdued. Government data released June 12 showed that consumer price inflation fell to a five-year low of 2.18% in May as food prices shrank 1.05%. Farmgate prices are so low, there are reports of farmers abandoning rotting vegetables along highways instead of spending on transportation to markets.

While political parties have often used loan waiver as a potent vote-netter, its impact on public finances is almost always disastrous. A Rs 71,000 crore loan waiver by the previous United Progressive Alliance government contributed to widening fiscal deficit during 2008-12.

After implementing the 14th Finance Commission’s recommendations, the Centre is loath to bear any financial burden essentially that of the states. Farm loans on Kisan Credit Cards alone stood at over Rs 5.5 lakh crore in September 2016, Reserve Bank of India data shows. The Centre has given clear indications that states must find their own way. Despite that, states have been seeking central assistance.

Chief minister Amarinder Singh wanted the Centre’s help to waive Rs 70,000 crore of loans taken by Punjab farmers. State finances are already stretching in the red zone. Gross fiscal deficit to output ratio “breached the 3% ceiling of fiscal prudence for the first time since 2004-05,” RBI said in its analysis of state budgets in May. Clearly, loan waivers could be body blows to the national economy. That leaves only one, and perhaps the best, option— improve farmers’ income.

HIGH DENOMINATOR, STAGNANT NUMERATOR
Raising farmers’ incomes is an issue that successive governments and policymakers have grappled with rather unsuccessfully. Nearly half the country’s population depends on farming but accounts for just about 16% of the national output. The policy prescription for years has been that the low productivity had to be raised by moving more people off the farm to manufacturing and services.

Rs Rs In the longer run, you do need that (farm) workers come out of agriculture into manufacturing and services jobs. If you don’t want to leave this population in that (poor) state,” reports had quoted economist Arvind Panagariya as saying within months of taking over as government think tank NITI Aayog’s deputy chairman. Government must look at policy options that go beyond loan write-offs to address farmers' woes

That’s rosy when those sectors are doing well and the job market is booming as happened in 2005-2008. But since then the two sectors have hardly fired. The finance ministry’s economic survey revealed private investments shrank by 0.2% in 2016-17 compared to a growth of 3.9% the previous year.

“Raising manufacturing to 25% (of GDP, from 17% now) is the critical challenge,” says N Bhanumurthy, professor at National Institute of Public Finance and Policy. Government initiatives such as Make in India and Startup India to push manufacturing have so far not made a significant impact on national output and job creation. Moreover, industries are investing heavily in automation, requiring fewer workers. World Bank president Jim Yong Kim said in an October 2016 speech that the bank’s research predicted India will lose 69% of jobs to automation. That means the expectation that incentivising manufacturing and services would help absorb workers moving from farms to industries is misplaced.

Agricultural policy analyst Devinder Sharma offers an interesting statistic. In 1970, wheat procurement price was Rs 76 per quintal. In 2015, wheat procurement rate was Rs 1,450 per quintal, an increase of about 19 times. In the same period, average basic salary plus dearness allowance of central government employees rose 110 times; of school teachers by 280 times; of college/university teachers by 150 times; and of mid to upper tier corporate sector employees by 350 to 1,000 times.
Government must look at policy options that go beyond loan write-offs to address farmers' woes

Meanwhile, school fees and healthcare costs went up 300 times and average house rent in cities has risen 350 times. The option then left is increasing farmers’ incomes by accepting their demand of better prices. One way of ensuring better prices is allowing exports of farm produce. It would not only improve rural incomes but will also incentivise entrepreneurs to create storage and processing capacity in rural areas and consequently job opportunities. Sectoral linkages would ensure that rising rural incomes would fuel demand for manufactured products and services, boosting the two sectors and drawing capital and labour to them. Along with that, the government could also raise minimum support prices (MSP) to higher levels.

In 2006, the Swaminathan Committee had recommended an MSP of 50% over the cost of production of grains. It was also a big campaign promise made by the Bharatiya Janata party in the run-up to the 2014 elections.

Meanwhile, farmers are preparing to intensify their stir. At the June 10 meeting, one leader said that farmers were angry and could turn violent. Another leader from Rajasthan said whatever happens, the protests should remain peaceful. To which the first leader said that farmers would not be violent but, if the police do not keep quiet, they will forget about peace. Turbulent days could be ahead.

LEAVE A REPLY

Please enter your comment!
Please enter your name here