Farm Loan Waivers & Farming Subsidies: Bottomless Pits?

Farm loans waivers, will it help the needy farmers?

Farm loan, their selective waivers in years of distress, farming subsidies, farmer suicides, and the like are among the least understood of subjects, since most of us have almost no connection with rural areas or farming. These are typically causes espoused by political parties when in opposition, and dreaded when in power. The common man thinks it’s all just vote bank politics.

According to the 2011 Census, modified appropriately, about 2/3rd of India’s population of 125 crores lives in rural areas.

Yogi Adityanath decided on farm loan waiver of over Rs 36,000 crores in his very first cabinet meeting. Shiv Sena and other Opposition parties want Devendra Fadnavis to do likewise in Maharashtra. And the Madras HC has directed the Tamil Nadu State Government to waive agricultural loans without discriminating on the size of land holdings, recently. Whereas the RBI Governor has cautioned state governments against farm loan waivers as it is bad for the economy.

We can see clearly that opinions of the decision makers and the intelligentsia are divided. Are farm loan waivers and farming subsidies bottomless pits? Should governments resort to these or slowly withdraw these? Let’s try to understand.

According to the 2011 Census, modified appropriately, about 2/3rd of India’s population of 125 crores lives in rural areas. Computing at 5 members per family, this works out to about 17 crore households. There are about 12.5 crore farmers and 15 crore farm labourers, coming from these families. The average income of the small farmer and farm labourer is significantly lower than that of even an urban beggar, in the range of Rs 2000-5,000 per month. Given a choice, most of the able-bodied farm owners and labour will migrate to urban areas. Most of them stay put in rural areas because getting a job in urban areas is not easy, and due to the fear of the unknown.

Unlike most of us urbanites who are employed, every farmer is an entrepreneur-CEO, typically a micro businessperson. They have equity in the form of land, and investment they make in advance for every crop, they take the risk before and during every harvest, employ labour, borrow money, harvest, sell their produce, keep the profits for their livelihood and retain earnings for the next harvest. And yet, these CEOs are perennially poor.

The income of typical businesspersons across all sectors (except in agriculture) has increased 1000+ times in about 45 years. Even comparing with salaried employees, the condition of farmers is far worse.

There is one major difference between their business and other business. Typically, once a business stabilizes in the first few years after start, the owners steadily increase their income over the years, much more than compensating for inflation, thus growing their business over time. Whereas, in farming, though they are perennially into business for generations, their inflation adjusted income hasn’t increased,… which means the growth that the national economy has witnessed over the years hasn’t reached them. Since their business is subject to the vagaries of nature from year to year, it’s a double whammy for them. Many times, picking the thread from a bad monsoon year and continuing the business for the next season itself is a Herculean task.

The income of typical businesspersons across all sectors (except in agriculture) has increased 1000+ times in about 45 years. Even comparing with salaried employees, the condition of farmers is far worse. Based on MSP of various food items, their income has increased about 20 times in about 45 years, while the salaries of government employees increased by 150 times, the salaries of college teachers increased 170 times, the salaries of school teachers increased by 320 times and the salaries in corporates increased by 250 to 10,000 times. Besides, agricultural productivity increase has mostly been marginal.

And ‘agriculture’ employs a lot more people than any other business/ industry. Yet, all governments have always provided better infrastructure and given more loans for business & industry (and writing off more of their loans).

Why has farming income remained stagnant? The most important reason is that successive state and central governments have approached the problems of the farming sector on an ad-hoc, piecemeal fashion rather than holistically. Also, governments want food items to be available to the rest of us (non-farmers) at affordable prices but are unwilling to pay farmers their fair price and foot the difference. To partly compensate for the notional loss to the farmers, governments offer subsidies on the cost of inputs that are grossly inadequate.

Though Animal husbandry is an allied business that farmers (and even farm labourers) avail to enhance their income, it doesn’t eradicate rural poverty.

While Governments, media and the general public listened to the voices of the Government employees and Defence personnel, who are all otherwise very well off, and increased their salaries substantially, we’ve failed to listen to the cries of farmers (languishing in abject poverty) who are the providers of the most basic need of all viz food to all of us.

Is there anything the Governments could have done, over the years, and can still do? The National Commission on Farmers was set up under Prof. M. S. Swaminathan, and its reports submitted in 2004–2006 should have been given accepted substantially after detailed study. The report, in sum, lists the major causes of the agrarian crisis as lack of land reforms, poor quantity and quality of water, ill effects of old farming practices, lack of penetration of new technology, lack of timely institutional credit, un-remunerative pricing, and lack of marketing opportunities. It makes specific recommendations for addressing all these issues.

The most contentious part of the report is setting the MSP of agricultural produce at Cost + 50%. This will increase the cost of food items substantially across the board, which will impact food inflation phenomenally, leading to cascading effects. Modi has averred to double agricultural increase by 2022 and has initiated several significant steps in that direction. However, experts believe there is neither a clear road map nor an indication that anything close to a significant increase in farm income is likely to happen.

To reaffirm its commitment, the Modi government can agree, in principle, to work towards implementing the Swaminathan Commission Report substantially, over the next few years, subject to fair tests of financial feasibility, and at least move in that direction (like the Government announced in its budget two years back its decision to reduce corporate income tax to 25%). This will also address the issue of water conservation and national food security. The Government should also educate the people about the need for these agrarian reforms and take them on board, as this will impact the lives of every citizen.

Sure enough, this will mean redeployment of lots more of resources to agriculture from other sectors in the ensuing budgets, but we need to bite the bullet. Farmers need to see at least light at the end of the tunnel. A crore of rupees allocated to agriculture will solve the livelihood problems of a lot more of people than a similar allocation to any other sector.

Note:
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.