Why India’s agrarian economy needs a foolproof plan, not just cash for farmers

There has been much discussion (mostly, statements of opinions) in the media on the economic agenda for the new government in India. There has been plenty of advice on the imperative to privatise just about everything, and more or less to hand over the economy and policymaking in that sphere to the corporate sector.

Protecting the farmer’s income

Without going into the merits of such proposals, we need to remember that, as per the 2011 population census, nearly 69 per cent – 833.7 million – lived in rural areas. Of the rural work force of 481.9 million, 263.1 million or 54.6 per cent were classified as agricultural workers. Of these, the majority – 144.3 million or nearly 55 per cent – were agricultural labourers and the remaining 118.8 million were cultivators. It may not be unreasonable, given these numbers, to suggest that the agrarian population and agriculture should have some priority in policy making even if the share of agriculture and allied activities in gross value added (GVA) of the country is rather low (at 14.82 per cent). In fact, this set of numbers highlights the fact that a key issue of development in India has to be achieving a large rise in per capita value added in agriculture and allied activities in a manner that leads to rising incomes and well-being for households and individuals of both sections of the agrarian population: labourers and cultivators.

Direct cash to farmers not the solution

The manifesto of the BJP for the Lok Sabha elections of 2019 does acknowledge the importance of agriculture. It repeats the slogan of doubling farmers’ incomes, but without stating how this is to be done. Understandably for an election manifesto, it highlights the income support scheme announced in its 2019-20 budget presented before the elections, and promises to extend it to all land owners without any ceiling. This is certainly a retrograde step. Direct cash payment is hardly the best way to strengthen either agriculture or the individual farm household. Extending this provision to large land owners, while denying it to tenants, is particularly objectionable.

Absence of specifics in BJP manifesto

The manifesto of the BJP talks of the need for investments in agriculture to increase productivity. This is important and welcome. It mentions a figure of Rs 25 lakh crores of investment in agriculture, but without specifying the time period (five years?) or the sources of such investment. If it is making a commitment that the central government will invest Rs 5 lakh crores per annum in agriculture, it needs to be noted that the total annual allocation for agriculture and allied activities in successive Union budgets, including in the period 2014 to 2019  has been much less, not even 10% of this amount.  Though the BJP manifesto makes several statements about cooperatives, bringing convergence between agriculture and technology and so on, it is lacking in specifics.

What the government should aim at

However, the BJP manifesto makes no reference to an existing situation of severe agrarian distress, five years into its rule. The agenda for agriculture should start with the recognition of massive agrarian distress on the ground. Given such distress across the country in the specific sense of a substantial proportion of small and marginal farmers being unable to recover costs of cultivation in crop agriculture, and the miserably low wage rates, very limited employment and high levels of deprivation among agricultural/rural labourers, the minimum policy priority has to be ensuring :

(a) That cultivators receive reasonable prices for their produce – the recommendations of the National Commission on Farmers chaired by Prof MS Swaminathan on minimum support prices could be starting point here – not just in terms of declaration of MSPs but actual, prompt procurement by the state agencies at the farm gate.

(b) A decent minimum wage, indexed to prices, and an adequate number of days of employment (including in public employment a la MNREGS implemented in a non-corrupt manner) for agricultural and other rural labourers.

(c) A much larger extent of public investment by central and state governments in irrigation, rural infrastructure (including good roads linking famers to markets for both inputs and outputs, storage facilities for farmers’ produce, adequate supply of power) national farm research system and national farm extension system.

(d) A one-time loan waiver on all farm debt for cultivators – actual cultivators including tenants, not merely nominal owners – subject to an appropriate ceiling in terms of size of holding defining eligibility, including on debts owed to private lenders.

(e) Public provisioning, at affordable costs, of health care and education for all agrarian households with a wealth limit as appropriate.

(f) Effective crop insurance instead of the present discredited arrangement which has been a bonanza for private insurance companies, but not of much use for cultivators.

(g) Functioning Public Distribution System that is universal and not targeted, and delivers effectively on the National Food Security Act.

This might seem like a tall order. Questions will be raised immediately on whether resources for such policy steps can be at all found. The truth is that, for a sector on which more than half the rural workforce depends for its livelihood, the share of support from the state is minimal. The combined expenditure of central government and all the state governments put together on agriculture and allied activities has been consistently below 3 per cent of GDP, in fact closer to 2 per cent.  Even granting that total government spending (Centre plus all states) has rarely exceeded 25 per cent of GDP, the share for agriculture at less than one-tenth of this when the agrarian population forms a much higher proportion of the total is something one cannot easily justify.

Resource mobilization from well-to-do

In the period of neoliberal reforms, there has been an obsession with the so-called fiscal deficit. We have a legislation that mandates that the Union government’s fiscal deficit must decline to 3 per cent or less of GDP by a specified date. This obsession with the fiscal deficit – defined as the difference between the total expenditure of government and its “non-debt receipts” – is wholly irrational. Note that the fiscal deficit excludes borrowing by government from the set of ‘legitimate’ receipts, but includes receipts from sale of public sector assets – “capital receipts” of the non-debt kind – as legitimate.

In other words, the focus on the fiscal deficit is part of the agenda of privatization without limit or rationale. This obsession has to be rejected. Equally important, public resources for invigorating the agrarian economy and enhancing the living standards of the agrarian population must be mobilized far more effectively from the corporate sector and the superrich than has been the case so far. We are a country with enormous inequality of wealth and income. Yet, we do not have a wealth tax or an inheritance tax. The wealth tax was abolished by Jaitley in the Union budget for 2015-16. He had also reduced the tax rate on corporate income to 25 per cent for all corporate entities with an annual turnover of Rs 250 crore or less in a subsequent budget. The combined tax revenue of the Union and all the states put together in India does not exceed 16 per cent of GDP. There is clearly scope for better resource mobilization from the well-to-do.  All talk of reviving the agrarian economy without efforts at effective resource mobilization and without addressing the agenda listed above is basically hogwash.

Finally, one time debt relief and MSPs are only a part of the story. The key to the resolution of the agrarian crisis is to raise productivity. One part of this is large public investments in agrarian and rural infrastructure. The other part is land reform that breaks up land monopoly. Historical experience of modern Asian nations –China, Japan, South Korea and Taiwan – shows that land reform is key to raising agrarian productivity as well as being intrinsically democratic and desirable.