IT is possible to say that the United Progressive Alliance (UPA) government and several other State governments that were elected in 2004 came into being at least in part because of trends in agriculture. Farmers and farm workers still dominate Indias population more than half the workforce of India is engaged in farming and more than two-thirds of the rural population still depends on cultivation for its basic livelihood. And their condition s of life and work will naturally affect their attitude to governments and their voting patterns.
That is why what happens to agriculture really matters not just for the economy, but also for society and polity. The National Democratic Alliance government that was in power at the Centre between 1999 and 2004 chose to ignore this basic reality. It continued and even intensified the neoliberal policies that had made cultivation such a precarious, risky and difficult occupation across the country. Because it was caught up in its own hype of India Shining, it missed and even denied the symptoms of widespread agrarian distress: growing and unviable levels of debt, farmers suicides, forced migration for short-term work.
This is why the Congress and other parties that took up the issues faced by farmers were able to capture both the Central government and several State Assemblies in 2004. The National Common Minimum Programme of the UPA government declared that it would arrest the decline in agriculture, substantially increase public spending in rural areas, especially in ways that would benefit cultivation, and specifically tackle the problem of farmers suicides. In other words, it essentially promised to reverse the policy decisions of the previous governments that had created the agrarian crisis.
The problems of farming in India are both deep and varied. They include weather problems such as less reliable monsoons, more frequent droughts or floods, soil degeneration, lack of institutional credit and insurance leading to excessive reliance on private moneylenders, problems in accessing reliable and reasonably priced input, difficulties in marketing and high volatility of crop prices.
Except for the first set, these are all related to public policies from the early 1990s onwards that systematically reduced the protection afforded to farmers and exposed them to import competition and market volatility; allowed private profiteering in agricultural input supply and crop purchases without adequate regulation; reduced critical forms of public expenditure; tried to cut subsidies by increasing the prices of important inputs such as fertilizer and water and electricity rates, ran down or destroyed important public institutions that have direct relevance for farming, including public extension services and marketing arrangements; and failed to generate adequately other non-agricultural economic activities.
Even as various forms of public protection for cultivation were being reduced, trade liberalisation forced farmers to operate in a highly uncertain and volatile international environment. They were effectively competing with highly subsidised large producers in the developed countries, whose average level of subsidy amounted to many times the total domestic cost of production for many crops.
In addition to increasing the risks of farming, volatile crop prices also generated misleading price signals. Indian farmers tend to respond quickly and extensively to price signals by shifting to more high-priced crops. This caused large and often undesirable shifts in cropping pattern, which ultimately rebounded on the farmers themselves.
For example, when cotton prices in the world and in India increased in the mid-1990s, there was a widespread shift towards cotton cultivation, even in many areas with soil and climatic conditions not ideally suited to growing cotton. The subsequent collapse of world cotton prices from the late 1990s onwards was a major factor contributing to the material distress of cultivators in cotton growing areas.
In dryland areas, traditional staple crops such as millets and sorghum were abandoned in favour of oilseeds such as groundnut, which require more irrigation and purchased inputs and which have also faced major volatility in crop prices. As a result of the shift away from traditional staple grains to cash crops, there was much greater use of a range of purchased inputs, including new varieties of seed and related inputs marketed by major multinational companies. Small cultivators, who took on debt (often from informal credit sources at very high rates of interest) in order to pay for these cash inputs, found themselves in real difficulty if crops failed or output prices remained low.
So the inevitable uncertainties associated with weather fluctuations were compounded by problems of extremely volatile crop prices, which were no longer inversely related to harvest levels but followed an international pattern. Further, this dramatic volatility of output prices was associated with continuously rising prices of inputs. This was especially marked because of government attempts to reduce fertilizer subsidies, and progressive deregulation of supplies of inputs such as seeds and pesticides.
Such exposure to global price volatility was associated with a growing reliance on private debt, because of the lack of extension of institutional credit and growing inability to meet debt service payments. This inability was caused by the combined volatility of crops and prices. Farmers access to institutional credit was already inadequate, but things got much worse after 1993. Financial liberalisation measures caused a significant slowdown in the growth of bank credit, particularly from commercial banks to rural areas, and a relative fall in the proportion of bank credit flowing to the priority sectors, especially agriculture. The impact of the slowdown in rural banking fell disproportionately on poor and small borrowers.
That is why the UPA government promised to double institutional credit to agriculture. This is indeed one of the promises that has been kept more in letter than in spirit. Much of the increase in bank credit for agriculture has actually gone to a range of rural non-farm activities and even consumption loans for richer farmers, such as automobile loans.
Plans for reviving credit cooperatives have been delayed and are controversial. Also, particularly vulnerable groups such as marginal farmers, tenants and women farmers still remain outside the ambit of institutional credit.
Meanwhile, other promises with respect to agriculture were not honoured. The desperate need for more resources and major improvements in public agricultural research and extension systems has still not been addressed, and the changes that have been proposed are paltry. So farmers still do not get access to correct and relevant information that will allow them to make the most informed decisions and to use the most desirable techniques. There was hardly any increase in public investments directed to improving soil quality, which is rapidly emerging as one of the most critical issues in agriculture.
The new central legislation on seeds is in many ways the opposite of what is required, allowing seed companies and input dealers far too much freedom and reducing their accountability to farmers.
The poor handling of public procurement and distribution continues, with the food economy emerging as one of the most mismanaged sectors, creating problems for both producers and consumers. Volatility of output prices remains a huge problem for farmers. And the central question of the huge burden of farm debt has really not been solved.
It is not that the government has not been given good advice about how to solve these problems. The report of the Farmers Commission set up by the Central government, which runs into thousands of pages, provides extensive and detailed recommendations on how to deal with all of these problems, and many of them are well worth considering.
However, the UPA government has chosen not to act on most of these. Instead, it set up more committees to examine the recommendations.
By last year, it was evident that despite some positive moves, government policies on agriculture were still far from adequate. What did save Indian agriculture to some extent over the past few years was a series of good monsoons, which kept agriculture growing faster than before. Even so, agrarian distress continued.
And, therefore, the much-touted loan waiver for farmers, which was announced in the 2008-09 Budget, was touted as a major sop that the government had provided to help cultivators. It is true that this did provide some relief to a small section of farmers who held institutional debt that they could not repay. The bulk of the farm debt is informal, which farmers owe to typically either rural moneylenders or input dealers.
Instead of a blanket waiver only for public debt, the government could easily have set up a Debt Commission to deal with cases of both public and private debt and recapitalise the moneylenders to alleviate the problems of borrowers and keep private rural credit channels flowing. But this did not happen, and so the real problems of rural debt have still not been dealt with.
Meanwhile, crop price volatility has become much worse in the past year, dramatically increasing the difficulties of cash crop producers. Globally, primary commodity prices zoomed upwards in 2007 and the first half of 2008, and then collapsed very rapidly thereafter. So all the price gains of the period from January 2007 to mid-2008 were wiped out by the fall in prices later.
Farmers are not likely to have benefited from such a short-lived price boom. Indeed, it is even likely that they could face the opposite effect: farmers shifting acreage in response to price increases and find the prices crash by the end of the growing season.
The domestic prices of fibres mainly cotton, jute and silk have barely increased. Oilseed prices have fallen by more than 5 per cent. This immediately affects all the producers of cash crops, who will be getting the same price or less for their products even as they pay significantly more for fertilizer and pesticides, whose prices have continued to increase. Worse, domestic prices of food have kept on increasing at double digit rates, which means that farmers who cultivate non-food crops have to pay more for food even as their own crops command lower prices.
Such an unstable environment will obviously make farming even more difficult and full of risky and painful choices. The least the government can do is try to stabilise prices, through commodity boards or through price support, which will make sure that cultivators at least recover their costs. But there is no such initiative on the part of the government.
The impression, therefore, is of a Central government that began well in trying to undo the wrongs of the previous policy regimes that adversely affected farmers, but rather quickly lost its way or simply lost interest. As a result, agriculture is once again in distress, and the farming community once again has good reason to feel disaffected. How this translates into political change this time around is still to be seen.