India is land where agriculture played an important role as an active ‘primary sector’, and at present it is among the top two farm producers in the world. It is the means of livelihood for two third of our population and is important source of raw material for several industries.
Agriculture forms the backbone of the Indian economy and despite concerted industrialization in the last five decades; agriculture offers livelihood for about 50 per cent of the total work force. Agriculture contributes a significant proportion to the foreign exchange earnings, and hence plays a crucial role in generating foreign exchange through increased agricultural exports. At present, the agriculture sector exports account for 10 per cent of India’s total exports. A breakthrough in this sector is thus essential for placing the economy on a sound footing. Agriculture can provide a market for industrial products as increase in level of agriculture income may lead to expansion of market for industrial products.
The prospects of planning in India also depends highly on agricultural sector. A good crop always provides impetus towards a planned economic development of the country by creating a better business climate for the transport system, manufacturing industries and internal trade etc. It is apparent that agriculture development is the basic precondition of sectoral diversification and development of the economy. According to Union Budget 2018, agriculture and allied sector contributes to about 17-18% percent of India’s GDP.
A BRIEF HISTORY OF MSP
In his budget speech the Finance Minister said that in ongoing Rabi crop season, MSPs were fixed at 50 per cent of costs for most crops. “Government has decided to keep MSP for all the unannounced crops of Kharif at least at one and half times of their production cost,” said Arun Jaitley, and went on to add that this decision will prove to be a ‘historic’ step towards doubling the income of farmers. However, a comparison of A2+FL and C2 costs with announced MSPs shows that for major winter crops like Wheat, Mustard and Chana, net return to farmers were lower than 50% when C2 costs are used, while return were significantly higher than 50% from 79% to 112% when A2+FL costs are used.
Minimum support price was first announced by the Government of India in 1966-67 for wheat at the beginning of Green Revolution. The main objective is to protect the farmers from depleting price because of bumper crops. 60 per cent more of C2 cost of cultivation has been the demand of farmers since a long time. The question is whether an increase in MSP will lead to the shift in terms of trade in favor of agriculture. Farmers in India are heterogeneous on the basis of land holding cultivation, i.e., 92 per cent of farmers are both small and marginal farmers having only little or no marketable surplus. From 2003-04 to 2013-14, despite an increase in MSP, income from many cereals and pulses has decreased. Even for paddy out of 18 major growing states, only few states are able to gain income marginally.
Firstly, according to NSS data, over 40% of farmers depends on the non-institutional credits, i.e., rely on money lenders cum traders and input dealers. Even share of non-institutional credit is low now, rates of interest remain high. Price increase alone will not help farmers. Access to institutional credit system should be improved. Sometimes the MSP increases but farmers sell their crop to local and input dealers at a lower price than MSP due to prior agreements, as they have taken loans from them and most importantly local traders and input dealer have better transport and storage facilities that link them easily with markets.
Secondly, 1.5 times MSP will lead to a situation of reverse migration. And ultimately it will lead to a situation of overcrowding, because there will be more people to share benefits. So apart from MSP hike, there should be development of other things like livestock, non-farm business and job opportunities.
Thirdly, the issue of farmers’ suicide has become a cause of great concern worldwide. However, for India the scenario of 1997-2005 represented Indian farmers to be taking their lives every 32 minutes. One of the reasons behind these suicides is the process of boosting up crop yields that has continued to deteriorate the farmers’ condition. More alarming is the case of the small farmers who hardly meet their basic requirements. With every reduction in the crop prices, often lower than the production cost, there is a subsequent increase in the prices of inputs such as fertilizers, seeds and pesticides respectively. This shooting up of input prices induces farmers (especially the small farmers) to borrow money for transaction of seeds, fertilizers and pesticides and other necessary inputs. Between 1991-92 and 2013-14, there is marginal increase in farmers’ income while the price of urea increased by 69% and of potash and DAP (di ammonium phosphate) increased by 600% and 300%.
This process gives rise to financial pressure and paves way to a financial crisis. To make the situation even worse, drought and floods intensify the economic problems faced by the farmers in India. However, there is a whole lot of other set of issues over which Indian farmers have got no control. These issues include epidemics, weather, government policy and so on. These problems are out of control of a farmer, but the debts are to be tackled by the farmers independently. A UN report has mentioned some of the perilous issues that compel farmers to take their own lives, such as crop failure, sudden health issues, also marriages. The report also asserts that the matter of suicide amongst the farmers is getting widespread like an epidemic.
This agricultural distress epidemic aggravated the demand of loan wavier from many states, especially in last year. The response of the state government has been to deal with issue on urgent basis while ignoring the structural factors for long time. Loan wavier fulfillment and others have led to the decline of agriculture investment rate i.e. 10% in real terms in 2004-05 to 2012, and now its 2.3% from 2013-14 to 2016-17. Agricultural credit also had a same story that was increasing at the rate of 21% per annum in nominal terms between 2004-05 and 2014-15 and in between 2014-15 and 2016-17 declined to 12.3%. Recent estimates of RBI shows that this has fallen down to less than 5%.
Lastly, when MSP are not fixed based on demand side factors then need of government intervention to implement MSP would be merely reduced to the situation where market are not competitive or where private traders turn exploitative and discourage them to trade. It leads to a situation where government is not able to manage huge quantity of unwanted stock.
Pachgoan in Chandrapur district of Maharashtra, there is evidence that 65 households in the village earned Rs 91 lakh during 2013-17 as wages by harvesting bamboo in the community forest. Therefore, proper arrangement should be done to guide the villagers all over the country to empower them under Forest Right Act. The FRA can contribute to their livelihood and curb agrarian distress where it is possible.
Secondly, promotion and investment in livestock should be done. It will act as protection shield during the time of agrarian distress.
Thirdly, from the data of wage rate in India ( Labour Bureau), real wages of agricultural labourers have been declined at 0.3% per annum between 2013 and 2017. MSP can aggregate the agricultural income inequality in this scenario where as small and marginal farmers are solely dependent on the wages. So there is urgent need of providing cheap credit to small and marginal farmers to increase their profitability from crop production.
MSP should be extended to more than paddy and wheat formally and to other than surplus state. According to International Food Policy Research Institute (IFPRI), ‘every dollar we spend in agricultural research, there is a return of 10 dollars,’ however, India spends only less than 0.5 per cent of its agricultural GDP on research and development (R&D), which doesn’t seem to be enough. Since, India has a large amount of population occupied in the agriculture sector; therefore there is a need for further investment in the area of agricultural research and development. Greater the promotion of R&D, the higher will be the chances of producing climate resistant crops. This will be largely helpful in improving the working of agriculture sector as well as instrumental in addressing its associated problems.
Lastly, there is also a need to spread more awareness and information amongst the farmer communities regarding the financing of agricultural credit, so that there can be a smooth flow of transaction process by the farmers. The higher is the awareness the lower will be the farmers’ distress respectively.
The recent budget has proposed to hike the MSP 1.5 times over the production cost, which is aimed at solving the issue of farmers’ suicide. However, the above study explains about a number of other diverse problems that are associated with the farmers’ distress, which has lately contributed to an increase in the number of farmers’ suicide rate.
The study concludes that only hiking MSP over the production cost is not going to suffice. There is a need for closely analyzing the intertwined nature of these diverse problems that Indian farmers are going through.
The issue of MSP hike has become a contestable topic, as there are issues within, regarding the type of cost that is to be considered. If at all C2 is taken into consideration, then only the situation of can be improved. Yet again, just hiking MSP will not solve the issue of farmers’ distress, and for which the policy makers are required to invest in other areas like, farmers education, efficient implementation of existing programmes and schemes.
This article is written by Professor Halima Sadia Rizvi, Head of Department of Economics, Jamia Millia Islmaia and Azharuddin Ansari, a research scholar at the Department of Economics, Jamia Millia Islamia.
Edited by: Nuzhat Khan
Disclaimer: The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of The Jamia Review or its members.
The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of The Jamia Review or its members.