Agriculture

The farming crisis

Print edition : February 02, 2001

A golden harvest of wheat in Punjab. As the impetus to growth in the farm sector steadily weakened, agriculture in the 1990s was a crisis waiting to happen.-V.V. KRISHNAN Photo: V.V. KRISHNAN

Farmers staging a rally at the Red Fort in New Delhi in December 2000.-ANU PUSHKARNA Photo: ANU PUSHKARNA

In Hyderabad, CPI(M) workers burn an effigy of Mike Moore, chief of the World Trade Organisation.-P.V. SIVAKUMAR Photo: P.V. SIVAKUMAR

Indian agriculture is facing a crisis. Globalisation and the structural adjustment programme and skewed policy approaches adopted by successive governments combine with other factors to hit the farmer hard. (Published in the issue dated February 2, 2001.)

ECONOMISTS meeting the Union Finance Minister at routine annual pre-Budget consultations have focussed attention on an aspect that till recently seemed to have no place in India's rapidly expanding horizons - the crisis and stagnation in the agricultural sector. And even if Ayodhya was quite the dominant issue agitating political minds during the winter session of Parliament, the elected representatives during their more lucid intervals seemed to acknowledge that the gathering storm clouds in the farm sector were acquiring an ominous character.

When the Bharatiya Janata Party's National Executive met in New Delhi in early January, Prime Minister Atal Bihari Vajpayee sought quite deliberately to shift the attention of his flock away from its obsession with Ayodhya, to the task of alleviating the growing distress among the nation's agricultural community. Clearly, the political costs of continuing with the policy of benign neglect towards agriculture have begun to mount. A new phase of agitational mobilisation in the farm sector is now a distinc t possibility and its advance signals are already in evidence.

Farmers from Andhra Pradesh led by the combative Congress(I) MP Renuka Chowdhary took out an angry march to Parliament during the session. Three former Prime Ministers, including H.D. Deve Gowda, who celebrates his status as a "humble farmer", have served notice that they will call the government to account for its persistent neglect of the welfare of agriculture. And from every other corner of the country there are reports specific to the conditions prevalent there, though indicative of a general malaise in agriculture that simply cannot be wished away.

Obviously, India's leap towards the frontier of the information technology boom has been suspended in mid-flight. The aspiring player in the global frontiers has been grounded by fundamental weaknesses in food production and distribution - conditions that many people assumed had been banished for all time.

The proximate threat in the farm sector comes from the uneven monsoon precipitation of the last two years, which has raised the spectre of acute distress in certain areas. For Gujarat, Rajasthan and Orissa, rainfall has been deficient two years in a row. Madhya Pradesh and parts of Maharashtra have also had a poor monsoon following a year of rather indifferent performance. An immediate consequence would be a sharp fall in the output of essential oilseeds - groundnut, mustard and soyabean, to name the most likely affected crops.

There is nothing inherent in this situation that is not amenable to a rather easy policy response. Output shortfalls can be remedied by imports of edible oils and oilseeds. And income deficiencies in the farm sector can be directly tackled by an augmentation of public spending in the worst affected regions. These policy options are rendered eminently feasible by the comfortable stock position in foodgrain and the ample level of foreign exchange reserves in the treasury.

Yet the government seems to agonise endlessly and to affect an attitude of revelation when it finally comes to grips with the obvious. In the economic resolution adopted at its recent conclave, the BJP seemed almost to be portraying the record stockholding of foodgrain - today in excess of 50 million tonnes - as an unqualified achievement and an index of the revival of the agricultural sector. In defiance of reality, the BJP resolution trumpets its claim that agriculture has been on the path to revival ever since the Vajpayee government assumed office just under three years back: "Revival of the agricultural sector also led to revival of the rest of the economy, especially the industry which was under the grip of demand recession three years prior to mid-1998 - due to negligence (sic) of the agricultural sector by the earlier governments."

Curiously, this advertisement of the BJP-led government's record is followed promptly by an admission that all may not be well, that overflowing granaries were indeed an index of mass deprivation. The BJP then chooses to laud the government for initiating a programme of subsidised grain distribution for the poor. It also places on record its belief that the modest public works programme announced by the Prime Minister in December would provide a substantial impetus to infrastructural development in rural areas.

These programmes clearly are being initiated after entirely avoidable delays. Nor is it clear that the government has thought through the organisational details that are necessary to maximise their efficacy. Right now, it gives the impression of being impelled into this course of action by the growing fiscal burden of holding on to its stocks of food. The revival of farm incomes, if it is actually achieved, would be only an incidental benefit in this scheme.

IN any long-term view, agriculture in the 1990s had been a crisis waiting to happen. Ever since structural adjustment and the curtailment of the fiscal deficit became the ruling mantras, the impetus to growth in the farm sector has been steadily weakened. In comparison to the 1980s, the growth rate of foodgrain output in the 1990s was almost half - 1.8 per cent against 3.54 per cent. The non-foodgrain economy also represents a picture of stagnation, with growth rates having fallen from a trend figure of 4 per cent in the 1980s to 3.17 per cent in the last decade.

It may confound economic commonsense that a decline in output growth should coexist with crumbling prices in agricultural commodities. This is a parodox that is easily understood in terms of the collapse of demand for these commodities in a global environment dominated by the process of structural adjustment. Massive currency devaluations have created a glut of commodities in the world market, as producers seek to shore up crumbling earnings by pumping in larger volumes. At the same time, falling public investment and vanishing safety nets have meant that purchasing power, especially of the poorer sections, has been rapidly eroded.

In India, these realities have worked themselves out in the form of a growing gulf between the sectors of agriculture that benefit from official procurement operations and those that do not. The two principal foodgrains - rice and wheat - account for almost the entire stockholding in the government's warehouses. The minimum support price in these two commodities has been increased rapidly over the 1990s, partly to compensate the farm sector for an escalating price of fertilizer and partly to offset a decline in productivity. But with fiscal correction being an obsessive concern, the MSP offered by the government has worked itself out in the form of a higher issue price that it demands from the States. Officially issued grain has effectively priced itself out of the market, leading to an enormous accretion of unwanted stocks with the central warehouses.

Deficiencies of effective demand work themselves out in the form of stagnant output and collapsing prices in other sectors of agriculture. If grain output has grown, though at declining rates, the best that can be said for other major food crops - oilseeds and pulses - is that they have stagnated. Uncertainties of demand are compounded here by vagaries of the weather, with only around a tenth of the land sown with these crops enjoying the benefit of irrigation. The outlook for the current year in these crops is bleaker than at any time over the last decade.

A growing volume of evidence now seems to suggest that this crisis is a consequence of deliberate policy neglect. Investment in agriculture today is in proportionate terms half of what it was in the early-1980s and public sector investment is less than a third. In what could be considered masterful understatement, the recently released mid-term appraisal of the Ninth Five Year Plan points out that "these declines are far too sharp".

In the decade of structural adjustment, policy attention has shifted away from building capital assets which could contribute to long-term productivity growth. Rather, the concern now is to get the delicate balance of subsidies right - between increasing the fertilizer price, talking endlessly about levying user-charges for canal irrigation and cautiously raising electricity tariffs, the whole pattern of resource use in agriculture has suffered a serious skew. Fertilizer utilisation today shows a marked preference for cheaply priced nitrogenous inputs, to the exclusion of the relatively expensive potassium and phosphorus. Application of canal water similarly tends to be indiscriminate, while groundwater exploitation tends either to be excessive or completely neglected.

Failures of institutional credit complete this story of policy neglect. Since financial institutions were enjoined to weigh the hard commercial calculus of each loan and not go by outmoded concepts such as "priority sectors", the farm sector has tended to rely increasingly on informal sources of credit. This makes it more vulnerable to uncertainties induced by weather fluctuations or market conditions. In extreme cases it has had the tragic consequences which have been apparent over the last two years - of farmers taking their own lives rather than confront the prospect of economic ruin and the loss of all assets. Even the halting progress that has been made over the last few decades towards a more equitable distribution of assets in the rural sector, stands to be reversed by this implacable logic of the market.

It is unclear that the government today has the intellectual resources to deal with the dimensions of the crisis. The recent conclave of the BJP spoke in rather vague terms of addressing the issue, but then seemed to opt for all the wrong measures - decontrolling the movement of agricultural commodities when very few restraints of any significance remain, enabling farmers to access the global market when it is a protective buffer that they probably need, and privatising the procurement and distribution of foodgrains when the public agencies were set up for the precise purpose of protecting the farmer against large monopoly buyers in the private sector.

From the farm sector itself, a variety of voices can be heard, each advocating a unique set of remedies. What is evident, though, is that all these require degrees of political commitment that the Central government today does not possess. Perhaps the phase of agitational politics that is today on the horizon would impart the necessary momentum to the process of reordering policy priorities. If so it would have to grapple with the ruinous legacy of many years of misconceived policies.

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