Prime Minister Narendra Modi had unleashed a flurry of catchy slogans and acronyms during the 2014 Lok Sabha campaign. One of the more interesting ones was Five F: Modi’s version, or vision, if you like, for transforming Indian agriculture.
The Five F stood for Farm to Fibre to Fabric to Fashion to Foreign. For Modi fans, this was music to their ears. But having won the most comprehensive mandate since 1984, the Modi regime seemed to have suddenly gone quiet on the farm front. The rain gods deserted him — and Indian farmers — for two successive years. Farmers kept committing suicide with distressing regularity. And jibes about “suit-boot” and “fair & lovely” from a suddenly aggressive and articulate Rahul Gandhi started hurting. The Bihar assembly election verdict in November 2015 was also a stinging rebuke from a largely rural electorate.
Big QuestionsIt was against this backdrop that Finance Minister Arun Jaitley focused on agriculture and farmers in his third Union Budget. Shorn of the rhetoric, the big promise that Jaitley made on behalf of the Modi regime was that farm incomes would grow 100 per cent in the next five to six years leading up to 2022.
The two big questions that beg answer are: Can farm incomes really grow year after year at a compound rate of 15 per cent? For that kind of “miracle” to happen, does the Modi government have the will, the resources and the policies to solve the structural and persistent crisis that Indian agriculture faces?
Let’s look at some positives that could make a difference. Says Rajeev Kumar, former FICCI president and professor, Centre for Policy Research: “The Budget has made a lot of effort to solve the crisis. However, this is a perennial problem and it is just a beginning to make the agricultural sector better.”
The Positives
Two small but potentially transformational changes do not really have anything to do with agriculture: the first is the massive pace at which 18,000 villages of India are being electrified. Access to electricity acts like a multiplier on income opportunities. If the UDAY scheme being adopted by states to revamp and reform their electricity boards is even partially successful, rural India could start getting power on a regular and reliable basis. This in itself would open up new economic opportunities for rural Indians. Regular power supply would enable groups of farmers to operate small cold storages and integrate more effectively with the food processing industry. It is only when regular power is available that small and medium enterprises can operate and flourish in rural clusters. In hindsight, it is a wonder why previous governments over decades have not paid more serious attention to this.
The second step announced by Jaitley in the Budget is serious attention to rural infrastructure. The finance minister has allocated Rs 19,000 crore for rural roads under the Pradhan Mantri Gram Sadak Yojana and promises even more in the future. In addition, the allocation for the welfare scheme MRNEGA has been increased substantially to about Rs 38,000 crore. This time around, it has been clearly stated that money spent on NREGA would be to build durable assets in rural India. Even if partially implemented, this would do wonders for both infrastructure and connectivity in rural India. Poor roads have always acted as constraints on farmers: they have been responsible for farmers’ inability to reach urban markets quickly as well as for their inability to create even small agro-based businesses that could add to farm incomes. If Jaitley and Modi can actually deliver what they have promised in this Budget, it would indeed be good news for farmers and rural India.
However, analysts are skeptical of Jaitley’s other plans for the farm sector in his Budget. Take those relating to institutional credit and crop insurance for farmers. The finance minister claims that close to Rs 9 lakh crore would be provided to the farm sector by way of credit in the current year. Then again, he has promised that half the total area under crop in India would be covered by a new and more effective crop insurance scheme. In effect, Jaitley is claiming that the Modi regime would bring almost 100 million hectares of farm land under crop insurance schemes in the next two years. The plans deserve praise. But analysts feel that implementation would be a problem and corruption would make a mockery of these schemes just as it made a mockery of MRNEGA.
The fact is that the credit disbursal structure for the farm sector is corrupt to the core. Bank officials and local politicians along with babus openly extort money from farmers before they are extended any “credit”. Those who refuse to pay bribes are made to run around so much that the sowing and even harvesting season gets over before the farmer gets to see any money. It is because of this that private moneylenders still flourish in the farm sector. The same fate awaits the ambitious crop insurance scheme. Corruption is embedded in the process by which crop damage is estimated for payment of both insurance and compensation. How the noble intentions of Modi and Jaitley can change the entire ecosystem of corruption is anybody’s guess.
Core Reason
Corruption is also likely to derail Jaitley’s ambitious plans for irrigation. Besides, allocating Rs 9,000 crore for irrigation, Jaitley has also promised outlays raging from Rs 50,000 crore to Rs 60,000 crore in the next five years to speed up the execution of irrigation projects. However, the record of past governments in this regard has been dismal. Even though such ambitious plans for irrigation have been announced year after year, things have remained the same on the ground. Maharashtra is a classic example of what happens to irrigation “projects” in India. In over a decade, the Congress-NCP alliance government in the state has “invested” more than Rs 90,000 crore in various irrigation projects, even though Maharashtra continues to be parched.
Further, analysts point out that the Budget does not address the issue of excessive government interference and control over the agricultural sector. Says well-known agriculture economist Ashok Gulati, chair professor for Agriculture, ICRIER: “It is true the agricultural sector needs more freedom, more reforms and foreign markets. The government has to regulate the sector but at the same time it needs to give up some control. Intervention obstructs agricultural business and it should let market forces work.”
Not many Indians know this, but it is actually a crime if a farmer decides not to sell his produce in the local mandi and sell it in some other state. Exporting his produce to get a higher price is of course out of question without government permission. Arbitrary government policies related to minimum support prices (MSP) have created severe imbalances in this sector with most farmers opting for wheat and rice cultivation.
Sugar Crisis
The sugar industry is a classic example of government interference making things worse. During the UPA regime, there was a shortfall in sugar production and prices shot up. Middle-class Indians protested against high sugar prices and the government allowed imports. Both the central and state governments then raised the MSP of sugarcane by significant margins in a display of competitive populism. Sugarcane and sugar output soared; it was about 28 million tonne last year with unsold stocks of almost 8 million tonne. Sugarcane mills were unable to pay farmers and their dues crossed Rs 50,000 crore. Last year, the government “encouraged” sugar mills to export even though global prices were at a low. It promised to subsidise the exports so that mills could pay arrears to farmers.
More than Rs 22,000 crore in arrears have been cleared. But the next crisis could be a season away. Devinder Sharma, who has tracked agriculture for decades, blames government interference for botching up the oilseeds and pulses story in the country. There was a time when oilseeds and pulses output had started increasing in a sustained manner. But, according to Sharma, a powerful lobby persuaded the government to encourage imports. The result: Oilseeds and pulses production has gone down for almost a decade.
Clearly, one Budget alone cannot clear the mess that Indian agriculture finds itself in. The answer perhaps lies in sustained policy changes and corruption-free implementation. Analysts, however, say the real long-term solution lies elsewhere. According to them, agriculture contributes just about 15 per cent of GDP, while supporting nearly 50 per cent of the population. That is simply not sustainable, they say. Modi needs to make “Make in India” a genuine success over the next few years.
It is only when manufacturing jobs, millions of them every year, are created that small farmers and farm labour can find alternative sources of livelihood. But then, this too is something that agriculture economists have been saying for decades. Can Modi do what governments in the last five decades have failed to do? Or will his promise to Indian farmers remain confined to slogans like Five F?
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